Wages are finally starting to go up in large cities with low unemployment.
Take Minneapolis, for example, where unemployment is just over 2%. Over the past year, private-sector workers saw a wage increase of 4%. This is 50% better than the national average and better than any period of wage growth the area has seen in 6 years. Similar changes have taken place in Austin, Denver, and Ft. Myers.
“The boost to wage growth, if sustained, is truly good news,” says Bankrate.com analyst Mark Hamrick. “We know that there have been sectors and localities faring better than the norm, but [the September jobs report] suggests that wage growth is spreading, finally.”
As reported by the Bureau of Labor Statistics, the nationwide average hourly wage increased by 2.9% over the past year. This is the biggest increase we have seen in more than 8 years, and it means more people are working.
“It’s an outcome entirely expected in economic theory, but one that’s been largely absent until now in the upturn that began more than eight years ago.
Here’s how it works: Wages naturally increase during times of low unemployment because business owners are forced to raise wages in order to attract workers. Nobody is laid off and everyone benefits.
Here’s an example: Ryan Vaughn is head of human resources for a manufacturing firm in Ogden, Utah. Ogden’s unemployment rate has been below 4% for the past 3 years. During that time, wage growth has increased to nearly 4% annually. “As far as positions we struggle with, it’s kind of all of them,” admits Vaughn. Over the past 9 months, wages for forklift drivers in Ogden have increased from $12 to $16.
Raising the minimum wage can be very harmful to this process.
When you increase the minimum wage, you are effectively cutting off the lowest-earning workers and making it even harder for inexperienced workers to find a job. This leads to higher unemployment and lower wages.
Despite proof that wage increases do not help the poor, 18 states have decided to boost wages starting on January 1st, 2018. The biggest increase will occur in Maine, where minimum wage workers will see their hourly pay go from $9 to $10.
Minimum wage workers in Washington state will now be earning $11.50 (up 50 cents). By 2020, they will be earning $13.50.
Workers in Colorado, Hawaii, Arizona, New York, Rhode Island, Vermont, and California will see wages increase by at least 50 cents. In Mountain View, California, wages will increase by $2 to hit $15.
The trend of setting a minimum wage for a specific city is a relatively new phenomenon, and it can be quite a headache for employers. “Generally, it’s shown that if you raise the minimum wage, you tend to see reductions in hours for younger employees,” says Michael Saltsman, managing director at the Employment Policies Institute.
Twenty-five states have already passed laws preventing individual cities from setting a minimum wage higher than the state standard. “States are understanding that regardless of where you stand on the merits of raising the minimum wage, having a state standard rather than a patchwork of local laws is better,” says Saltsman.
Editor’s note: Further proof that free enterprise with the least amount of government interference is the best way to grow the economy.