Oregon’s new minimum wage law will hurt the people it aims to help

By Lydia White

Just prior to Oregon’s July 1 minimum wage* increase from $9.75 to $11.25 (Portland Metro Area), a team of researchers from the University of Washington produced a study, published by the National Bureau of Economic Research, that measures the effects of Seattle’s $13 minimum wage. In just nine months, Seattle wages rose substantially, from $9.47 in 2014, to $11 in 2015, to $13 in 2016 (an increase of 37.3%), and again to $15 on the first of this year.†

Unique to this study is a data set collected by Washington’s Employment Security Department which tracks hours worked in addition to earnings, making this particular study the first of its kind. Washington and Oregon are among four states that track these data.

The study‡ found that the city’s mandates resulted in 5,000 fewer jobs around Seattle. The average low-wage employee saw 3% higher hourly wages, but 9% fewer hours worked, resulting in a net loss of $125 per month. For low-income households especially, an annual loss of $1,500 is significant.

Jacob Vigdor, one of the study’s authors, said, “Traditionally, a high proportion of workers in the low-wage market are not experienced at all: teens with their first jobs, immigrants with their first jobs here.”

Wages are prices, or market signals, that indicate the value of labor productivity employees create. Low-skilled, low-paying jobs provide the opportunity to acquire knowledge and experience they were previously without, setting up workers for their next, potentially higher paying jobs. Henry Hazlitt, author of Economics in One Lesson, wrote:

“The more the individual produces, the more his services are worth to consumers, and hence to employers. And the more he is worth to employers, the more he will be paid. Real wages come out of production, not out of government decrees.”

The least skilled are further disadvantaged when artificially high price floors are implemented. As described in the UW study, when the cost of employing a worker exceeds the value that worker creates, employers are forced to reduce hours or eliminate positions within their business by laying off employees, who are often replaced by automation. These alternatives harm low-wage employees.

Additionally, employers are less likely to take a chance by hiring an unskilled worker and instead will search for only the most qualified candidates. Since teenagers are naturally less skilled due to lack of work experience, these policies create higher youth unemployment. A study last December by Cascade Policy Institute examined these and other “unintended consequences” of the minimum wage on youth.

Instead of, or in addition to, cutting costs of labor, employers increase prices of their goods or services. Consumers may choose to forgo such products or reduce their levels of consumption, in turn decreasing the need for labor. When the price of goods inevitably catches up to the employee’s higher wages, they find the purchasing power of their earnings has diminished.

Furthermore, large businesses can more easily absorb wage increases by operating within thinner profit margins or relocating to a region with a lower minimum wage. Local mom-and-pop stores don’t enjoy that same flexibility and must close their doors. With less competition, larger businesses have more power to raise prices.

When economists warn against the costs associated with the minimum wage, it’s not to protect greedy capitalists; it’s to protect both the worker and the small business owner from being priced out of the market.

For the benefit of all Oregonians, political leaders should learn from our northern neighbors and create an environment that doesn’t punish low-wage workers and the businesses that employ them. They can start by repealing the state’s onerous minimum wage law.


*Oregon’s and Washington’s minimum wages vary depending on region, population, benefits, tips, and business size. The minimum wages discussed here refer to those of Seattle and the Portland Metro Area.

†The latest 2017 increase was not included due to incomplete data.

‡The study used a “relatively conservative” $19 per hour low-wage threshold to account for the spillover effect of “miscoding jobs lost when they have really been promoted to higher wage levels….”


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in The Coos Bay World on July 10, 2017.

Critiquing Minimum Wage Laws Is About Protecting the Working Man (or Woman)

By Lydia White

A team of researchers from the University of Washington produced a study, published by the National Bureau of Economic Research, that measures the effects of Seattle’s minimum wage requirement of $13 per hour.

The study* found that the city’s mandates resulted in 3% higher hourly wages, but 9% fewer hours worked. As a result, the average low-wage employee lost around $125 per month. For low-income households especially, an annual loss of $1,500 is significant.

Jacob Vigdor, one of the study’s authors and a professor at UW, said, “Traditionally, a high proportion of workers in the low-wage market are not experienced at all: teens with their first jobs, immigrants with their first jobs here.”

