More Bad News for Small Businesses

The state Department of Labor & Industries (L&I) announced today the state’s minimum wage will increase in 2013 from the current $9.04 to $9.19 per hour. 

Washington State already has the highest minimum wage in the nation.  The new increase ensures the state will hold on to that dubious honor. 

The state’s automatic yearly minimum wage increase, while seemingly generous, often results in a wage of zero, because our high state minimum wage prevents many people from being hired in the first place. 

As Joseph Phillips, Dean of Seattle University’s Albers School of Business and Economics explains, when costs become too high for employers, they quit hiring.  Washington already boasted the highest minimum wage in the nation at $9.04 per hour, well above the federal minimum wage of $7.25.

When combined with state-imposed workers’ compensation and unemployment insurance taxes, a 15-cent per hour increase, on the heels of a 37-cent per hour increase last year, is more than one more straw on the camel’s back.  As Phillips succinctly puts it, “At some point, it adds up and discourages employment.”

The bottom line is another minimum wage increase prevents small businesses from creating jobs and ultimately hurts those who can least afford it. 

Study after study has concluded that artificially increasing the cost of creating jobs (via a mandated minimum wage) has the predictable effect of reducing the number of jobs created.  The result is decreased job opportunities, especially for young and unskilled workers who are essentially priced out of the job market. 

According to the U.S. Department of Labor, only 3% of workers over the age of 25 earn the minimum wage.  So teens and young workers, not adults, by far comprise the biggest sector of minimum wage earners.

The increase in the minimum wage is bad news for the unemployed, young and inexperienced workers in Washington.  It is also bad news for small business owners and consumers struggling to rebound from the down economy. 

Washington Policy Center has long warned that a high minimum wage reduces job opportunities and increases the cost of living.  The economics of it is simple.  The minimum wage is a price control that requires employers to pay workers a higher hourly wage.  That means they can afford to hire fewer workers, or they pay the inflated wages and pass the increased costs onto the customer, or a combination of both. 

As small business owners, workers and consumers continue to feel pinched, policymakers should consider alternative approaches to stimulating job growth and wage increases.  The Washington Policy Center has several recommendations that would improve the working environment and business climate for our state: 

• Decouple automatic minimum wage increases from the Puget Sound-area Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to reflect the true cost of living across the state;
• Delay automatic increases in years when state unemployment is higher than the national average;
• Allow temporary training wages for young or inexperienced workers;
• Allow restaurants to count tip income as part of normal minimum wage earnings, so employment costs in one industry are not artificially inflated, and
• Refrain from imposing mandatory “living wage” controls, whether or not directed at a particular industry.

To find out more see our Policy Guide (Chapter 8, page 249 – “Minimum Wage and Living Wage”).