Rising Minimum Wage Hurts Unemployed Workers
The Department of Labor and Industries is set to announce an increase to our state’s minimum wage sometime today, which is already the highest in the nation at $8.67 per hour. Washington also has one of the highest unemployment rates in the nation.
The increase in the minimum wage is bad news for the unemployed, young and inexperienced workers in Washington. Today the unemployment rate for our state remains at more than 9.3%, well above the national average. Increases in the costs to operate a business will limit the number of jobs available in the already tight job market, and will likely lead to even more workers forced into unemployment.
It is also bad news for small business owners struggling to rebound from the down economy.
We have written about how raising the minimum wage hurts workers: L&I Hurts Small Businesses, Young Workers, with Decision to Raise Minimum Wage
The Washington Policy Center has several recommendations that would improve the working environment and business climate for our state. Leaders in Olympia could help workers by:
- Decouple automatic minimum wage increases from the 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 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 5 – “Minimum Wage and Living Wage”).
As small business owners and workers continue to feel pinched, policymakers should consider alternative approaches to stimulating job growth and wage increases.
UPDATE: L&I just published the new minimum wage rate, increasing the rate from $8.67 to $9.04. This represents and increase of more than 4%. Their press release can be viewed here: Washington's minimum wage to increase to $9.04 next year
Correction: This post was updated to reference the correct measure of the Consumer Price Index.
Comments
Thoughts on Minimum Wage
1. The extremely high minimum wage of WA (#1 in the nation) coupled with the cost of living escalator will have a impact on WA unemployment. Data shows that working wages have remained flat, i.e. 90% of families have had no real increase in wages over the last decade. Yet WA increased the minimum wage this year by 4%. As the minimum wage becomes more and more out of proportion to the median market wage, it can't help but drive up unemployment.
2. High minimum wage hurts youth and unskilled workers as well as small businesses. Unions were and remain strong supporters of minimum wage laws. They price out unskilled labor from the market. This serves Union self-interest. Small businesses are hurt by minimum wage laws because they can't pass on the price increases to consumers as easily as larger employers. They also cannot reduce the number of employees as easily as large businesses or move jobs overseas.
3. If wages remain flat and nothing changes, the yearly WA cost of living adjustments to the minimum wage will reach a tipping point and dramatically increase the unemployment rate of youth and unskilled workers. Of course, then businesses will be going to the legislature seeking exemptions. The results will be uneven, slow in execution, unfair to many businesses without a lobbying presence, and a waste of time and money. Why not set a reasonable floor minimum wage and let the market deal with the rest? Setting an unreasonably high minimum wage with COLA escalators to uplift the poor is fantasy and myth of the first order. In the end, it will hurt the very people it was designed to help.
Evidence doesn't support your claims
First, consider the simple, stark reality that once adjusted for inflation, the federal minimum wage in the United States today is lower than it was in 1967.
Then take a look at the research, preferably research by people w/o a vested interest in the outcome. The evidence is mounting that having the minimum wage keep up with inflation (as it does in Washington) has little to no effect on employment.
One study compared all neighboring counties in the nation (that would include WA state) where there was a difference in the wage between 1990 and 2006, to find out whether increasing the minimum wage led to a drop in employment in the restaurant industry.
The answer? It did not. (More: http://www.spokesman.com/stories/2010/dec/08/for-some-a-higher-wage-make...)
Other economists found that minimum wage increases 1) had no negative effects on low-wage employment, and 2) successfully increased the income of workers in food services and retail employment, as well as the narrower category of workers in restaurants. More on that here: http://economix.blogs.nytimes.com/2010/11/01/along-the-minimum-wage-batt...
You conveniently leave out
You conveniently leave out the fact that the minimum wage hike is due to a voter approved initiative -- voters did this, not government.
No, voters did NOT vote for
No, voters did NOT vote for this. It is and always is decided by the department of L&I based on inflation.
Also, there is no reason Washington State should have the highest minimum wage in the nation. All this does in hurt our small businesses who are already struggling.
yes, voters approved Washington's minimum wage law
Washington voters enacted the state's current minimum wage law - which includes a yearly cost-of-living adjustment for inflation - by passing Initiative 688 in 1998. It passed by a two-thirds vote overall, with a majority voting in favor in every county. You can see election results for yourself right here: http://bit.ly/vDsBXR
If minimum wages did what they are claimed to do...
If minimum wages did what they claimed to do, then all we have to do is follow up with other regulations.
* Everyone must have a fully heated, fully functional house.
* Everyone must keep $10,000 in their bank account.
* Everyone must own a car, and must keep their gas tank at least half full.
* Everyone must be healthy at all times.
If these sound absurd, then mandating that people should earn no less than the minimum wage should sound just as absurd.