On New Year’s Day, the minimum wage in Maine rose to $12 an hour, raising the pay for more than 170,000 workers in the state. It is the final significant increase in the state’s minimum wage that was set in motion by voters in 2016. Since then the state’s minimum wage has risen incrementally from $7.50 an hour. In coming years, adjustments will align with a measure of inflation.
The voter-approved wage increase had immediate impacts.
With a significant rise at the bottom of the wage scale, Maine’s average personal income grew faster than the national average in 2017, the first year of the state’s minimum wage increase. According to statistics released in November 2018 by the U.S. Bureau of Economic Analysis, the average personal income of Mainers rose 3.7 percent from 2016 to 2017 to $46,455. Nationally, the average income rose 3.6 percent to $51,640 from 2016 to 2017.
U.S. Department of Labor statistics show that wages grew across the board for Maine workers in 2017. Analysis by the left-leaning Maine Center for Economic Policy (MECEP) found that income growth in Maine in 2017, as expected, was particularly concentrated among the lowest-paid workers. Maine’s growth among these households outpaced the nation and New England, highlighting that more than the national economic recovery was at play.
Income for the poorest Mainers rose much faster than for any other group of workers. Compared to 2016, household incomes for the bottom quarter of Maine workers were 10 percent higher in 2017, even after adjusting for inflation, according to MECEP analysis. The data also show shrinkage of the percentage of Maine households at the lowest income levels as households advanced up the income ladder. For example, in 2016, nearly 23 percent of Maine households earned less than the poverty level. In 2017, 21 percent of households were in this bracket. The 2017 federal poverty level was $24,600 for a family of four.
At the same time, overall employment and the average number of hours worked also grew in Maine, dispelling warnings that the minimum wage increase would depress hiring and hours.
Thanks in part to the higher earnings, the number of Maine children living in poverty declined sharply in 2017, when the minimum wage was raised from $7.50 to $9 an hour, the largest increase in 15 years. That year, 33,000 Maine children — or 13 percent — lived in a household that earned less than the poverty level. The previous year, 44,300 children, about 17 percent — lived below the poverty level. Poverty rates dropped for Maine adults as well, but the decrease wasn’t as large.
The child poverty rate rose slightly in 2018, to 14 percent in Maine, but it remains well below the average for the decade beginning in 2009.
We understand that the yearly wage increases seemed steep to many small business owners. However, a higher minimum wage is also a good economic stimulant. With more money in their pockets, low-wage earners spend more, including at local businesses.
While national evidence indicates that these workers spend more of their extra earnings on goods and services, wealthier individuals tend to invest or save money they receive from raises or tax cuts. Every extra dollar that goes to a low-wage worker creates $1.21 worth of economic activity, according to respected economic models. Every dollar that goes into the pockets of high-earning Americans adds just 39 cents to the national economy.
That’s why so many economists argue that raising the minimum wage is one of the best ways to boost the economy.
It is also why a growing number of states are also raising their minimum wages, either through legislative action, or referendum as Maine did.