After 2014 Minimum Wage Increase, Arkansas’ Economy Saw Strong Growth and Record Low Unemployment Rates

In 2014, Arkansas voters overwhelmingly approved a minimum wage increase to $8.50 over three years. Despite scaremongering from critics that the state would lose jobs and workers’ wages would decline, research and data show that the state fared just as well or better than neighboring states with lower minimum wages in the years following the increase. From 2014 to 2017, Arkansas’ unemployment rate fell faster and average annual earnings rose more rapidly than in five out of six neighboring states. The state’s experience remaining economically competitive with its neighbors after minimum wage increases confirms 25 years of sophisticated research that overwhelmingly concludes that minimum wage increases do not harm employment. This November, Arkansas voters will again choose whether to raise the minimum wage, this time to $11 by 2021, which would raise incomes for 300,000 workers across the state.

After Three Years of Consecutive Minimum Wage Increases from 2014 to 2017, Arkansas Hit Record Low Unemployment Rates

• In 2014, Arkansas voters approved gradually raising the minimum wage from the state’s minimum of $6.25 to $8.50 by January 2017, where the minimum wage currently remains.[i]
• In raising the minimum wage to $8.50 in 2017, Arkansas achieved the highest minimum wage among its six neighboring states: Louisiana, Mississippi, Missouri, Oklahoma, Tennessee, and Texas.[ii] The federal minimum wage of $7.25 is currently the minimum in all six states with the exception of Missouri, where the minimum wage is $7.85.[iii] See Table 1.
• From 2014 to 2017, unemployment in the state dropped from 6 to 3.7 percent, for a total year-to-year decline of 38.3 percent. Only Tennessee experienced a larger decline in unemployment among Arkansas’ six neighboring states. Significantly, among the seven states, Arkansas and Tennessee tied for lowest unemployment in 2017. See Table 2.
• In February 2017, the U.S. Department of Labor’s Bureau of Labor Statistics announced that Arkansas hit its lowest unemployment rate since the agency started its current state unemployment data series in 1976.[iv] As of September 2018, Arkansas’ unemployment rate stands at 3.5 percent—only Missouri has a lower unemployment rate among its neighbors.[v]

Table 1. Current Federal and State Minimum Wage in Arkansas and Its Neighboring States

Table 2. Unemployment Rates in Arkansas and Neighboring States (Annual Averages)

Average Employee Earnings in Retail and Food Services Industries Grew Rapidly Statewide After Minimum Wage Bump

• Before its increase to $7.50 in 2015, Arkansas’ minimum wage had been stagnant since 2006.[vi] The real value of the minimum wage therefore was slowly eroding and, as a result, minimum wage workers’ paychecks were worth less and less.
• Research shows that between 2014 and 2017, average employee earnings grew robustly in Arkansas, and growth was especially strong in service-oriented industries like retail and accommodations and food.
• Over a three-year average, Arkansas saw the second-highest rate of average annual earnings growth across industries among its neighbors.[vii] In the retail trade, the state had the fastest growth in earnings at 5 percent. In accommodations and food services, growth was even stronger at 8.2 percent. See Tables 3, 4, and 5.
• If voters approve Issue 5 this November, it is likely that workers will experience similar gains. By 2021, each worker directly affected will earn an average of $1,040 more annually and wages will increase by an estimated average of $1,520 when taking into account both directly and indirectly affected workers.[viii]

Table 3. Average Annual Earnings for All Industries in Arkansas and Neighboring States

Table 4. Average Annual Earnings for Retail Trade in Arkansas and Neighboring States

Table 5. Average Annual Earnings for Accommodations and Food Services in Arkansas and Neighboring States

Sales Tax Revenues Grew Robustly Between 2014 and 2017, Showing Increased Consumer Spending and Business Activity

• Sales tax data is one indicator that economists use to describe the state of an economy. By this measure, Arkansas grew robustly between 2014 and 2017, the years during which the minimum wage gradually increased.
• Between 2014 and 2017, sales tax revenues grew by $171 million (in 2017 dollars), for an increase of 8.3 percent. See Table 6.
• During this time, the sales tax rate did not increase.[ix] This suggests that the growth in revenues is attributable to increased consumption and business activity. With more money to spend in their pockets, employees likely used their wage increases to pay for goods and services.
• Gains in worker productivity and reduced turnover also may have helped Arkansas businesses improve their performance. As summarized by The Wall Street Journal, “[a] large body of research . . . suggests that raising wages leads to lower employee turnover and better customer service, which generally correlate with higher sales and lower expenses,” and “[s]temming turnover, in particular, can save companies a lot of money.”[x]

Table 6. Sales Tax Revenue Growth in Arkansas Between 2014 and 2017

Arkansas’ Experience and Extensive Economic Research Show that States Can Increase the Minimum Wage Without Negative Employment Effects

Arkansas’ experience confirms the more than 25 years of extensive economic research overwhelmingly concluding that states can increase their minimum wage without reducing employment. Sophisticated recent research and the actual experiences of U.S. states and cities show that increases are manageable for employers and have extensive benefits in increased productivity, lower turnover, and even higher earnings.[xi]

Conclusion

Raising the minimum wage would lift the incomes of working Arkansans and broadly benefit businesses with increases in consumer spending. As inflation erodes the real value of the minimum wage, workers face more difficulty meeting their basic needs, like rent, food, and clothing. This is why raising the minimum wage is vitally important for workers. Raising the minimum wage can also bring cost savings and growth for businesses through reduced employee turnover, increased productivity, and improved customer service. As Arkansas’ experience with the wage increases adopted in 2014 shows, workers, small businesses, and the broader Arkansas community and economy have much to gain from the gradual wage increase proposed in Issue 5.

© 2018 National Employment Law Project. This report is covered by the Creative Commons “Attribution-NonCommercial-NoDerivs” license fee (see http://creativecommons.org/licenses). For further inquiries, please contact NELP (nelp@nelp.org).