The Minimum Wage In Washington And Idaho

From The New York Times, via The Economist’s View blog, we learn that small business owners in Washington state have not been harmed by Washington state’s relatively high minimum wage — not even businesses in tows that border Idaho, where the minimum wage is $3 lower.

The article is anecdotal, but it matches a lot of empirical evidence showing that modest increases in the minimum wage don’t increase unemployment, either by forcing employers to hire fewer people, or by forcing small employers out of business. One possible reason for this, alluded to in the article (and by Mark at Economist’s View), is that better-paid employees tend to value their jobs more, and so work harder and quit less often.

I don’t there is any serious evidence-based case against raising the minimum wage any longer. The only reasons to oppose the minimum wage left are reasons of pure ideology, or of class warfare.

There’s an extensive quote from the article below the fold.

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.

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, … businesses here … 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 that is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete. … “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 [in Washington], 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… “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. …

[T]he 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. …

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 said he raises prices slightly. But he said most customers barely notice. He sells more pizza, he said, because he has a better product …

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.”

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17 Responses to The Minimum Wage In Washington And Idaho

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  3. “ideology, or of class warfare” — hmmm. I’d say they are the same.

    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.

    aiyiyiyiyiyi. That is just sad, that chain of associations.

  4. 4
    RonF says:

    The new minimum wage law exempts StarKist Tuna from paying the new minimum wage. Their owner, DelMonte, is headquartered in San Francisco, which is in the new House Majority Leader’s district. And according to Wikipedia (free free to take Wikipedia with a grain of salt, though, I always do), her husband owns $17M of DelMonte stock. I guess it helps to have friends in high places.

  5. 5
    Tom T. says:

    Note, however, that state unemployment in Nov. 2006 was 5.0% in Washington vs. 3.3% in Idaho, and local unemployment was 4.6% in Spokane vs. 3.5% in Coeur d’Alene. I agree that the minimum wage seems unconscionably low, but the difference in unemployment does make me wonder whether it might still be a bit of an overstatement to say that there’s no evidence of a negative effect. Maybe there are other reasons for those differences, of course.

  6. 6
    Ampersand says:

    Tom, since we shouldn’t expect unemployment rates to be identical in the two states, data like that isn’t meaningful. What you have to look at is how the unemployment rates changed before and after a rise in Washington’s minimum wage; if it’s true that MW causes a significant rise in unemployment, that should result in unemployment rising in WA but not Idaho after the MW in Washington went up.

    Ron: That’s simply not an accurate description of what the article you link describes. Also, since American Samoa has had a lower minimum wage than the rest of the USA for many years, it seems needlessly partisan to blame the disparity on Pelosi.

  7. 7
    RonF says:

    Hm. I wrote a bit hastily. Then let me quote the passage:

    The minimum wage bill passed by the House last week curiously exempts American Samoa, where thousands of people are employed in a packing plant owned by Del Monte Corp., parent of StarKist Tuna. Del Monte just happens to be headquartered in Pelosi’s San Francisco.

    So, actually, Del Monte was not called out in the bill, but American Samoa was. Sorry about that. The chain of benefit to a company HQ’d in the Speaker’s district and to the Speaker’s husband still stands, however.

  8. 8
    Ampersand says:

    Actually, it turns out that the article you linked to doesn’t even get the basic facts of the situation right.

    From Wikipedia:

    The 110th Congress, now under Democratic control, proposed the Fair Minimum Wage Act of 2007 on January 5, 2007. This legislation would raise the Federal Minimum Wage to $7.25/hour over 26 months, and was passed by the House (315 to 116) on January 10, 2007. To become law, the bill would also need to be passed by the Senate and signed by the President. The Fair Minimum Wage Act makes no reference to American Samoa; the territory’s minimum wage is set by a committee appointed by the U.S. Department of Labor under the Fair Labor Standards Act. After accusations by Republican lawmakers that Speaker of the House Nancy Pelosi was unethical because Del Monte (parent company of StarKist Tuna which owns one of the two tuna canneries in Samoa) is based in her district, she instructed a House committee to have Samoa be included. Samoa’s representative Eni Faleomavaega noted that the territory has not been subject to the mainland minimum wage and said, “…the global tuna industry is so competitive that it is no longer possible for the federal government to demand mainland minimum wage rates for American Samoa without causing the collapse of our economy…”

    I don’t know what the Somoan minimum wage should be; I don’t necessarily trust what Eni Faleomavaega says, and I’d like to know what Somoan labor activists propose. But it’s clear that the simplistic and predictable anti-Pelosi narrative you’re trying to sell isn’t the real story of what’s going on here.

    Update: This article in The Hill is informative, as well.

  9. 9
    RonF says:

    Hm. Dang. Fair enough, Amp. I was given to understand that American Samoa had been specifically excluded. It seems that I did not treat the information that I was given critically enough. Thanks for the info.

  10. 10
    Tom T. says:

    Amp, you’re certainly correct that data over time would be the best evidence, but that doesn’t mean that current data is irrelevant, I don’t think. To say that we should expect the unemployment rates to be different in Spokane and Coeur d’Alene because of different conditions in the two locales begs the question, because one of the different conditions is the minimum wage.

    Again, I’m not saying that you’re wrong that the higher minimum wage is not spurring unemployment; I just think it’s going too far to say that there’s no evidence supporting classical theory’s prediction of higher unemployment when in fact there is higher unemployment. Absolutely, one can argue that classical theory is wrong and there are other factors at work such that it’s not the minimum wage causing the difference, but there’s not much indication in the NYT article as to what those other factors may be.

    This is an old thread, and I’m sorry to belabor an academic point. If you care to reply, I’ll let you have the last word.

  11. 11
    Ampersand says:

    Belaboring an academic point is what “Alas” is all about, Tom! Plus, I like it when “old” threads get active (not that this one is that old).

    Here’s the thing: Economists have done “natural experiment” time-series tests over and over again, using data over time to find out what happens to local wages when state A raises its minimum wage and neighboring state B doesn’t. This is the best and most solid evidence available, and it has failed to show any pattern of connection between a rising minimum wage and increased unemployment.

    So you’re right: I was exaggerating to say that there is “no evidence” that can be used to support the anti-minimum-wage position. What I should have said is that at this point, as far as I know, the evidence against the MW harming low-wage workers through increased unemployment is very weak strong, compared to the evidence in favor.

  12. 12
    Ampersand says:

    Ron, thank you for the concession. :-)

  13. 13
    Tom T. says:

    That sounds good. You’ve certainly studied this issue more than I.

  14. 14
    Robert says:

    The possibility that leaps to mind is that it’s possible the minimum wage is set below the actual economic productivity of the workers in question. (In which case, their employers are certainly paying them less than they’re worth.) In other words, we might be changing the pressure in the tire from 5 PSI to 7 PSI, and not noticing a difference in the driveability of the vehicle – because we’re below the values where changes would make a difference.

  15. 15
    Ampersand says:

    The possibility that leaps to mind is that it’s possible the minimum wage is set below the actual economic productivity of the workers in question.

    I think that’s part of the answer. Another part of the answer is that a better-paid worker becomes a more productive worker.

    In other words, we might be changing the pressure in the tire from 5 PSI to 7 PSI, and not noticing a difference in the driveability of the vehicle – because we’re below the values where changes would make a difference.

    I don’t think anyone could disagree with this; clearly, at some level, the minimum wage becomes too high (for instance, $100/hr would be too high) and would have negative effects.

  16. 16
    sylphhead says:

    “The possibility that leaps to mind is that it’s possible the minimum wage is set below the actual economic productivity of the workers in question.

    I think that’s part of the answer. Another part of the answer is that a better-paid worker becomes a more productive worker.”

    Of course. Because higher ups need incentives to produces. Such as no taxes. If there are taxes (by which they always only mean income tax – payroll and sales taxes are fine, for obvious reasons), they’ll be all mopey and discouraged and they won’t be as productive, will they? Somehow the same logic doesn’t apply to low wage workers. Getting to keep more of what they earn – which in this case means earning more, period – only makes them feckless and undisciplined.

    I had an argument with some run of the mill libertarian recently about this same sort of thing. He claimed that wages that were too high have negative effects tonhe incentives of lower wage workers, who won’t have to work as hard. I asked him at what point compensation becomes too high for there to be equivalent negative effects on the incentives of executives, who won’t have to work as hard. He, of course, had no answer.

  17. 17
    WJ says:

    Ampersand, this is in response to your post (#13). My apologies for coming to this post late, but I just found it while looking around for info on the effects between Idaho and Washington with regards to the min wage increase in WA.

    First, to let you know, I come at this from the point of view that the Federal minimum wage should be ZERO, and that each State (if their voters/consumers/workers want to) set their own minimum wage.

    You wrote that “clearly, at some level, the minimum wage becomes too high (for instance, $100/hr would be too high) and would have negative effects. ”

    Why do you think there would be negative effects at $100/hr minimum wage? I’m not asking what the negative effects would be, buy why there would be any NET negative effects (I’m adding the word net here cause cause a decision like this would have some positive effects as well).

    I’m not trying to be snarky here or a troll, I am interested in what your thoughts are.

    Cause if you think there would be (net) negative effects at $100/hr, then you might think there would be (net) negative effects at $50/hr, $25/hr, or $10/hr or $8/hr minimum wage?

    So I am assuming that we can agree that there is some minimum wage point where there are net negative effects?

    Given my assumption, then why should the legislature (or electorate) be smarter than the market at what that minimum wage point would be that would have net negative effects?

    As an aside, the source of this thread is a NY Times article, so we have to consider the source and the agenda they bring to the table. Clearly, the NYT is in favor of a Federal min wage hike, so the writer of this article is probably going to ONLY print quotes from business owners who were not harmed by the min wage hike. That doesn’t mean there weren’t positive effects, it just means that this article from this source will not mention the negative effects.

    Also you wrote “Another part of the answer is that a better-paid worker becomes a more productive worker.” I am not going to dispute that statement, but ask the question that if business owners are seeing this as a net benefit, why they didn’t raise their wages before they had to via the minimum wage? Were they just ignorant business owners, incompetent or what?

    My final point on minimum wages is the negative effect they have on our fellow Americans who are trying to get that first job on the bottom of the employment ladder. To learn how important it is to show up on time each and every day you have a shift; work well with others; how to deal with customers, etc. These are the things I learned when I was working my first jobs at a fast food restuarant, washing dishes and busing tables at another restuarant.

    By artificially raising the minimum price of labor by govt fiat, we price out of the bottom rung of labor market those whose initial skills are not the best but who need that first job the most to raise their skill level. Those whose initial skills are not the best tend to be those young people coming from disadvantage homes and living situations.

    My fear is that the majority of the negative effects of min wage hikes lands more on those with lower skills, but in greater need of learning the skills you get from getting that first job. That the majority of the positive effects go to those whose initial skills were higher to begin with.

    Also by artifically raising the price of labor, the price of labor saving devices becomes more attractive. If labor saving devices are used more for lower skill jobs, then there are fewer lower skill jobs than there would be without the increase in the min price of labor. Fewer lower skill jobs available means it is harder for those with lower skills to get first job.