There’s an old expression, “No good deed goes unpunished.” Raising the minimum wage may sound like a good deed. But, it delivers a lot of punishment. And, it punishes those that it seeks to help.
For example, for the past few years, youth unemployment in Oregon has been about five percentage points worse than the U.S. as whole. The labor force participation of Oregon’s youth has been declining faster than the rest of the U.S.
In other words, young people looking for work cannot find work. And—even worse—it’s so hard for the young to find a job that they’ve given up looking.
However, as unemployment has grown and labor force participation has shrunk, Oregon has seen a steady rise in the state’s minimum wage to among the highest in the country.
This is not some crazy coincidence, or an episode of Portlandia where young people come here to retire. It’s because it is too expensive to employ young people or unskilled people. It’s because of Oregon’s sky high minimum wage.
It’s not only about the young. It’s about the unskilled, the elderly, the disabled, the person trying to get his or her life back on track.
Most economic evidence indicates that increasing minimum wages are associated with reduced employment. Indeed, a recent comprehensive review of the research by the U.S. Congressional Budget Office finds that the negative impacts are felt through wide portions of the economy with youth employment disproportionately damaged. CBO’s analysis is based on an increase in the federal minimum wage. State-level impacts are likely to be larger as many employers operate in a national labor market and can shift staffing across state lines.
We can see that observation play out in a few figures. The figure below shows that, since 1990, wage and salary income in Oregon has declined relative to the rest of the U.S. In 1990, the average Oregon worker made about $550 less per year than the rest of the U.S. The most recent data shows that the average Oregonian earns about $3,400 less than workers in the rest of the U.S. However, over that time period, Oregon’s minimum wage has grown to be among the highest in the country. In fact, the figure at the top of this post shows that as Oregon’s minimum wage has grown, so has its relative decline in wage and salary income.
The minimum wage bills under consideration in this legislative session would likely reduce total wage income in the state. The steep minimum wage increases being proposed would take income from one group of Oregon workers in order to benefit another group of Oregon workers, without increasing—and likely decreasing—total Oregon wage income. While some employees would see a modest increase in their annual salaries, tens of thousands of Oregonians would be unable to find employment and would have no wage income.
In fact, it is very likely that the gains to those who will see a boost in their wages would be more than offset by the losses to those who cannot find work at those wages. In other words, Oregon workers—as a whole—would be worse off.
In July 2014, the Legislative Revenue Office concluded that raising the minimum wage by just $2 an hour would have a long-run negative impact on employment and incomes.
The recent article published by the Journal of Political Economy titled, “How Effective Is the Minimum Wage at Supporting the Poor?” concludes that:
[t]he costs imposed by the minimum wage are paid in a way that is more regressive than a sales tax.
What the research finds that that the biggest chunk of a minimum wage increase gets eaten up in payroll and income taxes. Then, the rest of the increase gets eaten up by paying higher prices because minimum wage increases get passed on to consumers in the form of higher prices.
In other words, after the government gets its cut, minimum wage earners end up paying for their own minimum wage increases. It’s a bit like shifting money from one pocket to another, while dropping a few coins along to way that get picked up by the tax collector.
Watch the testimony before the Oregon Legislature: