Economists: State's minimum wage hike having minimal effect

In Connecticut, some workers report that recent pay raise hasn't helped because it came with a reduction in hours

Minimum-wage workers in Connecticut got a 45-cent raise on Jan. 1, the first step in a process that eventually will set their wages at $10.10 an hour.

"It helps a little bit, I guess," said A. Segui, 20, who works at a Dunkin' Donuts in New Haven. She wants to go back to school so she can get a job doing billing at a hospital. But that's going to have to wait until she can save up some money.

The minimum wage is set to tick up in various states this summer, including California, but the experience of people like Segui presents a sobering reality: Raising wages may not make that much of a difference in workers' lives. It also might encourage employers to stop hiring or to cut back the hours employees work.

Segui wakes up at 5 a.m. and gets a ride to her shift. After work, carrying a plastic bag of coins and dollar bills from the tip jar, she walks to the house where her 3-year-old son is watched by his grandmother, and waits for her son's father to give them a ride home.

She never knows, ahead of time, how many hours she'll work each week or how much money she'll make. "Every month, my bills are still right on the nose," she said.

On May 15, low-wage workers walked off the job in 150 cities to call for higher pay and the right to form a union. Similar protests have resonated with many around the country.

President Obama in February used an executive order to raise the hourly minimum wage for federal contractors to $10.10, even though Congress declined to pass a bill that would set the national minimum wage to the same level.

Vermont passed a bill this month that will raise its minimum wage to $10.50 over the next four years. New Jersey voters approved a ballot question in November that increased the minimum wage there this year by a dollar to $8.25.

The District of Columbia will see its minimum wage rise to $9.50 from $8.25 on July 1. On that date in California, the minimum wage will change to $9 from $8, and will climb again to $10 the following year.

But before those efforts, Connecticut provided an early illustration of what many economists have been saying for years: Raising the minimum wage is not the most effective way to reduce poverty.

"If we're trying to lift people out of poverty conditions and improve their well-being - improve their chances of being able to make a living - there are much more efficient, less costly ways of doing that than through this artificial mechanism of raising the minimum wage," said Steven Lanza, an economist at the University of Connecticut.

Expanding the Earned Income Tax Credit, for instance, could go further in helping low-income workers survive, he said.

One unknown is whether employers will start cutting back on hiring.

Employment growth in Connecticut has lagged behind the nation since December, data show. Nationally, employment grew 0.62 percent from December through April, while employment in Connecticut fell 0.19 percent over the same time period.

Much of that drop-off was related to the elimination of 10,900 jobs in January, the month employers had to start paying 45 cents more. In the previous three years, Connecticut had added an average of 4,000 jobs over the same time period.

More job cuts wouldn't surprise economists. If companies have to pay more for labor, they'll try to save somewhere else, said Keith Hall, a research fellow at the Mercatus Center at George Mason University.

"Because you're raising the cost of hiring, you can get this unintended consequence where some of the people on the margin have their hours reduced," he said.

When Segui began working at Dunkin' Donuts, she was scheduled for 35 hours a week. A few months ago, she and other workers starting getting fewer hours. She now works from 20 to 27 hours a week.

Employers say they're worried that minimum-wage hikes will inflate their whole pay scale; they fear they'll have to raise all wages so that skilled workers proportionally get more than the unskilled.

"It's hard for them to absorb additional labor costs," said Jack Mozloom, a spokesman with the National Federation of Independent Business.

'I'm living in the dark'

Another argument from business owners against increasing the minimum wage: It doesn't help the presumed beneficiaries - working-poor families - because many minimum-wage workers are young people learning their first jobs or working part time while going to school.

Case in point: Bridgeport, Connecticut's largest city and one of its poorest, decided to raise the minimum wage for all city employees to $10.10 on July 1.

That will benefit mainly those who work at the city's golf course, such as Meaghan Derry and Yogabeth Arias. Derry's husband supports the family with a higher-paying job, and Arias is a high school student who will go to college in the fall.

The extra money Arias has earned this year from the 45-cent raise has mostly gone to pay for her prom.

Increases in the minimum wage between 2003 and 2007 had no effect on state poverty rates, according to a study by conservative-leaning economists Joseph Sabia and Richard Burkhauser, in part because only 11 percent of the workers helped by the increases lived in poor households.

University of Delaware economists followed up with a paper saying that Sabia and Burkhauser, who were at the time at Cornell and American universities, used too small a data set to come to those conclusions.

Other factors may be dampening the effect of the minimum-wage increase on workers' pocketbooks, including the new federal health care law, which may be motivating large employers to scale back the number of full-time employees.

Shanece Coleman, 25, began working at Burger King in Hartford a year and a half ago. At first, she worked 40 hours a week, and it was still difficult to pay her rent of $625 and provide for her 8-year-old son.

Then Burger King reduced her hours to 28 hours a week because, she was told, the company didn't want to have to provide her with health insurance under the Affordable Care Act.

"I'm still living at my wit's end right now," she said. "I can't afford to pay my light bills; I'm living in the dark. I can't afford to do laundry. There are plenty of times where I had to go without toilet paper because I don't have the money to pay."

Lindsay Farrell, head of the Connecticut Working Families Party, acknowledges that the wage increases may be slow to work. But "it's a step in the right direction," she said.

Her group is focusing on making big companies who pay minimum wage accountable for their workers. Because many minimum-wage workers rely on state aid and benefits, such as Section 8 housing, she had pushed lawmakers to pass a bill that would have required employers either to pay more or to reimburse the state for the cost of the social programs on which their workers rely. The bill died.

Of course, few workers in Connecticut or elsewhere would say they oppose minimum-wage hikes. The extra money doesn't hurt.

But even when workers in Connecticut make $10.10 an hour, they'll still be living in one of the most expensive states in the country.

Anthony Gustav Fisher, 25, of Branford is a good example of the struggles of those working near the bottom of the income scale. He used to work at Home Depot, where he made $8.75 an hour. He recently got a job at Nike, which started him out at $10 an hour.

He's still struggling to support his 3-year-old son, buy gas for his 20-mile commute to work, and pay the rent. He recently received an eviction notice, and his car was repossessed.

"It's the cost of living itself - the basic necessities," he said. "My paychecks come, as soon as I get them, to car payments, insurance, the baby, utilities, and then I'm broke. It's impossible."

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