New Hampshire has increased its minimum wage for the first time in ten years—to $6.50 in September 2007 and to $7.25 in September 2008. Antoniya Owens weighs the likely impact on wages and employment.Minimum wage - New Hampshire ; Employment - New Hampshire ; Wages - New Hampshire

Antoniya Owens

English

Research Papers in Economics

Communities & Banking    23
In May 2007, Governor John Lynch signed into 
law the ﬁ  rst increase of New Hampshire’s mini-
mum wage in ten years. Prior to this legislation, 
New Hampshire had been the only state in New 
England where the minimum wage was set at the 
federal level of $5.15. The state bill, which passed 
overwhelmingly in both the State Senate and the 
House of Representatives, mandated an increase 
in the state minimum wage to $6.50 in September 
2007 and to $7.25 in September 2008. 
The New Legislation
This recent movement on the minimum wage issue in the Granite State 
came, perhaps not coincidentally, at a time when a similar increase was being 
considered at the federal level. In January 2007, the U.S. House of Repre-
sentatives passed the Fair Minimum Wage Act of 2007, proposing to increase 
the federal minimum wage to $7.25 over a period of two years. One month 
later, the Senate passed an amended version of the bill aiming to alleviate 
some of the burden on employers through tax relief provisions for small 
businesses. The bill was subsequently combined with a war funding bill and 
passed by a large margin in both the House and the Senate. President Bush 
signed it into law in May 2007, which means that the ﬁ  nal federal minimum 
wage increase to $7.25 will take place in the summer of 2009. 
The new federal minimum wage legislation ended the longest period 
without an increase since the ﬁ  rst minimum wage was enacted in 1938. Be-
cause the minimum wage is not indexed to inﬂ  ation, its value had eroded 
by 20 percent over the past 10 years and, in real terms, was the lowest it 
had been in 50 years. For a full-time worker who earns $5.15 per hour, 
Potential Economic Impact of the Increase
New Hampshire’s Minimum Wage
by Antoniya Owens
Federal Reserve Bank of Boston
In May 2007, Governor John 
Lynch signed into law the 
ﬁ  rst increase of New 
Hampshire’s minimum 
wage in ten years.
P
h
o
t
o
g
r
a
p
h
 
