State Study Shows New Businesses Paying Entry-Level Wages are the Job Creators in Washington

January 9, 2014

The state Employment Security Department’s (ESD) most recent report on job vacancies and new hiring showed a welcome increase in hiring in 2013.  An official with ESD said, “the employment picture in early 2013 was the strongest and most optimistic we’ve seen in several years.” 

The report also noted there was a decrease in the average starting wages during this time, explaining that, “…the drop in the average wage is likely connected to the increased hiring in low-wage occupations…compared to a year ago.”

Translation—companies that pay lower wages created more jobs and hired more new workers, which in turn drove average wages down.  So more people found a job and most of those new jobs were at the lower end of the wage scale.  Clearly it is not the businesses that pay super high wages that are creating the jobs and hiring the people that spur economic recovery, it is the businesses with entry-level type jobs that pay less.

This conclusion is reinforced by a recent draft study by The Department of Commerce, “Startup Washington—Strategy to Facilitate the Growth of Startup Businesses.”  The draft study notes that young startup firms (two years old or less), create the most new jobs, even taking into consideration the startups that fail and thereby result in job loss.  The DOC also found that wages were lower for these young firms, reflecting the trend that startups have been more common in low-paying industries.  In 2012, most startups were in retail trade, followed by professional and business services, and other services.

So it is the startup firms in lower wage industries that are creating the new jobs that are driving our state’s recovering economy.

The DOC study stresses the importance of these new businesses, declaring, “Startups are generally recognized as a key to growth and economic development.”  The DOC study goes on to quote from a study by the Kauffman Foundation, a non-profit devoted to researching and promoting policies to advance entrepreneurship, which found, “job growth is driven, essentially entirely, by startup firms…”

This should give great pause to the Governor’s recent suggestion that the minimum wage in our state should be increased.

Increasing the wages these lower wage startup companies must pay their workers will undoubtedly have a negative impact on job creation.   A new business in a typically low wage industry, such as retail, will find it more difficult to succeed, grow and create new jobs if it is forced to pay artificially high wages.  Instead of creating three new jobs, they may only be able to create two.  And some entrepreneurs may decide the costs of doing business are simply too high and decide against even trying to start their new business.  In this unfortunate circumstance, no new jobs are created. 

In its study, the DOC concludes, “this research underlines not only the critical importance of startups in economic growth, but also the increasingly difficult environment they face.”  It goes without saying that increasing the minimum wage these start up firms must pay, which is already higher than any other state in the nation, will most certainly exacerbate the “increasingly difficult environment” the DOC report says these job creators already face in our state.