Friday, May 29, 2009

Minimum Wage Fallacies and Facts

As predictably as thunderstorms appear when the weather gets hot, conservatives call for cutting (or eliminating) the minimum wage when the economy gets cold.

Posted By on Fri, May 29, 2009 at 10:22 AM

As predictably as thunderstorms appear when the weather gets hot, conservatives call for cutting (or eliminating) the minimum wage when the economy gets cold.


The Bulletin editorial page took a shot at it yesterday, castigating the state legislature for failing to ditch Oregon's unique minimum wage law.

Under the law, approved by voters in 2002, the state minimum wage automatically increases when the cost of living rises. Thanks to that provision, Oregon's minimum wage rose by 45 cents per hour on Jan. 1, to $8.40.

A House bill co-sponsored by Rep. John Huffman (R-The Dalles) would have drastically curtailed the COLA feature, allowing the minimum wage to rise only when the state unemployment rate is no higher than the federal rate.

Lamenting that Oregon's minimum wage is much higher than the federal wage of $6.55 per hour, The Bulletin claimed this will make it tougher for the state to climb out of the recession:

"The effect on businesses and employment is predictable. The hike is particularly difficult for small businesses in this economy. ...

"Moreover, we hardly need to mention, the wage law makes it particularly difficult for companies to make new hires, which is what Oregon really needs."

The job-destroying effect of higher minimum wages has, indeed, often been predicted - it's unquestioned conservative dogma - but there's little or no empirical evidence that it actually happens. As Jeff Chapman, writing for the Economic Policy Institute, noted in 2004: "In general, there is no valid, research-based rationale for believing that state minimum wages cause measurable job losses. Making the extreme case that the job losses are severe enough to show up in a noticeably elevated state unemployment rate is a wild extension of a largely unfounded theory."

One problem with the theory that higher minimum wages cause jobs to flee is that most minimum-wage jobs are the kind that CAN'T flee. They're in the service and retail sectors, and - unlike manufacturing jobs - they can't be shipped to other states or overseas. If you want to operate a hotel or a restaurant or a Wal-Mart in Oregon, you have to pay the Oregon minimum wage. It's that simple.

The current numbers on unemployment rates and minimum wages elsewhere also fail to bear out the theory. True, Oregon has the second highest unemployment rate in the nation - but in Michigan, the state with the highest rate, the minimum wage is a dollar an hour lower than Oregon's at $7.40.

In Washington the state minimum wage is even higher than in Oregon - $8.55 - but unemployment is only 9.1%. And South Carolina's unemployment rate is the third-highest in the country at 11.5% although the minimum wage there is a piddling $6.55 (the federal rate).

It looks like a complex set of factors - the nature of a state's economic base and how hard it was hit by the bursting of the real estate bubble, to name two - have more to do with its unemployment rate than its minimum wage. States that were heavily dependent on the auto industry (Michigan) or the construction industry (Oregon) lost a lot of jobs; states whose economies were based on agriculture (Nebraska, Iowa) didn't.

On the flip side, conservative writers never seem to consider the trickle-up effect -- that workers also are customers, and that putting a few dollars more in the pockets of those customers might be a pretty good thing for business.

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