c
o
u
r
t
e
s
y
 
o
f
 
t
h
e
 
N
e
w
 
H
a
m
p
s
h
i
r
e
 
S
t
a
t
e
 
H
o
u
s
e
932FRBB.indd   23 932FRBB.indd   23 11/7/07   9:36:04 PM 11/7/07   9:36:04 PM24   Winter 2008
this represents a loss of more than $2,500 
per year.1 Increasing it to $7.25 per hour by 
2009 would eventually bring its real value 
back to where it was in the early 1980s. (See 
Figure 1 on page 25.)
Currently at $6.50 per hour, New 
Hampshire’s minimum wage is still the 
lowest in the region. State minimum wage 
levels in Connecticut, Vermont, Massachu-
setts, and Rhode Island all rank among the 
top seven in the nation, with hourly rates 
of $7.65, $7.53, $7.50, and $7.40, respec-
tively; Maine ranks 16th with a minimum 
wage of $6.75. The Massachusetts mini-
mum wage is set to increase to $8 in 2008, 
which—barring any future minimum wage 
increase legislation by other states—will 
make it among the highest in the nation, 
along with California, whose minimum 
wage will also increase to $8 in 2008, and 
possibly Washington and Oregon, where 
minimum wages are tied to inﬂ  ation 
and are currently set at $7.93 and $7.80, 
respectively.
Who the Law Affects
Using data from the 2006 Current Popu-
lation Survey, a July 2007 New England 
Public Policy discussion paper estimates 
that increasing the minimum wage in New 
Hampshire would directly raise the wages 
of 26,000 workers earning between $5.15 
and $7.25 per hour.2  Nine thousand of 
the affected workers were estimated to have 
received an immediate raise in their hourly 
wage to $6.50 in September 2007, during 
the ﬁ  rst stage of the increase. In September 
2008, all workers who received a raise and 
remained employed after the ﬁ  rst increase—
as well as all 17,000 workers who earned 
between $6.50 and $7.25 all along—will 
receive raises to the new state minimum.
In general, it appears that the 26,000 
affected workers in New Hampshire are 
younger and less likely to be married or 
have children than the workers who would 
be affected by the federal minimum wage 
increase in the nation as a whole. They 
are also more likely to be enrolled as full-
time students, to work fewer hours, and to 
contribute a smaller share of their families’ 
earnings. Two-thirds of the affected work-
ers in both New Hampshire and the United 
States are women. As is generally true na-
tionwide, half of the affected New Hamp-
shire workers have jobs in either the retail 
trade or the food services industries. (See 
Table 1.)
Potential Economic Impact 
The discussion paper also evaluated what 
impact raising the state minimum wage in 
New Hampshire might have on employ-
ment and wages.
Employment
The impact on employment largely depends 
on how sensitive the demand for labor is to 
changes in wages. Sensitivity is measured by 
the elasticity of demand for labor, deﬁ  ned 
as the percent change in employment that 
occurs in response to a percent change in the 
wage rate. For example, if wages increase by 
10 percent and as a result employment falls 
by 4 percent, the elasticity of demand for 
labor in that case is -0.4. The more sensitive 
the demand for labor to changes in the wage 
Table 1. Workers likely to be affected by the minimum wage increase  
  New Hampshire  United States
Number of workers directly affected 26,108  5,918,000
Affected workers as percentage 
of total employment  3.7% 4.1%
Distribution of affected workers  
Gender  
    Male  38%  41%
    Female  62%  59%
Age  
    16 to 19  47%  25%
    20 to 44  33%  52%
    45 and older  20%  22%
    Median age (years)  20 years  25 years
Work hours  
    Hours vary  8%  13%
    1 to 19 hours  38%  16%
    20 to 34 hours  29%  27%
    Full-time (35 or more hours)  24%  44%
Student status  
    Full-time students  43%  23%
    Part-time students  1%  2%
Industry  
    Retail trade  34%  23%
    Food services  22%  23%
    Arts, entertainment, and recreation  7%  3%
Family status  
    Parents  13%  24%
    Single parents  2%  9%
    Married workers  24%  30%
Average share of weekly family earnings 
contributed by affected worker   33%  43%
Share of workers earning 100% of weekly 
family earnings   21%  26%  
Source: New England Public Policy Center calculations using the 2006 CPS Merged Outgoing Rotation Group Files.  
932FRBB.indd   24 932FRBB.indd   24 11/7/07   9:36:05 PM 11/7/07   9:36:05 PMCommunities & Banking    25
0
1
2
3
4
5
6
7
8
9
10
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
2009
2009
rate (the larger the elasticity of demand), the 
greater the reduction in employment fol-
lowing a minimum wage increase.
Using three different elasticities of de-
mand from the minimum wage literature, 
the discussion paper estimates the potential 
employment impact of increasing the mini-
mum wage in New Hampshire for each 
of the two consecutive stages stipulated in 
the legislation. The combined employment 
impact of the two increases is estimated to 
be small and negative, ranging from 300 to 
1,500 jobs, which is between 1.2 percent 
and 5.8 percent of workers directly affect-
Figure 1: Real value of the minimum wage, 1947-2009
Note: The minimum wage value in years in which the wage changed midyear is the weighted average wage for the whole year.
Source: Calculation based on data from the Bureau of Labor Statistics;
Calculations for  2007-2009 use inﬂ  ation projections from the Congressional Budget Ofﬁ  ce.
2006 Dollars
ed by the law. At the midpoint, employ-
ment would be expected to decrease by an 
estimated 646 jobs, or 2.5 percent of affect-
ed workers. This amounts to less than one-
tenth of 1 percent (-0.09 percent) of total 
employment in New Hampshire, which was 
roughly 711,500 in 2006.
Additional labor costs associated with 
increasing the minimum wage may not 
entirely translate into employment losses, 
however. Rather, some portion of these 
costs may be either absorbed by employers 
through lower proﬁ  ts or passed on to con-
sumers in the form of higher prices. Indeed, 
few studies in the empirical literature ﬁ  nd 
an employment effect for such small wage 
increases. 
Wages
The impact of the state minimum wage 
increase on aggregate statewide wages and 
wages per employed worker was also evalu-
ated. The positive wage gains that result 
from any minimum wage increase are par-
tially offset by the lost wages of the laid-off 
workers. In calculating the net wage impact 
of a minimum wage increase, these lost 
wages need to be subtracted from the gross 
annual statewide wage increase. 
In this case, although raising the mini-
mum wage would lead to a gross annual wage 
increase of $22 million, the lost wages of the 
646 laid-off workers would bring the net an-
nual statewide wage increase to about $17.4 
million. That translates into an increase of 
about $682 per year for each worker who 
remains employed. Furthermore, using the 
lower estimate of the employment impact 
yields a higher net statewide wage increase 
of $19.9 million, while using the upper one 
projects a net annual wage increase of $10.9 
million.
Increasing the minimum wage may also 
cause some employers to reduce the hours 
of their workers. Workers who remain em-
ployed but with reduced hours may expe-
rience other adverse consequences that are 
hard to measure: For example, they may now 
work part-time instead of full-time and lose 
employer-sponsored beneﬁ  ts, such as health 
insurance or pension beneﬁ  ts. Alternatively, 
employers may reduce the amount spent on 
employee beneﬁ  ts, such as contributions to 
health insurance premiums. If companies 
respond to the minimum wage increase by 
reducing the hours of their workers or cur-
tailing their nonpecuniary beneﬁ  ts, the net 
gain in aggregate wages may be diminished.
Antoniya Owens is a research associate in the 
Federal Reserve Bank of Boston’s New England 
Public Policy Center.
Endnotes
1 Jared Bernstein, “Tax Incentives for Businesses in 
Response to a Minimum Wage Increase” (Washington 
DC: Economic Policy Institute. January 2007), http://
www.epi.org/content.cfm/webfeatures_viewpoints_
minwage_tax_incentives_testimony_01102007.
2 Antoniya Owens, “The Potential Economic Impact 
of Increasing the Minimum Wage in New Hampshire” 
(New England Public Policy Center Discussion Paper 
No. 07-2, Federal Reserve Bank of Boston, July 2007), 
http://www.bos.frb.org/economic/neppc/dp/2007/
neppcdp0702.pdf.
The positive wage 
gains that result from 
any minimum wage 
increase are partially 
offset by the lost 
wages of the 
laid-off workers.
Wage increase mandated by the New Hampshire state law
Wage increase mandated by the new federal law
932FRBB.indd   25 932FRBB.indd   25 11/7/07   9:36:05 PM 11/7/07   9:36:05 PM

New Hampshire’s minimum wage: potential economic impact of the increase

http://www.bostonfed.org/commdev/c&b/2008/winter/Owens_NH_minimum_wage.pdf

New Hampshire’s minimum wage: potential economic impact of the increase

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics