Give Every Oregon Employer a Personalized Minimum Wage

Union-backed and activist groups are trying to put measures on the November 2016 ballot to raise Oregon’s minimum wage from the current $9.25 to either $13.50 or $15, and to allow local governments such as the city of Portland to go above whatever the statewide minimum ends up being.

State Senator Michael Dembrow (D) thinks he can improve minimum wage policy by recognizing that different regions of that state have different costs of living and employment climates. He’s trying to craft a bill for the February 2016 legislative session that would set three different minimum wage rates: one for the Portland Metro region, one for the Willamette Valley, and one for everywhere else.

Assuming the Senator is on to something (a dubious assumption at best), why stop at three rates? Clearly, every employer has somewhat different circumstances, so why not set a different rate for each of them? Dembrow could give each employer a hearing lasting as long as the legislature gives the public to testify on bills—three minutes—to explain their particular circumstances. He then could assign them their own personalized minimum wage rates. Assuming about 100,000 employers in the state, working eight hours every business day with no breaks, the Senator could have the perfect minimum wage bill crafted in only two and a half years. Voilà, problem solved! Or is it?

Of course, in reality, Dembrow and the activists are trying to solve a problem through government that is better left to free people in a free society. Minimum wage laws are nothing more than price controls that end up hurting the very people they purport to help: often young, less educated, and less experienced workers who will find it harder to get or keep a job when the government prices their labor above what a business can economically justify.

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

The Minimum Wage Conversation Never Ends

Oregon and some other states mandate that their minimum wage increase every year with the Consumer Price Index. Based on that formula, last Wednesday it was announced that Oregon’s minimum wage, the second highest in the country at $9.25 an hour, will stay unchanged in 2016.

That same evening during the Republican presidential debate, one candidate called for both a higher national minimum wage and for indexing it to inflation. He argued that this would mean “we never have to have this conversation again in the history of America.”

Well, if Oregon is any example, that’s not exactly true. Oregon began indexing its minimum wage in 2002. Yet, earlier this year, there were no fewer than twelve legislative bills introduced to raise the rate to as high as $15 per hour. Activists promised that if the legislature didn’t act, they would put a measure on the 2016 General Election ballot.

So clearly, putting minimum wage increases on autopilot won’t take this conversation off the table. Until legislators and voters understand that income cannot be generated by state mandate, minimum wage increases will continue to hurt the very workers they’re meant to help: the young, the less educated, and the less skilled. They are the ones who often can’t produce enough value for employers at higher wage rates to justify gaining or keeping a job.

Minimum Wage Follies

Fourteen bills have been introduced in the Oregon legislature to raise Oregon’s already high minimum wage or let localities do so. Apparently, some legislators believe that political laws can override the laws of economics.

In this case, the law of supply and demand tells us that raising the price of labor will lead employers to demand less of it. Those hurt will likely be less skilled, younger, and less educated workers who will find it harder to find jobs or will be let go from jobs they did have at lower wages.

Not exactly the outcome proponents foretell, but they may be OK with it because those harmed by their policy aren’t likely to blame them. They’re more likely to blame the employers who let them go or don’t hire them in the first place.

Proponents know that they have little to lose and much to gain politically by telling workers that they deserve to be paid more, and that it’s only greedy business owners standing between them and the higher wages they desire.

If legislators don’t commit the folly of increasing the minimum wage this year, a union backed group has filed an initiative to raise it from the current $9.25 up to $15 per hour. That will give voters the opportunity next year to commit the folly themselves.

Oregon’s Minimum Wage Debate: Disadvantaged Youth Are Crucial Issue

The Oregon legislature is considering raising the minimum wage over the next few years from $9.25 per hour to as much as $15. What the minimum wage means for disadvantaged youth should be the central question of this controversial topic. Plenty of middle- and upper-class teenagers take their first jobs at the minimum wage, working part-time or summers. I don’t much care whether they make five dollars an hour or ten or fifteen. They’ll be fine.

There are also some older people working at low-skilled jobs. A higher minimum wage doesn’t really solve their problem, which is low skills. However, many people parlay on-the-job learning into higher-paying jobs. Combine that with some more education and these folks should be all right.

Disadvantaged teenagers and youth in their early 20’s concern me, however. For them, the minimum wage is a big issue.

When my own kids were going out to their first job interviews, their mother and I prepped them well. We both had experience in job interviews and we helped our kids succeed at theirs. Many disadvantaged youth lack parents with good work experience themselves, so they go into their first job interview with no coaching. Which kid do you figure gets the job? It’s usually not the teenager who stares at his shoes instead of the manager’s eyes, who stammers and is unsure of himself and is surprised by simple questions.

