Picture the Minimum Wage

Is now the time to discuss the non neutrality of money?

In case you missed this.

LIBERTY LAKE, Wash., Jan. 9 — Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.

Skip to next paragraph

The New York Times
Liberty Lake and Post Falls are divided by more than the state line.

Jeff T. Green for The New York Times
Jose Caro waits tables at La Cabana Mexican Restaurant in Post Falls, Idaho, a state with one of the lowest minimum wages in the country. His $5.75 base wage is 60 cents more than the Idaho minimum.

Nearly a decade ago, when voters in Washington approved a measure that would give the state’s lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer.

But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies — a real-life laboratory for the debate — have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits.

Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.

Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation’s leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy.

“We’re paying the highest wage we’ve ever had to pay, and our business is still up more than 11 percent over last year,” said Tom Singleton, who manages a Papa Murphy’s takeout pizza store here, with 13 employees.

His store is flooded with job applicants from Idaho, Mr. Singleton said. Like other business managers in Washington, he said he had less turnover because the jobs paid more.

By contrast, an Idaho restaurant owner, Rob Elder, said he paid more than the minimum wage because he could not find anyone to work for the Idaho minimum at his Post Falls restaurant, the Hot Rod Cafe.

“At $5.15 an hour, I get zero applicants — or maybe a guy with one leg who wouldn’t pass a drug test and wouldn’t show up on Saturday night because he wants to get drunk with his buddies,” Mr. Elder said.

For years, economists have debated the effect that raising the minimum wage would have on business. While the federal minimum wage has not gone up for 10 years, 29 states have raised their wage beyond the federal minimum.

These increases, according to critics like Brendan Flanagan of the National Restaurant Association, are a burden on the small, mostly family-run businesses in fast food and agriculture that employ workers at the lowest end of the pay scale.

“We see the political momentum for this,” said Mr. Flanagan, a vice president at the association, “but we cannot ignore what our members are telling us, which is that it will lead to job losses.”

But the state’s major business lobby, the Association of Washington Business, is no longer fighting the minimum-wage law, which is adjusted every year in line with the consumer price index.

“You don’t see us screaming out loud about this,” said Don Brunell, president of the trade group, which represents 6,300 members.

“It’s almost a no-brainer,” Mr. Brunell said, that the federal minimum should go higher. Association officials say they would like to see some flexibility for rural and small-town businesses, however.

Washington’s robust economy, which added nearly 90,000 jobs last year, is proof that even with the country’s highest minimum wage, “this is a great place to do business,” Mr. Brunell said.

During a recession five years ago, the same group had argued that Washington’s high minimum wage law would send businesses fleeing to Idaho. The group sent out a news release with a criticism of the law from John Fazzari, who owns a family-run pizza business in Clarkston, Wash., just minutes from the Idaho town of Lewiston.

But now Mr. Fazzari says business has never been better, and he has no desire to move to Idaho.

“To tell you the truth, my business is fantastic,” he said in an interview. “I’ve never done as much business in my life.”

Mr. Fazzari employs 42 people at his pizza parlor. New workers make the Washington minimum, $7.93 an hour, but veteran employees make more. To compensate for the required annual increase in the minimum wage, Mr. Fazzari said he raises prices slightly. But he said most customers barely notice.

He sells more pizza, he said, because he has a better product, and because his customers are loyal.

“If you look 10 years down the road, we will probably have no minimum wage jobs on this side of the border, and lots of higher-income jobs,” Mr. Fazzari said.

Job figures from both states tend to support his point. While Idaho leads the nation in new job growth, it has a far higher percentage of minimum-wage jobs than Washington. Minimum-wage positions make up just 2.4 percent of the jobs in Washington, while about 13 percent of the jobs in Idaho pay at or less than the proposed federal minimum wage, according to a study done for the state last year.

Part of the difference could be accounted for by a lower cost of living in Idaho and the higher percentage of technology, manufacturing and government jobs in Washington, economists say. Still, it is hard to find a teenager in Idaho who lives anywhere near Washington who is willing to work for $5.15 an hour.

“Are you kidding? There are so many jobs nearby that pay way more than minimum wage,” said Jennifer Stadtfeldt, who is 17 and lives in Coeur d’Alene, which is just a few minutes from Washington. She pointed out that Taco Bell, McDonald’s and other fast-food outlets in her town were posting signs trying to entice entry-level workers with a starting pay of $7 an hour.

