Oregon Unemployment Skyrocketing Thanks to Indexed Wage Hikes
Freezing the Indexed Wage Hikes Could Slow the Employment Spiral
Publication Date: March 2009
Topics: Minimum Wage
WASHINGTON D.C. – The new Bureau of Labor Statistics employment data shows a continuing employment spiral that is coinciding with drastic increases in the state’s minimum wage. Oregon’s unemployment rate is at 9.9%, now the 4th highest in the nation. The job market has gotten particularly dire recently, as Oregon saw a 1.6 percentage point increase in unemployment between December and January, the largest such increase in the country. Over the past year Oregon has seen a 4.6 percentage point increase in unemployment, the 3rd steepest climb nationwide.
This tracks with Oregon’s ever increasing mandated wage hikes, which have been set on auto-pilot without any mechanism for stopping them during tough economic times. This year Oregon increased its minimum wage to $8.40, $0.90 higher than it was before the economy began to unravel in early 2008. This means that a small business owner in Eugene who employs 20 entry level employees saw an approximately $40,000 increase in their labor costs (including taxes) – at exactly the same time demand for their products and services began to drop and many commodity prices rose. This cost increase doesn’t even include the ripple effect that takes place for other employees making more than the minimum wage.
Legislation introduced in the Oregon House last week (H.B. 3053) would make the indexing law more sensitive to other key factors in the state’s labor policy. It would prevent an increase in the minimum wage if state unemployment rate exceeds the national unemployment experience.
Overwhelming amounts of economic research demonstrate that there is an increase in job losses following minimum wage hikes. According to research from the University of California at Irvine, minimum wage hikes unambiguously reduce employment of those with the fewest skills. These negative effects are concentrated on the most vulnerable employees, particularly young minorities and high school dropouts. For every 10 percent increase in the minimum wage, estimates are that employment falls 8.5 percent for vulnerable groups.
“It doesn’t take an economic expert to see the pitfalls with automatic wage hikes,” said Kristen Lopez Eastlick, senior economic analyst at the Employment Policies Institute. “If government is mandating businesses increase their labor costs regardless of skill levels or productivity, and without any mechanism for stopping the increase in a recession or when unemployment is running rampant, the result is going to be lost jobs – especially at a time when small businesses are struggling in a weak economy.”