Based upon an analysis of Labor Department data, Dr. David Macpherson finds the 1998-1999 Oregon minimum wage hike from $5.50 to $6.50 will cause more than 5,400 workers to lose job opportunities. As a consequence, Oregon workers will lose approximately $50 million in annual income. At the same time, minimum wage employers will see their labor costs rise by $162 million per year in order to provide minimum wage workers an increase in average family income of only 3.8%.
On February 12, 1998, President Clinton proposed raising the federal minimum wage in two annual 50-cent increments, from $5.15 to $5.65 and then to $6.15 per hour. In support of this proposal, the President and others claim that minimum wage increases of such magnitudes do not cost jobs, and that the benefits of these increases accrue primarily to poor adults trying to raise families. With this legislative proposal on the table, it is instructive to read Dr. David Macpherson’s new study of expected effects from Oregon’s statewide increase in its minimum wage from $5.50 to $6.50, the final increase being effective January 1, 1999.
Who will be affected?
Dr. Macpherson finds that fewer than one in seven of the workers who will be affected by the minimum wage increase is the sole breadwinner in a family with children. The average family income of affected workers is more than $30,000 per year, and in some localities such as Portland, exceeds $38,000. These income figures indicate that most minimum wage workers are members of families with multiple workers. Less than one-quarter of affected workers lives in a family with income of less than $10,000.
Of affected workers, many are very young; 28.8% are teens aged 16-19 and an additional 21% are young adults age 20-24; 29.5% are living with a parent or parents. More than half of affected workers have never been married.
How will they be affected?
More than 40% of the 5,451 layoffs will hit workers with annual family incomes less than $20,000 while more than half of the job loss will be confined to workers under age 25. Moreover, 45% of the lost jobs will be in the retail sector, and another third will be in the service sector. More than 40% of the lost jobs and income will be in the Portland area.
Dr. Macpherson estimates that the $162 million in additional labor costs associated with the Oregon minimum wage increase will fall disproportionately on retail employers ($67 million) and service-sector employers ($52 million), and especially on employers in the Portland area ($67 million).
Of the total income gains generated by the wage hike, less than one dollar in four will go to workers living in families with incomes of less than $10,000. Hence, the wage hike appears to be a very inefficient tool for raising low-income workers out of poverty. The average increase in family income of affected workers will be a very modest 3.8%.
Conclusion
This study demonstrates that increases in the minimum wage entail real consequences and costs. A $1.00 (or eighteen percent) increase can cause significant job loss and impose substantial costs on employers. At the same time, such an increase does little to combat poverty, even among those that don’t lose their jobs. In Oregon the expected consequences of such an increase in the minimum wage are more than 5,400 lost jobs, $50 million in lost wages, and $162 million in additional labor costs.
