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OR-WA: Minimum Wage Indexing Impact

April 23, 2009

By Dr. Eric Fruits,

Minimum wage increases are a hot-button issue in many states. As such, minimum wage increases are politically challenging to implement. To avoid the knock-down/drag-out fights associated with minimum wage increase, several states—including Oregon and Washington—have introduced minimum wage indexing. With indexing, the minimum wage increases automatically each year based on some measure of inflation. As a result, Oregon and Washington have some of the highest minimum wage rates in the country.

Now that Oregon’s economy is in a tailspin, with record unemployment and business closures, the legislature is considering HB 3053 that would halt increases in the minimum wage during an economic downturn.

A study by Eric Fruits for the Employment Policies Institute measures the effect of minimum wage indexing on employment and wages in Oregon and Washington.  The study finds that minimum wage indexing imposes employment costs with no measurable income benefits. In particular:

* Higher minimum wages in Oregon and Washington are associated with reduced employment.

* Younger members of the labor force—age 25 and younger—are more likely to be adversely affected by increases in the minimum wage and minimum wage indexing. The figure above shows that Oregon and Washington would have significantly lower unemployment if the state minimum wage rates were equal to the lower Federal rate.

* Higher minimum wages have no statistically significant impact on wages of Oregon and Washington hourly wage earners.

Read more: “Impact of Minimum Wage Indexing on Employment and Wages: Evidence from Oregon and Washington | Econ International Blog” – Here

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Discuss this article

Alpha Dog April 23, 2009

Minimum wage. Right now people are lucky just to have a wage. Why do they have to push it so.

LaRayne April 23, 2009

Interesting. Seems as though minimum wage increases should be tied into the economy as a whole. However, in many ways it’s a shame that we have to legislate this. One would like to think that employers would pay decent wages without having to be told. I know silly me.

Sybella April 29, 2009

The increase in minimum wage without an increase in employee responsibility is dumb. I have been an employer since 1992. Really good employees are hard to come by, especially in unskilled labor.

It was always our policy to reward hard work by our employees. Some of them used to make a pretty decent wage with regular increases in pay.

With the advent of the mandated increase in minimum wage, just because somebody worked, or rather, put in their time, the hard working dependable employees got cut out of rightfully deserved increases in pay because we were required to pay it to the lesser workers. That isn’t fair to either. It discourages hard work, and it discourages incentive to better oneself.

The employee who really should have been raised was unable to receive that raise because it went to the less deserving employee.

Any business, no matter how small or large can only pay so much. When mandates require more for less as does the minimum wage as it stands, the good employees suffer.

There does definitely need to be some changes to the law as it now stands. We don’t hire extra people anymore, when it’s busy, the rest of us just have to suck up and do the job. If this law continues unchanged, those of you who have jobs will all be earning $20 plus dollars per hour and you will all be on minimum wage. To pay that inflation will go up, there is no choice. econ 101, if you bother to look will bear that out.

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