Published November 2005

Minimum-wage increase
has created job loss

By Carolyn Logue
Guest Editorial

Once again and without much fanfare — except from those who pushed the original idea — Washington’s minimum-wage rate has increased automatically, and on Jan. 1 will stand at $7.63 an hour — the highest in the nation.

Good news — most people can be forgiven for thinking — for all the working families in our state. But beneath this general feeling of compassion lies a cold cruelty for the least skilled among us. In fact, the increase will actually return many of the lowest-wage earners to the familiar status of unemployment from which many of them struggled to get out of.

Pedaled, primarily by the Washington State Labor Council, as a way to take the politics out of the state’s minimum-wage rate, Washington voters passed Initiative 688 in 1998 by a margin of 2-to-1. Forever after, the state’s rate would be linked to increases in the federal Consumer Price Index. By doing it this way, I-688 proponents claimed, the lowest paid would be able to keep up with inflation.

In an exhaustive study on the effects of I-688, Ohio University professors Richard Vedder and Lowell Galloway concluded, “The passage of the referendum in 1998 that has dramatically raised the state minimum wage in Washington is a quintessential example of the Law of Unintended Consequences. The goal was to improve the lot of the disadvantaged in Washington, but the effect has been for poverty to rise, not fall, and rise far more than income trends would suggest should happen.

“The Washington minimum-wage law created, not eliminated, poverty,” the study said. “… Some occupations relying heavily on relatively less skilled labor were particularly impacted. The restaurant industry suffered more job losses than most industries, and if the shortening of hours is taken into account, the employment effects may well be double or triple as severe as was typical of other industries. …

“The Washington minimum wage, then, has failed in its primary objective. Rather than a relatively cheap way to alleviate poverty, the law has cruelly and capriciously brought about job and income loss to workers and small entrepreneurs. Had the voters known this would happen, it is difficult to believe they would have endorsed this well-intended but truly economically destructive mandate.”

Since the release of the Vedder and Galloway study, the state’s employment picture — thanks to federal, not state, actions — has improved, and more jobs are being created. But once again, they are jobs paying above the minimum wage, as recent remarks by the commissioner of the state’s Employment Security Department admit. But, as Washington’s minimum wage creeps higher and higher, small-business owners are forced to give raises to employees who have been with them only a short time at the expense of raises for longer-term employees.

In a press release crowing about the new minimum-wage rate, the Labor Council called it “great news for minimum-wage earners … in getting the cost-of-living raise they deserve, but $7.63 an hour is still poverty wages for thousands of Washington families.”

The internal contradiction of the council’s argument aside, this rhetorical device of spraying the words “working families” on every discussion about the minimum wage has created the lingering odor of myth. In the latest study by the U.S. Bureau of Labor Statistics, “Characteristics of Minimum Wage Workers 2003,” “working families” among minimum-wage workers are hard to find. The majority of them are 24 years old or younger, sometimes in their first job.

Seven years after Initiative 688, we now have a more accurate motto for it: I-688, a kinder way to hurt the poor.

Carolyn Logue is Washington state director for the National Federation of Independent Business.

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