Put this into a business context. Suppose you are trying to sell a product that looks inferior on the outside. You are sure that your product’s functionality is as good as the better-looking competitors, but yours doesn’t present itself as well. What would you do?

A business manager’s first thought might be to cut the price. Other approaches are to offer free samples, introductory discounts, special coupons, and so forth. These marketing techniques could get buyers to try your product.

The disadvantaged youth is not allowed to do any of these things. The wage cannot be lower than the legal minimum, no unpaid work is tolerated by our laws, no discounting or trial offers are allowed. The kid who interviews poorly is in trouble.

This is the worst kind of trouble for both society and the young person. We need disadvantaged youth to get jobs and learn the soft skills every employer wants: following instructions, getting along with others, serving customers. The first job is vital for learning those skills. (I recall learning a lot in my first job: to get along with people I didn’t much like, to take direction from a boss I didn’t respect, and to accept that I had to do the worst tasks because I was the newest employee. These were all valuable lessons.)

To help disadvantaged youth, we need to let them compete. That means a low or zero minimum wage. Employers will provide more coaching and help for workers just starting out if that’s what it takes to get workers at a low wage. And that is exactly what will help disadvantaged youth in the long run.

Government-Imposed Minimum Wage Increases Don’t Work for Oregon Small Businesses

The concept that everyone should earn at least some government-mandated minimum wage is politically very appealing. It’s almost the classic example of taking from the few and giving to the many. “The few” in this case are portrayed as rich businessmen who could never spend all the money they have, so what’s wrong with making them pay their workers a little more? Now, proponents of raising Oregon’s minimum wage are trying to convince us that somehow such policy is actually good for small business owners.

A recent report from the Oregon Center for Public Policy claims that a higher minimum wage works for small businesses by giving them “more of what they need most: customers with money.”

In reality, raising the minimum wage would only benefit small businesses if owners didn’t mind depleting their own savings or investment funds in order to support higher labor costs. Otherwise, they would have little choice but to raise prices, which would harm all their customers, especially those on the lower rungs of the economic ladder.

And, because minimum wage laws actually cut off those lower rungs on the economic ladder, younger, less educated, and less experienced workers will be even less likely to get or keep the very jobs they need to be customers in the first place. They may spend their unemployment checks, but those checks won’t go as far once prices are raised to cover the higher labor costs that a boost in the minimum wage imposes.

The argument that a higher minimum wage pumps more money into the economy assumes that the resulting pay increases are somehow “new money.” In reality, much if not all of that “new money” will be offset by a corresponding loss of savings or investment funds that otherwise would contribute to more economic growth and hiring more workers.

Just because low-wage workers are likely to quickly spend any wage increases doesn’t mean that on balance that’s good for small business. Taken to its logical conclusion, that would mean small business owners, and everyone else, should never save and invest for the future, but immediately spend every dollar they earn also. If this behavior really benefitted the economy, why are we seemingly so concerned about the dismal rate of saving and investing for retirement among Oregonians? Couldn’t small businesses benefit even more by encouraging everyone to spend all their income right now?

Another set of arguments for raising the minimum wage include the assumptions that higher wages “motivate employees to work harder;” “attract more capable and productive workers;” “lead to lower turnover, reducing the cost of hiring and training new workers;” and “enhance quality and customer service.”

While higher wages may lead to the benefits stated above, if business owners believe that is the case then they should be willing and eager to raise wages whenever possible. The fact that minimum wage proponents want to force business owners to reap these benefits weakens their case.

Finally, there is a real irony in the campaign to boost Oregon’s minimum wage. Minimum wage laws conspicuously leave out a class of individuals who don’t get a paycheck from someone else, but hopefully get one from themselves. Self-employed people, small business owners, and entrepreneurs trade a steady paycheck for the opportunity to be their own boss. They often risk everything―their homes, their savings, all their assets―to build a business that might someday earn them a much higher paycheck than they could ever earn working for someone else.

But, while building a business, many entrepreneurs actually earn less than the minimum wage. They may actually have negative earnings, dipping into savings or borrowing money to keep their doors open and pay their employees. And yet, if these risk-takers hire anyone to help them make their dreams come true, government says they must pay those workers at least $9.25 per hour in Oregon today, and perhaps as much as $15 per hour in the near future.

So, while business owners are free to do a lot of things, and take a lot of risks, one thing they cannot do is hire anybody for less than the minimum wage, even if they are earning less than that themselves. Of course, this may not be a winning argument politically.

