Oregon is making a mistake on minimum wage

Minnesota Rally for minimum wage increase (Flickr / Fibonacci Blue)

Minnesota Rally for minimum wage increase (Flickr / Fibonacci Blue)

Oregon is now the state with the highest minimum wage in the country after a new proposal passed the state legislature last week.

“By 2022, the state’s current $9.25 an hour minimum — already one of the highest in the nation — would climb to $14.75 in metro Portland, $13.50 in smaller cities such as Salem and Eugene, and $12.50 in rural communities,” reported the Associated Press.

But if Oregonians looked just a little further north, they’d see how a similarly massive minimum wage hike was working out for Seattle. The results aren’t good.

Seattle in the summer of 2014 passed an ordinance phasing in a $15 an hour minimum wage. The first increase, to $11 an hour, took effect in April last year. American Enterprise Institute economist Mark Perry has recently published a study revealing the disastrous employment effects the new wage law has had in The Emerald City.

Although restaurant jobs had been rising steadily over the last five years, the trend reversed course shortly after April’s wage increase. The rest of the state saw continued growth in restaurant jobs, while Seattle took a hit. “At the same time that Seattle area food services employment has declined this year by 700 (and by -0.52%), restaurant jobs in the rest of the state have increased by a whopping 5,800 new positions (and by 6.6%),” wrote Perry.

The elimination of restaurant jobs in Seattle can’t be explained by a larger employment crisis either. When all other industries are factored in (including most that do not rely heavily on minimum-wage workers), job growth in Seattle continued to grow steadily. That means there must have been a specific catalyst for restaurant owners to lay off many of their employees and open fewer restaurants. Any guesses as to what it was?

Perry presents data showing Seattle’s unemployment rate falling steadily since the end of the Great Recession — until April 2015, when it spikes sharply. Perry says the uptick in joblessness between April and December last year was the biggest over any nine-month period since between April and December 2009, during the depths of the Great Recession.

So much for helping people “work to live.”

Despite the adverse effects of Seattle’s minimum wage plan, Oregon has pushed ahead with the same wishful thinking and will soon face similar problems.

One of the justifications often used by proponents of the minimum wage is that the policy will actually help reduce the number of people on government assistance. The left-leaning Economic Policy Institute, which actively promotes raising the minimum wage, often makes this argument — especially in Oregon, a state with an unusually high number of citizens on welfare.

But a new paper by San Diego State University economist Joseph Sabia calls this conclusion into question by factoring in the minimum wage’s effect on employment.

“Minimum-wage increases redistribute the income of low-skilled workers, helping some, hurting others,”  Sabia told the Wall Street Journal. As the Seattle experience has shown, the income of some low-income workers is completely erased (as they lose their jobs) in order to give an extra dollar or two to their coworkers.

Sabia reached a conclusion that many economists have already realized, framing the problem that Seattle residents are now experiencing and Oregonians are soon to discover for themselves. “The [minimum wage] policy will have little impact on taxpayers, but the impact on less-skilled employees who lose their jobs may be severe,” he said.

Published on Opportunity Lives

2 responses to “Oregon is making a mistake on minimum wage

  1. Let’s hope this is a temporary (?) adjustment. Perhaps, says this non-economist, we can hope that as the higher wages (given to those who are likely to spend a huge portion of the increase ) percolate through the economy, more jobs will be created. Is this hope a fair permutation of the ‘trickle down’ theory?

    • I thought you didn’t believe in trickle-down! 🙂 I wonder if the increased buying power of some would be offset by higher prices and the decreased buying power of people who don’t have jobs.

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