Rhode Island’s 35-cent hike in the minimum wage to $7.75 an hour on Jan. 1 won’t necessarily put more dollars into the state’s ailing economy, based on the findings of a new study by the Washington, D.C.-based Employment Policies Institute.
“Businesses that hire minimum wage workers tend to be grocery stores and other low-margin employers,” said Michael Saltsman, research director for the institute, which he said generally focuses on policies that affect the entry-level workforce. “Often businesses can’t raise prices because sales would go down.”
The study, “Minimum Wages: Evaluating New Evidence on Employment Effects,” by economist David Neumark and doctoral candidate in economics J.M. Ian Salas, both of the University of California Irvine, was released Jan. 9.
Covering fixed expenses and maintaining customer service could result in a cutback of hours for minimum wage workers, Saltsman said.
Rhode Island was one of nine states, plus the District of Columbia, that increased the minimum wage at the start of 2013. The increase will affect an estimated 1 million workers nationwide.
For workers struggling to make ends meet, the hike in the minimum wage is a positive sign, but not enough, said Kate Brewster, executive director of the Economic Progress Institute, a Providence-based organization that works to promote economic security for low- and modest-income Rhode Islanders.
“The minimum wage is a very important floor for raises, but even with the increase, we know that a minimum wage worker still falls short by $474 every month” of meeting housing, food, transportation, medical and miscellaneous expenses, said Brewster, according to research done for the institute’s 2012 Rhode Island Standard of Need report.
But the organization that did the new study, the Employment Policies Institute, argued that the hike in the minimum wage cuts job opportunities overall as the Ocean State struggles to whittle down its 10.2 percent unemployment rate, which is even higher for teens.