It’s easier to demonize supposedly “rich” business owners than to tell workers and job seekers the uncomfortable truth that to be employed in a successful business they must produce as much or more value than they wish to be paid.

Proponents of raising the government-mandated minimum wage know that they have little to lose and much to gain politically by telling young, less educated, and less skilled workers that they deserve to be paid more, and it’s only greedy business owners standing between them and the higher wages they desire.

Let’s just hope that if another bump in Oregon’s minimum wage results in some workers losing their jobs and others not getting hired in the first place that they place the blame for their troubles where it belongs―not on employers, but on those who promised them higher wages but couldn’t deliver because economic reality stood in the way.

Seattle’s Giant Job Killer

By Erin Shannon

The city of Seattle made history last month with an ordinance that will force every employer in the city to pay every worker a $15 per hour minimum wage, which is the highest in the nation. But before progressives in Portland try to hold up Seattle as a model, they should watch what happens to workers there. The controversial wage mandate passed by Seattle’s City Council has not even been enacted yet, but it is already having a chilling effect on jobs.

Small business owners are expressing deep worry over the coming super-high minimum wage. Many of these job creators say they are holding off on opening new ventures or expanding their current business in Seattle, while others say they are delaying plans to hire new workers. A commercial property landlord says several of her tenant business owners may not renew their leases if the $15 wage becomes law.

As she puts it, “It’s just too expensive to operate in the city.”

Even business owners who have supported a higher minimum wage are having a change of heart. Jody Hall, owner of Cupcake Royale and respected progressive activist, initially supported a $15 minimum wage. But now she says the proposed policy is “keeping me up at night like nothing ever has.”

Hall told KUOW/NPR radio she now has “serious second thoughts” about a $15 minimum wage, especially since Seattle would be “going it alone” with a wage that is significantly higher than any other minimum wage in the nation.

Her second thoughts about a $15 minimum wage mandate have led to second thoughts about expanding her business. She had planned to open a new business in Seattle this year but has tabled the idea for now. Hall says if she considers any new locations in the near future, they will be outside the city limits.

That is one way a high minimum wage often kills job opportunities, by eliminating them even before they are created.

A city-commissioned study says a $15 minimum wage would help low-wage workers and reduce poverty. But the mandate can help only people who have jobs; this study omitted any estimations of the impact on employment. A subsequent study by a Seattle economist predicted significant job losses.

 

It would seem the Seattle economist has been proved right early. The $15 wage is not yet in effect, and it is already pushing businesses into neighboring cities and killing jobs in Seattle, as business owners stop growing their companies and hiring new workers.

Employers cannot pay workers more than the value of their output. If an employer must pay a worker $15 per hour, he must ensure the worker produces at least that amount in economic value, or the employer will be forced to reduce the cost of labor in the only legal way remaining, by cutting benefits or hiring fewer people.

That’s what is happening in SeaTac.

Northwest Asian Weekly reports employees subject to the narrowly passed $15 minimum wage law in that Seattle suburb say they have lost benefits such as 401(k) plans, paid holidays, paid vacation, free food, free parking and overtime hours. One hotel waitress said she is earning less now because tips have decreased since the high wage law. In many cases these benefits, plus the previous minimum wage, added up to more than workers receive under the $15 wage law.

As one SeaTac worker put it, “It sounds good, but it’s not good.”

SeaTac’s $15 minimum wage has been in effect less than six months, and workers in that city are discovering the high-wage mandate comes with a steep cost. In Seattle, a minimum wage has not even gone into effect, and employers are already adjusting by canceling plans to expand and hire new workers. We can expect many Seattle businesses to cut benefits as SeaTac employers had to. Others, especially small businesses, will be forced to lay off workers.

“$15 Now!” is the battle cry of activists in Seattle. A more accurate slogan would be, “It sounds good, but it’s not good for workers.”

The last thing workers need is fewer jobs.


 

Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in the Puget Sound Business Journal.

Seattle’s $15 Minimum Wage: A Wolf in Sheep’s Clothing

By Erin Shannon

On June 2 the Seattle City Council made Seattle the first city in the nation to mandate a $15 minimum wage for all workers. But far from being a victory for workers, a super-high minimum wage is likely to cause more harm than good by destroying businesses and reducing workers’ options.

Effective April 1, 2015, all businesses must pay $10-$11 per hour, with the remainder of the $15 wage phased in over seven years for small businesses (those with less than 500 employees), and three years for large businesses (those with 500 or more employees).

