Impact of $10.10 minimum wage in Tennessee

Recently, Tenn. state Rep. G.A. Hardaway introduced legislation to raise Tennessee’s minimum wage to $10.10 an hour, from its current amount of $7.25. Proponents argue that a minimum wage increase will, on net, be a benefit for Tennessee employees. However, in a study last year, the nonpartisan Congressional Budget Office (CBO) estimated that a half-million jobs would be lost nationwide should a $10.10 minimum wage take effect. The CBO based its estimates on the results of dozens of peer-reviewed academic studies on the jobs impact of a higher minimum wage, including the latest and most up-to-date research.

In this analysis, Drs. David Macpherson of Trinity University and William Even of Miami University use Census Bureau data to replicate the CBO methodology to determine how many of those jobs would be lost should individual states such as Tennessee raise their minimum wage to $10.10. They also examine the family composition and household income of affected employees, to determine if the wage increase would be well targeted to families in poverty.

Impact on employment

According to the Bureau of Labor Statistics, approximately 117,000 people in the state currently earn at or below the federal minimum wage of $7.25. Drs. Even and Macpherson estimate that approximately 468,000 employees in Tennessee would be impacted by the proposed minimum wage change to $10.10.

Following the CBO methodology, they estimate that roughly 19,500 jobs would be lost in the state should the higher minimum wage take effect. The job loss would be split roughly evenly between men and women. (These estimates should be considered conservative, because they don’t account for the separate impact of Rep. Hardaway’s legislation on the tipped minimum wage.)

Chart 1

Targeting to families in poverty

A primary focus for proponents of raising the minimum wage is reducing hardship for families in poverty. However, a study of the 28 states that raised their minimum wages between 2003 and 2007 found little associated reduction in poverty. The authors suggested that the increases were not well targeted to families in poverty.

In Tennessee, the data suggests that a similar problem exists. Fewer than 10% of affected employees are single parents; in total, one in five are single earners with families. By contrast, roughly 60% either live with family, or are secondary earners where both spouses work. Because so many minimum wage earners live in households where they’re either a second- or third- earner, the average family income of a beneficiary in Tennessee is $47,610.

Chart 2

A note on the methodology

This analysis relies on Census Bureau Current Population Survey data from December 2013 to November 2014. It follows the methodology that the CBO detailed in an appendix to its 2014 report. It assumes that workers in 2014 would realize wage growth of 2.9% between 2014 and the implementation of a higher minimum wage. It also assumes that workers in 2015 who earned between the 2014 and 2015 minimum wage would have a wage increase to new minimum.

Workers affected by the $10.10 minimum are those with wages in 2015 that are between the state minimum for 2015 (and up to $.25 below the minimum) and $10.10. Hourly wage is the reported hourly wage for hourly workers, but it’s measured as weekly earnings divided by weekly hours for non-hourly and workers who report receiving tips, overtime, or commissions. The estimates above are based on legislated values as of August 1st, 2015.