Low-skilled, low-paying jobs provide the opportunity to acquire knowledge and experience, setting up workers for their next, potentially higher-paying jobs. The least skilled are further disadvantaged when artificially high price floors are implemented. Employers instead search for only the most qualified candidates, leaving more teens jobless, as Cascade Policy Institute’s study on the effects of the minimum wage on youth reported last December.

When economists warn against the costs associated with the minimum wage, it’s not to protect greedy capitalists; it’s to protect the worker from being priced out of the market.

For the benefit of all Oregonians, political leaders should learn from our northern neighbors and repeal the state’s onerous three-tiered minimum wage law.

*The study used a “relatively conservative” $19 per hour low-wage threshold to account for the spillover effect of “miscoding jobs lost when they have really been promoted to higher wage levels….”


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Oregon Legislature Should Make It Easier for Individuals to Enter the Landscaping Business

Below is a letter being distributed to all members of the Oregon House of Representatives prior to their voting on House Bill 3337 in the 2017 Oregon Legislative Session, which would make it easier for individuals to enter into the landscaping business in this state.


April 20, 2017

Floor Letter in support of HB 3337

Cascade Policy Institute supports passage of HB 3337 which creates a limited landscape construction professional license. This bill is in line with the framework for policymakers on occupational licensing issued by the Obama White House in 2015 which found…

“…the current [occupational] licensing regime in the United States…creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across state lines.”  And…

“There is ample evidence that States and other jurisdictions should review current licensing practices with an aim toward rationalizing these regulations and lowering barriers to employment.”

The White House report also argues that reducing barriers to employment is especially helpful for “marginalized persons such as young people, minorities and individuals with felony convictions.” It notes a 2012 report by the Institute for Justice, License to Work, which found that Oregon is the third most broadly and onerously licensed state, placing it in the top tier just below Arizona and California. Oregon licenses 59 of the 102 low-to-moderate-income occupations studied. Surprisingly, only ten states even licensed landscape contractors. Oregon is one of them.

There is growing awareness on both ends of the political spectrum that many state occupational licensing laws actually stifle economic opportunity and make it particularly hard for lower-income people to move their way up the economic ladder and use their entrepreneurial talents for their own benefit and the benefit of all Oregonians. Licensing can also marginalize consumers who suffer the most when goods and services they need cost more by keeping more people from vying for their business.

HB 3337 is a step in the right direction for those Oregonians who want to work and start landscaping businesses without the burden of excessive occupational licensing restrictions. We urge its passage.

Sincerely,
Steve Buckstein, Senior Policy Analyst and Founder, Cascade Policy Institute


Steve Buckstein is Senior Policy Analyst and Founder of Cascade Policy Institute, Oregon’s free market public policy research organization.

 

How Legislators Can Balance Oregon’s Budget—Without Raising Taxes

By Eric Fruits, Ph.D.

Despite an eight percent increase in general fund revenues, Governor Kate Brown and some lawmakers say Oregon is facing a $1.7 billion budget shortfall in the 2017-19 biennium. Nevertheless, the Governor has released a budget that expands entitlements while raising taxes, fees, and charges by nearly $275 million for the general fund alone.

Expanding programs while increasing taxes is something Oregon could do if it were a rich state. Oregon is not a rich state. Income for the average Oregonian is about nine percent lower than the national average, and the cost of living is 15 percent higher. In other words, the average Oregonian earns less but pays more for basic items than the average American. Oregon legislators and other policymakers must face the reality that the state simply cannot afford costly new or expanded programs.

My analysis published in Facing Reality: Suggestions to Balance Oregon’s Budget Without Raising Taxes (February 2017), by Cascade Policy Institute and Oregon Capitol Watch Foundation, identifies seven straightforward solutions to the state’s current budget crisis for savings of nearly $1.3 billion in the next biennium.* If all the solutions were implemented, none of the tax and fee increases outlined in the Governor’s budget would be necessary.

Governor Brown blames three-fifths of the budget crisis on Oregon’s decision to expand Medicaid coverage under the Affordable Care Act. Policymakers undertook the expansion with full knowledge that the federal government would be shifting some of the costs of expansion to the state. Janelle Evans, budget director for the Oregon Health Authority, estimates these costs to the state’s general fund will be as much as $360 million in the next biennium. With many portions of the ACA likely to be reformed or replaced by this Congress, Oregon can see immediate budget savings by opting out of the Medicaid expansion now.

