This fall, Nebraskans will vote on an initiative that would raise the state’s minimum wage to $9 an hour by 2016. Proponents claim the wage hike will bring with it many benefits and few consequences. The labor union-backed Nebraskans for Better Wages, for instance, argues that it will help “restore the good life for all Nebraskans.”
The empirical evidence is decidedly less rosy. The vast majority of credible economic research, including 85 percent of the best studies since the early 90s, demonstrate that a higher minimum wage actually reduces employment and opportunities for the least-skilled employees. A new Employment Policies Institute (EPI) survey of Nebraska businesses that would be affected by the $9 minimum wage suggests a similar dynamic would apply in the Cornhusker State.
Over a three-day period starting on August 25th, EPI contracted with a survey research firm to survey 301 Nebraska businesses from 115 cities representing a broad range of industries likely to be affected by the new $9 minimum wage. (Some of the businesses contacted weren’t affected by the law, and others opted not to participate in the survey.) While not representative of the state as a whole, our results still represent the views and anticipated reactions of hundreds of Nebraska employers.
As the table below describes, over 90 percent of the respondents had fewer than 50 employees, and about 60 percent of the respondents had fewer than 10 employees.
|Which category best describes the size of your workforce at all locations (both inside and outside of Nebraska)?||Fewer than 10 Employees||171||57%|
|10 to 49 Employees||105||35%|
|50 to 99 Employees||10||3%|
|100 to 499 Employees||7||2%|
|500 to 999 Employees||0||0%|
|1,000 or More Employees||1||0%|
Almost all of the respondents indicated that a $9 minimum wage would cause an increase in their operating costs, with 60 percent indicating that the new law would spur a big cost increase. At low-margin service industry businesses in particular, these new costs can’t simply be absorbed. Instead, businesses will either have to raise prices or lower costs elsewhere.
|Would you say that this $9.00 minimum wage will cause a big increase in your labor costs, a small increase, or no increase?||Big Increase||180||60%|
The survey results suggest that price increases are one strategy that Nebraska businesses are planning to pursue: Over 60 percent of the surveyed businesses were “very likely” to increase prices if the minimum wage increase is passed.
|In response to the higher minimum wage, how likely is it that you’ll raise prices at locations in Nebraska?||Very Likely||184||61%|
But price increases aren’t a silver bullet. After all, if businesses could increase prices without reducing customer sales, they would have done so already.
To offset the new costs without raising prices, 47 percent of businesses surveyed reported that they are “very likely” to reduce employee hours, and 43 percent said that they are “very likely” to reduce staffing levels.
|In response to the higher minimum wage, how likely is it that you’ll reduce employees hours at locations in Nebraska?||Very Likely||142||47%|
|In response to the higher minimum wage, how likely is it that you’ll reduce employees per shift or overall staffing levels at locations in Nebraska?||Very Likely||128||43%|
Perhaps most concerning, some business owners anticipated having to go beyond price increases and staff reductions to cope. Specifically, nearly one-quarter of surveyed businesses are “very likely” to limit their future expansion in the state.
|In response to the higher minimum wage, how likely is it that you’ll close locations or limit future expansion in Nebraska?||Very Likely||70||23%|