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A STUDY OF THE IMPACT OF RAISING THE MINIMUM WAGE IN SOUTH DAKOTA

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A STUDY OF THE IMPACT OF RAISING THE MINIMUM WAGE IN SOUTH DAKOTA

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    1. A STUDY OF THE IMPACT OF RAISING THE MINIMUM WAGE IN SOUTH DAKOTA Ralph J. Brown Dennis A. Johnson University of South Dakota

    2. Benefits & Costs of a Higher Minimum Wage There are Benefits to raising the minimum wage. Higher wages for some low-wage earners. May reduce poverty. Stimulate the economy. Provide equity and fairness. There also Costs to raising the minimum wage. Some low-skill workers may lose their job. Raise barriers to low-skill workers. Employers will pay more. Higher prices due to higher costs

    3. How Many Workers Would be Affected? 6,729 workers earn $5.65 or less, 14,621 workers earn $6.00 or less, 18,003 workers earn $6.15 or less, 22,513 workers earn $6.35 or less.

    4. Counties With High Concentration of Low Wage Workers

    5. Industries with Concentration of Low Wage Workers ($6.00)

    6. Number of Low-Wage Workers by Region, 2004

    8. A Binding and Non-Binding Minimum Wage

    9. What is the Wage Elasticity? Wage elasticity is small, statistically significant, and economically important. Consensus -0.10 to -0.30 A 10% rise in the minimum wage causes a 1% to 3% fall in employment. We choose -0.20 or a 10% rise in the minimum wage causes a 2% fall in employment.

    10. Evidence Until 1990s, strong consensus of wage elasticity of -0.10 to -0.30 In 1992, series of articles by Card, Krueger, and Katz challenged consensus view They found a minimum wage increase has no impact of slightly positive effect on employment A large number of articles challenging the no-impact conclusion followed Most of these of articles showed a negative response

    11. Evidence (2) 1998 article in Journal of Economic Literature a survey of labor economists at the top-40 economics departments indicated a median response of elasticity of -0.10 and a mean response of -0.21 We are comfortable with an estimate of -0.20

    13. Impacts of Increasing the Minimum Wage in South Dakota

    15. Summary Q: Does an increase in the minimum wage benefit low-wage workers? A: Yes, it raises the income for many low-wage workers. Q: Do some workers lose as a result of an increase in the minimum wage? A: Yes, the workers who find themselves without a job will be worse off.

    16. Summary (2) Q: Do some employers lose as a result of the minimum wage increase? A: Yes, those employers who have to pay higher wages to the workers who retain their jobs will be worse off. Q: Do some employers lose as a result of employing fewer workers than before the increase? A: Yes, those employers who lose profits from employing fewer workers due to the higher wage.

    17. Summary (3) Q: Overall, are workers better off as a result of the minimum wage increase? A: Yes, the gains in income from the workers who retain their jobs are greater than the losses suffered by workers who lose theirs. Q: Overall, are employers better off as a result of the minimum wage increase? A: No, they must pay higher wages than before and lose the profits they would have earned on the marginal workers who are now disemployed

    18. Summary (4) Q: Is society better off as a result of a higher minimum wage? A: No, society is worse off if the well-being of society is measured by societys income. Increasing the minimum wage reduces total societal income as a result of the job losses suffered by some workers and the lost profits to employers who would have profitably employed them.

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