The skyrocketing costs of Oregon’s Public Employee Retirement System presents the biggest long-run challenge to balancing state and local government budgets. As reported in The Portland Tribune, the impact on the 2017-19 state budget is approximately $500 million because the state funds two-thirds of the operating costs of school districts, which will also be hit with the steep increase in PERS costs. In addition to the higher costs of PERS padded into the agency costs, the Governor’s budget includes a $100 million line item to support the state’s increased PERS costs.

Senate Bill 560 provides a reform that would cap at $100,000 the final average salary used to calculate Tier 1 and Tier 2 retirement benefits. The PERS actuary calculates this reform alone would save the state budget approximately $135 million in the 2017-19 biennium.

Oregon has the 12th highest pay in the U.S. for state employees. The Governor’s budget proposes increasing the state government workforce by 675 full-time-equivalent employees. This expansion of the public sector workforce would cost the state more than $120 million in additional compensation costs for the 2017-19 biennium. A halt on adding more state employees during this biennium would free up resources and ward off some of the pressure to increase taxes, fees, and charges.

In addition to these items, Oregon can face its budget reality by adopting targeted reductions already identified by the Department of Human Services, reforming the state’s cash assistance programs, saying “no” to the Governor’s wish to expand Medicaid to those who are not “legally present” in the state, and saying “no” to Measure 98’s unfunded high school education spending mandate.

State tax revenues are approaching all-time highs. Nevertheless, the state must face the budget reality that Oregonians do not have the resources to support ever-expanding spending programs that outpace our ability to pay for them.

 

* Solution Impact
Medicaid—opt out of ACA expansion $360 million
Cover All Kids—reject expansion $55 million
PERS—$100,000 cap $135 million
Department of Administrative Services—halt additional hiring $120 million
Department of Human Services—targeted reductions $321 million
Department of Human Services—cash assistance reforms $160 million
State School Fund—reject Measure 98 $139 million
Total $1,290 million

 


Eric Fruits, Ph.D. is an Oregon-based economist and adjunct professor at Portland State University. Fruits has been invited to provide analysis to the Oregon Legislature regarding the state’s tax and spending policies. His testimony regarding the economics of the Oregon public employee pension reforms was heard by a special session of the Oregon Supreme Court. A version of this article originally appeared in The Portland Tribune on February 23, 2017.

Land Board Votes to Sell Elliott State Forest

By John A. Charles, Jr. 

On February 14 the Oregon State Land Board – comprised of Governor Kate Brown, Treasurer Tobias Read, and Secretary of State Dennis Richardson – voted 2-1 to sell 82,450 acres of the Elliott State Forest to a consortium of private parties led by Lone Rock Timber Management Company. The agreed-upon sale price is $220.8 million; and the net proceeds will be placed in the Oregon Common School Fund (CSF), an endowment for public schools.

This parcel is a small part of the Oregon Common School Trust Land portfolio of 1.5 million acres of lands that must be managed by the Land Board to maximize revenue over the long term for the benefit of public schools.

For many years the Elliott was a money-maker, but environmental litigation steadily reduced timber harvesting to a trickle. For the last three years the Elliott has actually lost money, which prompted the Board in August 2015 to vote unanimously to sell the Elliott and put the proceeds into alternative investments.

As a long-time Board member, Gov. Kate Brown repeatedly voted to sell the forest, but in December 2016 she changed her mind and announced her intent to use state bonding capacity to buy a portion of the Elliott and keep it in public ownership. Treasurer Ted Wheeler and Secretary of State Jeanne Atkins agreed with her conceptually, but no formal vote was taken and both of them have since left the Board.

At the meeting earlier this week, Gov. Brown made a motion to terminate any further negotiations to sell the forest, despite the fact that Lone Rock and its partners had spent at least $500,000 putting together a good-faith offer in response to the Land Board’s sale protocol. Her motion never received a second.

New Treasurer Tobias Read indicated that he was uncomfortable walking away from the offer at the last minute, and that the legal doctrine of “undivided loyalty” to Common School Fund beneficiaries – public schools – compelled him to sell the money-losing forest. Secretary of State Dennis Richardson concurred and the Governor was out-voted.

Cascade Policy Institute has been urging the Land Board to sell the Elliott since 1996, when the forest was valued at roughly $800 million. It was evident to us that over the next several decades, environmental lawyers would treat the Elliott like a legal piñata and file continuous lawsuits to prevent timber harvesting. That is exactly what happened, turning this vibrant forest into a net liability by 2013.

Cascade published a number of technical papers demonstrating that over virtually any time period and under any reasonable set of assumptions, Oregon schools would be better off if the Board simply sold the forest and put the net proceeds into stocks, bonds, and other financial instruments. These papers were ignored by multiple generations of Land Board members, including John Kitzhaber, Ted Kulongoski, Jim Hill, Phil Keisling, Randall Edwards, and Kate Brown.

Many editorial writers are urging the Land Board to “hit the pause button” on this sale, but the fact is the Board has been “pausing” since at least 1995. As timber harvest receipts steadily declined over the next several decades, Oregon wasted more than $3 million trying to negotiate a so-called “Habitat Conservation Plan” with the federal government that would shield Oregon from further litigation. Such an agreement was never reached.

In a report paid for by the Department of State Lands in 2015, experts found that the failure to sell the Elliott in 1995 – as recommended by a Department of Forestry consultant – had cost public schools $1.4 billion in lost earnings over a 20-year period.

Gov. Brown’s last-minute effort to buy back timberland the public already owns was poorly thought out. Most of the media observers – who tend to favor public ownership – have apparently overlooked the fact that any revenue bonds sold by Oregon would have to be paid off by profits generated on-site. Since the Elliott has been steadily losing money under public management, it’s unlikely that anyone would even buy such bonds.

Although selling the Elliott was the right thing to do, we will never know if the public received fair market value because the Land Board refused to take competitive bids. In 2016 the Board established a price of $220.8 million based on multiple appraisals, and no one was allowed to offer a higher amount. Clearly, this was a bizarre way to sell a valuable asset and demonstrates how Kate Brown, Ted Wheeler, and Jeanne Atkins consistently abdicated their fiduciary responsibilities in favor of a political agenda to retain public ownership.

Treasurer Read and Secretary Richardson deserve credit for moving forward with the sale. Neither of them wanted to do it, but they understand that they have an obligation to current and future public school students to add value to the Common School Fund.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

“Facing Reality” Report Offers Solutions to Governor Brown’s $1.7 Billion Budget Hole Without Raising Taxes

FOR IMMEDIATE RELEASE

Media Contacts:

Steve Buckstein (503) 242-0900

Jeff Kropf (541) 729-6229

PORTLAND, Ore. – Cascade Policy Institute and Oregon Capitol Watch Foundation jointly released a new report Wednesday, entitled Facing Reality: Suggestions to balance Oregon’s budget without raising taxes. The report offers practical solutions to fill Governor Kate Brown’s estimated $1.7 billion budget hole without raising taxes.

Facing Reality is the third budget blueprint in a series: In 2010 and 2013 Cascade Policy Institute and Americans for Prosperity-Oregon published Facing Reality reports that offered state legislators an opportunity to “reset” state government using the time-tested principles of limited government and pro-growth economic policies.

“Oregon has over one billion dollars more to spend than the last budget but is still nearly two billion short because Governor Brown’s budget continues out-of-control and unsustainable spending,” said Jeff Kropf, Executive Director of Oregon Capitol Watch Foundation. “It’s time to face the reality that raising taxes will never provide enough money to build the fantasy utopia envisioned by the Governor and current legislative leadership. There is no free lunch, and new taxes are only going to hurt the poor and the middle class.”

Facing Reality outlines $1.3 billion in reduced spending in seven specific areas which, coupled with small across-the-board agency reductions, equals $1.7 billion, enough to fill the Governor’s estimated budget hole and removing the need to raise taxes.

