Minimum wage laws are killing state economy
June 12, 2008 · Updated 4:37 PM
Washingtons mandatory minimum wage continues to place a stifling burden on small business competitiveness. The wage increases automatically every Jan. 1, in accordance with a citizens initiative passed in 1998.
The amount of yearly increase is pegged to the Puget Sound cost of living, the highest in the state. This January the minimum wage again increased from $7.01 to $7.16 an hour, making it the highest in the nation.
Since 1996 the state minimum wage has increased by 65 percent.
The continual increases in minimum wage are driving labor costs for small businesses through the roof at a time when they can scarcely afford it. Other costs, like workers compensation premiums, unemployment insurance and health care, are already rising 10 to 30 percent each year.
The mandatory yearly increase to the minimum wage forces many businesses into the unfortunate position of reducing their workforce or delaying new hiring.
Whether continual increases in the minimum wage help the working poor is widely disputed. While some low-wage workers receive a welcome jump in yearly income, many are laid off or priced out of the labor market. Increases in the minimum wage often force employers to provide pay increases to everyone on their payroll, not just the least experienced workers.
This, in turn, increases labor costs and leaves small employers with fewer resources to hire new employees and keep the ones they already have.
Understanding the true impacts of the minimum wage is important. A few key principles help explain why the constantly rising minimum wage has a detrimental effect on both workers and employers.
First, for most workers, the wage is supplemental. A vast majority of those earning the wage are teenagers and college students in their first job or part-time workers who live with another full-time wage earner.
When the minimum wage is increased, these jobs are the first to be eliminated by employers who must reduce marginal costs to stay in business.
Second, the minimum wage was never intended to support a family. Many state, national and private social programs are devoted to helping those who need assistance. Reducing the number of entry-level jobs by increasing the minimum wage does little to lift struggling families out of poverty.
If anything, it often leads to increased unemployment because teens and second-earners are the first to lose their jobs when employers cut costs.
Third, income mobility is an important aspect of the American economic system. Through hard work, savings and investment most poor families do not stay poor for long.
A recent study shows that the greatest gains in income are among those who start off at the lowest end of the income ladder.
And finally, the health of our states economy, and small businesses in particular, requires that government regulations not artificially increase the cost of entry-level labor.
Every increase in the cost of hiring low-wage workers provides another incentive for employers to do the work themselves, transfer the workload to other more experienced workers or purchase machinery that can perform the tasks of low-skilled human labor.
Each of these components illustrate why increasing the minimum wage does little to help low-income families and places severe restrictions on the growth of the states economy.
Most people agree that a reasonable wage floor is good policy, but the cost of imposing yearly increases is too great a burden during bad economic times, particularly when Washingtons unemployment rate is among the highest in the nation.
As an alternative, state policymakers should consider holding off minimum wage increases during bad economic conditions. One proposal this year calls for eliminating the yearly increase in minimum wage when the state unemployment rate is above the national average.
This sensible idea will help avoid harmful increases to the cost of labor when the economy is at its weakest. In good times, when the economy is better prepared to absorb artificial wage increases, the minimum wage would again be allowed to increase.
Sound Off is a public forum. Articles are selected from letters to the editor or may be written specifically for this feature. Eric Montague is director of Small Business Policy for the Washington Policy Center.