Our High Minimum Wage Fuels Job Losses
January 2002
Congratulations Washington. As of January 1st we now have the highest state minimum wage in the country. At $6.90 an hour it is fully 34% higher than the federal minimum of $5.15.
At first this might sound like good news for workers, but there's a significant downside. We also have the second-highest jobless rate in the country, 7%, just behind Oregon. That's no coincidence. Basic economics, as well as commonsense, informs us that when the cost of providing something goes up, the supply of it goes down. When state law artificially increases the cost of creating jobs, we should not be surprised when our economy produces fewer of them.
Think of it as our state's unique way of saying "Happy New Year" to those low-skill, low-income workers who just got priced out of the job market.
The cruelest part of the policy is that it falls hardest on those who can least afford it. The weakest in our communities - the poor, the homeless, young workers, low-income families just trying to get by - these are the first to be impacted by a rising unemployment rate. A high minimum wage deprives low-income people of what they need most: a steady job. And it deprives school graduates of what they need most: real-world work experience. Most jobless people are only looking for a chance to prove themselves. For many on the bottom rungs of society, Washington's high minimum wage denies them that chance.
This was certainly not the intent of voters when they passed Initiative 688 three years ago. The measure enacted a two-step boost in the state minimum wage from $4.90 to $6.50, then for the first time created regular yearly increases tied to inflation. Previously, the minimum had been raised 10 times since the first state-mandated wage was enacted in 1959.
Why link future increases to inflation? The high minimum wage creates a ripple effect through the economy by pushing up all wages, which is why powerful unions always support minimum wage increases. The state's unions and their political allies grew weary of the public debate needed to argue for increases. So they included a provision in Institutive 688 that linked the wage to inflation, insuring it would go up automatically every January 1st, no debate, no vote, no discussion. Politically the strategy is brilliant. It avoids all that messy public discussion about the harmful effects of raising the minimum wage - it just happens and most people don't notice.
The result is a higher cost of living for everyone. While most of us can pay a little more for a hamburger or a house, the burden again falls heaviest on those who can least afford it; the poor and the jobless.
Business reporter Bill Kossen recently reported on a restaurant that boosted menu prices and eliminated free meals for employees in response to rising wage costs. Another restaurant owner says she may lay off a worker and cut hours in addition to raising her prices (see "State's minimum wage No. 1 in U.S.," The Seattle Times, January 1, 2002).
Many of these effects were foreseeable. An analysis of Initiative 688 conducted for the Washington Policy Center by economist David Macpherson predicted that the measure would cost the state over 7,400 jobs. His study found that 45% of the job loss would occur in the Seattle-Tacoma area, 12% in the Spokane area and 30% in rural areas and small towns. Workers under 25 and black and Hispanic workers would be disproportionately affected. Overall, Dr. Macpherson estimated Washington workers would lose about $64 million in income. As we see, these forecasts are beginning to come true.
Naturally the high minimum wage alone is not responsible for our state's weakening economy, but it is a contributing factor. We can expect the national recession to strike deeper here and for Washington to be slower to recover than other states. For that reason it makes sense to ask a fundamental question: Is our high minimum wage helping out, or is it part of the problem?