“Keep in mind that even with our Facing Reality budget reductions, the state of Oregon will still be spending more money than the previous budget,” said Steve Buckstein, Senior Policy Analyst and Founder of Cascade Policy Institute. “The reality the Governor and the legislature must face is that the bill for years of overspending is coming due, and raising taxes that hurt the economy is not the answer. Reducing how fast spending grows is the sustainable way forward.”

This third Facing Reality report offers politically possible solutions to meet the needs of Oregonians. It still gives most state agencies more money to spend, but without enacting new taxes being proposed by the several dozen tax increase bills introduced for consideration in the 2017 legislative session.

Here are the seven specific budget reductions proposed in Facing Reality:

Solution Impact
PERS—$100,000 cap $135 million
Department of Administrative Services—halt additional hiring $120 million
Medicaid—opt out of ACA expansion $360 million
Cover All Kids—reject expansion $55 million
Department of Human Services—targeted reductions $321 million
Department of Human Services—cash assistance reforms $160 million
State School Fund—reject Measure 98 $139 million
Total $1,290 million

For agencies not identified for specific reductions in the report, across-the-board reductions of about three percent from Governor Brown’s budget would eliminate the shortfall she identified. If this plan were implemented, none of the tax and fee increases outlined in the Governor’s budget would be necessary.

Buckstein and Kropf note, “Most Oregonians must face their own family budget realities every day. Facing Reality is a good-faith effort to hold our state government to the same budgetary realities. We look forward to working with state legislative and executive branch leaders to help implement such realities in 2017.”

Read the full report here: Facing Reality: Suggestions to balance Oregon’s budget without raising taxes

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity.  Oregon Capitol Watch Foundation is a 501(c)3 charitable educational foundation dedicated to educating Oregon citizens about how state and local governments spend their tax dollars by researching, documenting, and publicizing government spending and developing policy proposals that promote sound fiscal policies and efficient government.

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Bad Consequences of Public Policies Aren’t Really “Unintended,” Just “Unacknowledged”

By Steve Buckstein

Decades of research and experience tell us that raising the government-imposed minimum wage results in fewer younger and lower-skilled individuals being hired, and in some of them losing jobs they previously held at lower wages.*

Decades of research and experience also tell us that requiring landlords to charge lower rent than market conditions dictate results in fewer housing units being built, making housing shortages worse and raising housing costs in areas not subject to rent controls.**

During last year’s minimum wage debate in Oregon, pointing out the negative consequences was not enough to stop the legislature from imposing significant wage increases. Likewise, this year the legislature may allow local jurisdictions to impose rent controls even though opponents will surely point out the negative consequences of this policy also.

It now seems obvious what is happening. Supporters of minimum wage increases and rent control aren’t blind to their negative consequences; they simply refuse to acknowledge them because the political benefits outweigh the real costs imposed on those forced to endure them.

The harm done by minimum wage increases and rent control is so obvious that we should probably stop saying that their negative consequences are “unintended.”  Rather, we should say that their negative consequences are “unacknowledged” because their supporters refuse to admit that they exist.

* Making Youth Unemployment Worse, Randall Pozdena and Steve Buckstein, Cascade Policy Institute, December 2016

** The Rent Is Too Damn High! — Why Rent Control Won’t Help, Steve Buckstein, Cascade Policy Institute, September 2016


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Making Youth Unemployment Worse

The unintended negative effects of raising minimum wage rates

By Randall Pozdena and Steve Buckstein

President-elect Donald Trump has nominated the CEO of one of the nation’s largest fast food chains to serve as U.S. Secretary of Labor. The food preparation and serving industry employs almost half of all minimum wage workers. It is thus widely assumed that the nominee would be unfriendly to minimum wage regulation. Efforts such as the union-financed Fight for 15 are seeking to raise the federal minimum wage in the food service industry to $15 per hour—a 52 percent increase over the $9.87 average pay rate in the industry today.

The spotlight has thus returned to the issue of minimum wage regulation, including the impact of recent Oregon legislation. SB 1532, passed in 2016, phases in a $14.75 minimum wage in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas, by 2022. The average annual increase over the prior (statewide) minimum wage would be 8.5, 6.6, and 5.0 percent respectively for these three tiers over the 2016-2022 phase-in period. As with the last major reform in 2002, the legislated minimum wages would be adjusted after that time by any increases in the CPI.

