Minimum Wage Hike Hurts Oregon’s Vulnerable Workers
Author: Craig Garthwaite
Publication Date: December 2003
Newspaper: The Oregonian
Topics: Minimum Wage
Why is it that Oregon’s entry-level job applicants faced the highest rate of unemployment in the nation in 10 of the past 11 months? Oregon’s unemployment rate is 24 percent higher than the national average, and 57 percent higher than it was three years ago when the rate began its upward climb.
Oregon is not alone in experiencing this perpetual high state unemployment. Washington, Oregon and Alaska are among the five states with the highest unemployment rates in the nation. It is perhaps no coincidence that these three states have the highest state minimum wages in the nation. Decades of research confirm Nobel Prize winning economist Gary Becker’s observation: “A higher minimum will further reduce the employment opportunities of workers with few skills.”
Despite Oregon’s relentless high unemployment, the state’s minimum wage is set to rise on January 1st, making it 37 percent higher than the federal minimum. This job-killing increase is built into the system thanks to a ballot initiative that increases the state’s minimum wage regardless of job market conditions.
In many parts of the state, the jobs situation is worse than even the highest-rate-of-unemployment-in-the-nation headline would have you believe. No fewer than seven Oregon cities and counties with a population of 10,000 or more posted an unemployment rate of 9 percent or more last year. These depressed areas included Portland, with an unemployment rate of 9.0 percent, Klamath County where it was 9.5 percent, and Wasco County, which had a rate of 10.1 percent.
A grand total of more than 250,000 people now live in these high unemployment areas with unemployment rates that have not been experienced nationwide since the recession of the early ’80s.
Those who initiated this ill-advised indexing proposal may believe that this latest minimum wage increase will help those workers who have managed to hold on to a minimum wage job in this difficult economic climate. Hard evidence suggests a reality where the increase will deprive many of these vulnerable employees of the only opportunity they have to earn a living and increase their wages.
Research out of Michigan State University found that increases in the minimum wage attract more highly skilled applicants to traditionally low-skill jobs. The study’s author, Dr. David Neumark, concluded: “[I]ncreases in the minimum wage . . . raise the probability that more-skilled teenagers leave school and displace lower-skilled workers from their jobs.” Employers prefer to hire talented young people over less-skilled adults to offset the increased labor costs brought on by a minimum wage hike.
Another study, from the University of Wisconsin, revealed that this displacement of adults by teenagers following a minimum wage increase was especially pronounced among women on welfare. “Mothers on welfare in states that raised their minimum wage left welfare for work 20 percent less than welfare recipients in states where the minimum wage was not raised,” the study’s author, Dr. Peter Brandon, found. The teenagers who are competing with these women usually live with working parents and their need for employment is arguably not as great.
Even wage hike proponents acknowledge this displacement effect. Wage mandate activist and union organizer David Reynolds says that high minimum wages cause businesses to “attract and retain the best workers” — who take the jobs of the less-skilled. The union-backed Economic Policy Institute has admitted that higher minimum wages “will attract good workers” — meaning less-skilled workers need not apply.
Yet while less-skilled workers do not benefit from a minimum wage increase, academic research demonstrates they can get a raise without one. Economists at Miami University of Ohio and Florida State University found 65 percent of minimum wage workers increase their wage between one and 12 months on the job. This refutes the out-dated notion of minimum wage workers perpetually dependent on government for a raise.
More than undermining their prospects for employment, raising the minimum wage imperils an important benefit that helps less-skilled workers escape poverty. The federal earned-income tax credit is a successful anti-poverty program that supplements the income of the working poor. But it disappears the moment employees lose their job, forcing the least skilled among us to depend on welfare for as long as those benefits last.
Exchanging the ability to provide for oneself with welfare checks has unfortunate consequences that reach far beyond the newly unemployed person’s pocketbook. Research by Dr. Casey Mulligan of the University of Chicago found that for every extra year a mother spent on welfare, her child spent an additional 274 days on welfare as an adult. Sadly, raising the minimum wage not only harms the job prospects of those whose alternative is welfare but also their ability to pass a strong work ethic onto their children.
For Oregon’s most vulnerable workers, many of whom have remained in depressed localities after business and industry have left the area, raising the minimum wage will deprive them of the jobs, training and increased earnings they so obviously need. This is surely not what supporters of indexing Oregon’s minimum wage intended.
Craig Garthwaite is chief economist at the Employment Policies Institute, a nonprofit research organization in Washington, D.C., dedicated to studying issues surrounding entry-level employment.