While supporters of the $15 wage say it will have no negative impact on the city’s employment or economy, the reality is it is already killing jobs. Some business owners in Seattle say they are holding off on opening new business or expanding their current business, delaying plans to hire new workers and even moving into neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.

Restaurants, in particular, will be hit hard by Seattle’s new wage. The Puget Sound Business Journal reports that one restaurant owner calls the $15 wage a “mortal threat” and has halted plans to open another location. The CEO of a restaurant chain says his company is also holding off opening new locations in Seattle, and will likely be forced to reduce employees’ health benefits. The company currently offers health care coverage to employees who work at least 25 hours per week, but that may now be increased to 30 hours per week. That company will also likely eliminate tips for servers, and instead automatically charge customers a service charge or gratuity that would be split between servers and other restaurant staff, such as kitchen workers.

And it is not just Seattle workers who are losing potential jobs and reduced benefits. In a twist, the $15 wage is impacting job creation and worker benefits in other cities.

A pizza franchise with 11 locations, six of which are in Seattle, that employs 430 workers has tabled plans to open another location in Lynnwood over concerns the new location and its new jobs would bump the company into the “big business” category. Under the new law, “big businesses” have a shorter phase-in of the high wage; they must begin paying all workers $15 over the course of three years. By

staying under the 500-employee threshold, the company remains a “small business” and has up to seven years to phase in and adjust to the new wage for its six Seattle stores. That is 70-plus jobs workers in the city of Lynnwood just lost.

The company that says it may reduce health benefits in response to the $15 wage would have to do so for all of its workers, even those outside Seattle. Federal law requires companies to offer the same health benefits to all employees. So if the company is forced to increase the threshold to qualify for health benefits in order to offset the new high wage of employees in Seattle, it must increase the benefit threshold for all employees, including those earning a lower minimum wage in other cities.

The CEO of the chain restaurant warns that many small, mom-and-pop businesses will go out of business as a result of the increased labor costs: “Successful downtown restaurants will find a way to make it work, but smaller restaurants will die.”

This sentiment is echoed by the CEO of CKE Restaurants, which owns Carl’s Jr. and Hardee’s. Andy Puzder, author of the book Job Creation, says the push for a higher minimum wage is the one of the greatest threats facing restaurants: “I think you’ll see a lot of restaurants closing. I don’t think that restaurants can operate profitably if they’re paying a $15-an-hour minimum wage.”

Some of Portland’s leaders want to imitate Seattle, but they should think again. Those who support higher minimum wages may not have bad motives, but good motives in support of bad policy still result in driving job creators out of our communities and hurting the very people they want to help.


 

Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization.

Small Business Owners Say: $15 Minimum Wage Is a “Mortal Threat”

This week Seattle became the first city in the nation to mandate a $15 minimum wage. But far from being a victory for workers, a super-high minimum wage is likely to cause more harm than good by destroying businesses and reducing workers’ options.

Washington Policy Center’s Erin Shannon writes: “Some business owners in Seattle say they are holding off on opening new business or expanding their current business, delaying plans to hire new workers and even moving into neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.” A restaurant CEO (whose employees already make $18-22 per hour) told The Puget Sound Business Journal that the increased labor costs will be “a mortal threat” to Seattle businesses.

Some of Portland’s leaders think we should imitate Seattle. We should not. Cutting off the lower rungs of the economic ladder with a super-high minimum wage makes it that much more difficult for young people and those with less education to even reach the first rung on the ladder―and then move on to higher skilled, better paying jobs. Those who support higher minimum wages may not have bad motives, but good motives in support of bad policy still result in driving job creators out of our communities and hurting the very people they want to help.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

Take That First Job

A week after Labor Day, The Oregonian published a front-page story about Oregonians who rely on public assistance and how state officials want to help them transition into the workforce. What the article doesn’t mention, however, is that in 13 states, including Oregon, being on welfare can pay more than $15 per hour. The level of public assistance currently available to welfare recipients, compared with the wages they might earn for entry-level work, can act as a severe disincentive to taking a first job and breaking the cycle of long-term dependence.

According to a new study by the Cato Institute, welfare currently pays more than a minimum-wage job in 35 states. That’s more than $31,000 per year, tax-free. Instead of helping people to transition into the workforce, ever-expanding government programs―and the tax disincentives of earned income―can trap the poor at the bottom of the economic ladder just as they are trying to begin the climb.