To put these events in perspective, Cascade Policy Institute has released a major, new analysis of the history, theory, and empirical impacts of minimum wage regulation. The report focuses on the labor market impacts on youth, aged 16 to 24—the age cohort most likely to be affected as new entrants into the labor force. The study uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

The findings have ominous implications for youth labor markets. First, as many studies over the past fifty years have shown, the new study finds that increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.

Second, contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.

Third, the study finds that even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.

Oregon’s newest policy of legislating different minimum wage levels among metro and designated rural markets is, ironically, a concession to the reality that unregulated private market forces better balance the supply and demand for youth labor. Since the state imposed higher-than-market levels of wages nonetheless, the new study uses its findings to estimate the impact on the three tiers’ respective youth labor markets.

Although detailed, localized youth employment data for Oregon does not exist, application of the nationally estimated behavior measures can be used to estimate regional tier impacts. This analysis suggests that Portland metro area youth will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Even though a three-tiered minimum wage is an attempt to accommodate real economic differences between urban and rural areas, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.


Randall Pozdena is President of QuantEcon, Inc., an Oregon-based consultancy. He received his BA in Economics from Dartmouth College and his Ph.D. in economics from the University of California, Berkeley. He is the author of Cascade Policy Institute’s new analysis, Minimum Wage: Its Role in the Youth Employment Crisis. Steve Buckstein is Senior Policy Analyst and founder of Cascade Policy Institute, Oregon’s free market public policy research organization.

Cascade Report Finds Long-Term Negative Impacts on Youth from Oregon’s New Minimum Wage Policy

FOR IMMEDIATE RELEASE

Media Contact:

Steve Buckstein

Senior Policy Analyst

Cascade Policy Institute

(503) 242-0900

steven@cascadepolicy.org

PORTLAND, Ore. – Cascade Policy Institute released a report today that has foreboding implications for young people in our state. The report was commissioned after passage of SB 1532 earlier this year, which phases in large increases in Oregon’s minimum wage. The law mandates minimum wages by 2022 of $14.75 in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas. These rates must be adjusted after 2022 by any increases in the Consumer Price Index.

Authored by Oregon economist Randall Pozdena, Ph.D., Minimum Wage: Its Role in the Youth Employment Crisis analyzes the history, theory, and empirical impacts of minimum wage regulation. It focuses on youth aged 16 to 24 because they are most likely to be affected by minimum wage increases as new entrants into the labor force. The report uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

“This report confirms ominous long-term negative consequences of minimum wage increases, not just for those currently 16 to 24 years old, but for future potential workers coming into this age group,” said Steve Buckstein, Cascade’s founder and Senior Policy Analyst. 

Key findings of the report: 

  • Increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.
  • Contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.
  • Even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.
  • Portland metro area youth likely will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Buckstein and Pozdena conclude that “even while bowing to the reality of economic differences between urban and rural areas of the state in its latest minimum wage law, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.”

The report, Minimum Wage: Its Role in the Youth Employment Crisis, is available here.

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Portland’s Zoning Policies Make the Housing Crisis Worse

By Lydia White

The masterminds behind Portland’s newest inclusionary zoning recommendations have proven once again to be economically illiterate.

The Portland Planning and Sustainability Commission unanimously recommended requiring developers with 20 units or more to make 20% of units “affordable” at 80% of median family income, or 10% “affordable” at 60% median family income.

This policy fails to accomplish the Portland Housing Bureau’s stated intentions to “harness the economic power of the private market to increase the supply of affordable housing.”

A simple economics lesson would show them their policies exacerbate the city’s affordable housing crisis.

Developers are indeed responsive to basic economic concepts like incentives and cost-benefit analyses. They will not, and cannot, eat 20% of their costs. As with any tax, costs are passed on to consumers. Developers must offset their losses by accepting taxpayer-funded subsidies, cutting costs (such as forgoing routine maintenance or major repairs), or raising the prices of remaining units. This makes housing even less affordable, forcing lower-income households out of the city and spurring gentrification.

Until such unintended consequences are seriously considered, Portland city leaders will continue to amplify the housing crisis. Only the most out-of-touch city planners believe they can defy the laws of economics and make a scarce commodity more affordable by decreasing its supply.


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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