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The Minimum Wage Increase Hurts Those It Is Intended to Help |
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Written On: December 30, 2004 |
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Starting in January, Washington’s minimum wage jumps to $7.35 per hour.
While it seemed like a good idea in 1998 when Washington voters approved automatic annual increases in the minimum wage, it is not the panacea that union activists proclaim. Their goal was to reduce poverty and help low income workers improve their standard of living, but instead of helping entry-level workers, they hurt them.
A recent study by researchers at Ohio University found that Washington’s ever-increasing minimum wage – now $7.35 per hour, the highest in the nation – actually increased the poverty rate in our state, as the national poverty rate declined. During the same period, per capita personal income in Washington rose almost 10 percent, meaning that the damage was concentrated on the people at the bottom of the economic ladder.
The study also found additional evidence that a high minimum wage leads to higher unemployment. In fact, Washington has one of the highest unemployment rates in the nation, and even before the dot-com bust and September 11, Washington’s unemployment rate had risen a full percent higher than expected. That translates into a loss of more than 31,000 jobs – a loss the researchers tied to our high minimum wage.
The simple truth is that, faced with ever-higher costs for marginal entry-level workers, employers hire fewer people, cut their hours, or reduce benefits. For that reason, mandated increases in the minimum wage have led to more poverty and fewer jobs – exactly opposite of what the voters intended.
But statistics don’t tell the whole story.
The summer between my sophomore and junior years in high school, I found a part-time job at a family-owned restaurant in Butte for a “buck an hour.” I bussed tables, swept floors, picked up produce, meat, and poultry at local markets, took their family car to the warehouse to load canned food and cleaning supplies, and scrubbed pots and pans in the kitchen. The husband ran the counter, the wife cooked, and I filled in when their teenagers couldn’t work.
At the time, Butte was a heavily unionized town and the waitresses made union scale. I complained to my father, a union leader who knew the family, that I deserved the same. He told me that I didn’t understand the tight margins in the restaurant business and that if I cost the family even an extra 25 cents an hour, I wouldn’t have a job.
I’m not sure I bought his argument. After all, it seemed to me that owning your own business guaranteed a steady stream of cash and profits; the restaurant owners should let me share the wealth. A year later, I learned the truth. That’s when my dad put my brother and me in charge of our small family garbage business. We had 250 customers and we hauled the trash, collected $1 per month, repaired the truck, and paid the bills.
We couldn’t afford to hire help. Like the restaurant, our garbage business was marginal and supplemented our family income. I quickly learned that some months my brother and I couldn’t even pay ourselves because expenses were more than income. No endless stream of cash, no profits.
Washington state’s ever-increasing minimum wage may not be the sole cause of our economic doldrums, but it makes things worse rather than better. Combined with our costly workers’ comp system, high health care costs, and heavy regulatory burden, a minimum wage that increases every year regardless of its impact on unemployment is a prescription for disaster.
Most minimum wage jobs are entry-level positions where people get job experience and training, then move on. They are the threshold of careers and the beginning of any economic recovery. To destroy those job opportunities in the name of higher wages makes no sense.
In the end, it doesn’t matter if the minimum wage is $7, $10, or $15 per hour if there are no jobs.
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