In The Work Versus Welfare Trade-Off: 2013, authors Michael Tanner and Charles Hughes compare welfare benefits available to a “typical welfare family” (which they define as a single mother with two children) with the wages the adult would need to earn to take home an equivalent dollar income. The authors note that reports on welfare commonly focus on the cash-benefit program Temporary Assistance for Needy Families (TANF), giving the impression that welfare benefits provide families with “a bare subsistence level of income.” “In reality,” Tanner and Hughes write, “the federal government currently funds 126 separate programs targeted toward low-income people, 72 of which provide either cash or in-kind benefits to individuals.” This being the case, a more accurate assessment of the value of welfare “is likely to be far higher than simply the level of TANF benefits.”

The conclusion? In many states, a welfare recipient would lose money by accepting full-time work instead of continuing to rely on public assistance. Welfare benefits are tax-free, so they can exceed the take-home pay a typical recipient could expect to earn entering the workforce. According to the Cato study, “[i]n 11 states, welfare pays more than the average pre-tax first year wage for a teacher. In 39 states it pays more than the starting wage for a secretary. And, in the 3 most generous states a person on welfare can take home more money than an entry-level computer programmer.”

With disincentives like this, it’s hard for people with few skills to give up the security of a welfare check for any kind of paid work. For those with tenuous work habits, or who are very young, it may take even more motivation to forgo welfare (and the leisure time they have while not holding a job) in favor of the hard work, inconvenience, and discipline involved with earning that first entry-level wage. But it is precisely by working that people gain the skills and experience needed to progress in a job, get promoted, earn raises, receive further education or training, create professional networks, think in longer timeframes, build assets, and be in a place where new doors of opportunity can open.

Both research and common sense clearly demonstrate that work is crucial to escaping poverty, beginning with a low-wage, entry-level, or even part-time job if necessary. The U.S. Census Bureau reported in 2010 that only 2.6 percent of full-time workers and 15 percent of part-time workers are poor, according to Federal Poverty Level standards. In contrast, 23.9 percent of adults who do not work at all are poor. A widely cited 2009 Brookings Institution study by Ron Haskins and Isabel Sawhill likewise asserted that three key factors in avoiding poverty in adulthood (and becoming middle class) are to finish high school, to work full time, and to marry before having children. Only two percent of people in the U.S. who do all three of those things live in poverty.

Unfortunately for those who want to leave welfare and become wage earners, the short-term financial consequences are not in their favor while they have few skills, limited education, or little work experience. If young people at the point of entry to work, and people who currently rely on public assistance, lose the belief that earning a paycheck is better in the long term than drawing a benefit check, the cost to their futures will be significant. The workforce participation rate for men 16-24 has dropped from 80% in the 1970s to about 58% today. Young men, especially with less education, are increasingly opting out of the workforce, and not just due to a weak economy. An enabling factor is that with all the government entitlements available, work doesn’t seem to pay.

Many welfare recipients do want to work and are trying to find employment. But many others will continue to make what seems to them to be a rational choice to stay on welfare if it pays more. If policymakers want to reduce dependence and reward work, they should strengthen welfare work requirements and resist allowing the cumulative benefits of welfare to continue to outpace earned income. Tax reform allowing low-wage workers to keep more of their own money (such as the recent temporary reduction in the FICA tax) would be a great boost for people leaving welfare for work. Taking a paying job is and always will be the on-ramp to the road to the middle class.

Kathryn Hickok is Publications Director at Cascade Policy Institute, Oregon’s free market public policy research organization.

Welfare Pays More Than Entry-Level Work in Most States

Welfare currently pays more than a minimum-wage job in 35 states, according to a new study by the Cato Institute. In 13 states, including Oregon, being on welfare can pay more than $15 per hour. That’s over $31,000 tax-free dollars a year. This decreases welfare recipients’ incentive to accept entry-level work and increases their chances of long-term dependence.

Studies show a crucial key to escaping poverty is work, beginning with a low-wage, entry-level job if necessary. But in many states, welfare pays more than being a starting secretary or even a first-year teacher (and in three states, an entry-level computer programmer). With incentives like this, it’s hard for people with few skills to give up the security of a welfare check for any kind of paid work. Welfare benefits are tax-free, so they can exceed the take-home pay a typical recipient could expect to earn entering the workforce. This traps welfare recipients at the bottom of the economic ladder.

Many welfare recipients do want to work and are trying to find employment. But many others make the rational choice to stay on welfare if that pays more than the work for which they are qualified. If Congress and state legislators want to reduce dependence and reward work, they should strengthen welfare work requirements and resist allowing the cumulative benefits of welfare to continue outpacing the benefits of earning income.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

1 2 3