The House today passed a bill increasing the minimum wage, and about 13 million workers would see a pay raise if the Senate and President Bush approve it. Mr. Bush has said he would approve the wage increase so long as concerns of small-business owners were taken into account; the Senate has not yet taken up the bill.

Several studies have concluded that modest changes in the minimum wage have little effect on employment. A study two months ago by an economist at Washington State University seemed to back the experience of Clarkston and other border towns in Washington. The economist, David Holland, said job loss was minimal when higher wages were forced on all businesses. About 97 percent of all minimum-wage workers were better off when wages went up, he wrote.

But other business groups argue that an increase would hurt consumers and workers at the low end.

In a survey released on the eve of the November elections — in which voters in six states considered raising their minimum wages — the National Restaurant Association said restaurants expected to raise their prices and eliminate some jobs if the voters approved the measures. The initiatives all passed.

Here on this border, business owners have found small ways to raise their prices, and customers say they have barely noticed.

“We used to have a coupon, $3 off on any family-size pizza, and we changed that to $2 off,” said Mr. Singleton, of Papa Murphy’s. “I haven’t heard a single complaint.”

How much do the business owners in Washington believe in higher minimum wages. If they are so great, why does Mr. Fazzari only pay new workers "the Washington minimum, $7.93"?

Besides, even beyond employment rates, the better question is about who is working. If, as implied by Spencer's posted article, teenagers from Idaho are the benefactors of the Washington minimum wage, then the argument that minimum wages hurt the lowest skilled workers appears to be validated.

Prof. Peterson –

For the sake of argument, I note that you did not actually rebut the Keynesian position you attribute to Dave Holland, i.e., that the total welfare gains from a higher minimum wage outweigh the negative effects on unemployment. Surely this is an empirical question that can be tested, no? So what's the answer? Too often, it seems to me, free market economites rely on pure theory to make their arguments. But isn't economics supposed to be the "dismal" science that looks at how things actually are?

Sam –

I assume you are being serious, not tongue-in-cheek, about the guy with one leg who can't pass a drug test, i.e., a crappy potential employee. It may be true that minimum wage laws hurt people like this, but this simply doesn't answer the larger policy question re whether, on balance, such laws are beneficial. See my note to Prof. Peterson.

At this point, I think its fairly well resolved that a modest increase in the minimum wage has almost no impact on overall employment levels. The employment losses caused by the minimum wage accrue primarily to black teenagers.

The problem with the minimum wage (aside from the fact that it is an infringement on private parties right to contract with one another) is that, in practice, that is it a subsidy to people who are overwlemingly non-poor. Less than 1 in 4 minimum wage earners lives in a poor household and half of minimum wage earners are undeer the age of 25. Of minimum wage earners below the age of 24, 65% live in households whose income is over double the poverty line. Raising the minimum wage subsidizes middle class households at the expense of poor consumers who must now pay more for goods and services. It's just a stupid piece of legislation.

Randy,

The EITC certainly has its flaws but agreed – it's a much better solution to ease the difficulties of the working poor while maintaining incentives to work.

All in all, I think those of us who favor free market policies should probably focus our attention on other issues. The minimum wage simply doesn't have as big of an effect on economic activity as farm subsidies, healthcare spending, social security, etc.

Spencer,

Your first post in this thread was over 1200 words. Secondly, you are entering into another minimum wage debate without answering legitimate questions from the previous debate. Do you think we have forgotten who you are? Now, you show up with:

"Nobrainer — to show that the lowest skilled workers are hurt by the minimum wage you need to show two things.

1. Teenagers are higher skilled.
2. Teenagers actually displaced another employee."

Please tell me the logical steps that you took to reach this conclusion.

If the minimum wage was set at $30 per hour, are those still the only 2 things I need to show? If not, where is the cut-off?

Spencer quotes Jeff T. Green for The New York Times:

'“It’s almost a no-brainer,” Mr. Brunell said, that the federal minimum should go higher.'

Of course it's a no-brainer. Idaho has lower operating costs, and increasing the fed MW will help equalize the difference.

Actually, Ben's post proves that a higher minimum wage, causes more unemployment.

Ian

Kootenai Country (Post Falls) 2.9% Unemployment
http://www2.fdic.gov/recon/ovrpt.asp?CPT_CODE=E40&ST_CODE=16&RPT_TYPE=Tables

Spokane County (Liberty Lake) 5.0% Unemployment
http://www2.fdic.gov/recon/ovrpt.asp?CPT_CODE=E40&ST_CODE=53&RPT_TYPE=Tables