Foreman and workers standing in factory
Getty Images/Vetta
By Victoria Stilwell, Peter Robison and William Selway

When Washington residents voted in 1998 to raise the state's minimum wage and link it to the cost of living, opponents warned the measure would be a job-killer. The prediction hasn't been borne out.
In the 15 years that followed, the state's minimum wage climbed to $9.32 -- the highest in the country. Meanwhile job growth continued at an average 0.8 percent annual pace, 0.3 percentage point above the national rate. Payrolls at Washington's restaurants and bars, portrayed as particularly vulnerable to higher wage costs, expanded by 21 percent. Poverty has trailed the U.S. level for at least seven years.

The debate is replaying on a national scale as Democrats led by President Barack Obama push for an increase in the $7.25-an-hour federal minimum, while opponents argue a raise would hurt those it's intended to help by axing jobs for the lowest-skilled. Even if that proves true, Washington's example shows that any such effects aren't big enough to throw its economy and labor market off the tracks.

"It's hard to see that the state of Washington has paid a heavy penalty for having a higher minimum wage than the rest of the country," said Gary Burtless, an economist at Brookings Institution who formerly was at the U.S. Labor Department.

Costs, Benefits

Raising the U.S. minimum wage to $10.10 in three steps, as Obama proposes, would reduce employment nationally by about 500,000 workers, or about 0.3 percent, according to a Congressional Budget Office report published Feb. 18. At the same time, the increase would lift 900,000 people out of poverty and add $31 billion to the earnings of low-wage Americans, the report found.

While debate persists on the employment effect, "CBO is as qualified as anyone to evaluate that literature, and I wouldn't argue with their assessment," Federal Reserve Chair Janet Yellen said Feb. 27 to the Senate Banking Committee.

Looking past the effect on jobs, increasing the minimum hourly wage to $10.10 would also reduce food stamp expenditures by about 6 percent, or nearly $4.6 billion a year, according to a report today from the Center for American Progress. The Washington-based research institute, which was founded by Obama adviser John Podesta, released its report as the president reiterated his call for a higher wage floor.

Washington voters in November 1998 approved increasing the state's minimum wage in two stages to $6.50 and tying future annual changes to inflation as measured by the consumer price index.

Groups representing retailers, restaurants and hotels opposed the measure, according to a voters pamphlet on the 1998 election published by Washington's Office of the Secretary of State. Employment in those industries has increased in the state of Washington since then, Labor Department data show.

Shock Absorbers

One possible explanation: Businesses have plenty of ways besides job cuts to absorb the costs of a minimum-wage increase, according to Arindrajit Dube, an economist at the University of Massachusetts at Amherst, whose research found no significant effects on employment. Price increases, reductions in profits and savings from lower turnover can help soak up the shock.

"When you put all of these together, then the finding that moderate increases in minimum wages do not appear to have much of an effect on employment is less surprising," Dube said in an interview.

Not everyone buys that argument. Minimum-wage laws not only reduce employment opportunities and earnings for low-wage workers, they also reduce demand for their labor as it's replaced by other forms of capital, according to research published in 2008 by David Neumark, an economist at the University of California at Irvine, and William Wascher, an economist at the Federal Reserve Board of Governors in Washington.

Boehner, Reid

The federal minimum-wage legislation is opposed by business groups such as the National Retail Federation, along with many Republicans, including House Speaker John Boehner of Ohio.

In the Democratic-controlled Senate, Majority Leader Harry Reid of Nevada on Feb. 25 postponed a vote on the legislation, a centerpiece of the party's election-year focus on income inequality. The delay until senators return March 24 from a week-long break gives labor unions more time to organize support for the proposal, said a Senate Democratic leadership aide who requested anonymity to discuss strategy.

Gridlock in Congress may mean the debate is waged more immediately by states and cities instead of at the federal level.

State Minimums

As of January, 21 states and the District of Columbia had a higher minimum wage than the federal floor. Cities including San Francisco and Santa Fe, New Mexico, require even higher hourly earnings than the proposed federal level, at $10.74 and $10.66 respectively.

New Jersey voters in November approved increasing the minimum wage by $1 an hour to $8.25, tying future increases to the consumer price index. In January, after the raise took effect, private employers added 8,320 jobs in New Jersey, according to ADP Research Institute. That was the fastest pace of job growth since December 2012.

Raising Prices

Joe Olivo, the chief executive officer of Perfect Printing, a Moorestown, New Jersey, company that makes materials such as marketing brochures for businesses, was among those who opposed the state's minimum-wage increase. Since it began, he hasn't cut his 48-person staff. Instead, he's looking to pass on the costs by raising prices, a step that he said could impede his business's ability to grow and hire in the future.

"If I am losing work and I have less money to grow, what good does it do for those employees that are looking for future work?" said Olivo, 47. "The people that are looking for jobs find it harder."

Those kinds of long-term costs leave economists including Charles Brown undecided in the debate. Brown is a professor of economics at the University of Michigan in Ann Arbor who reviewed the CBO's analytical approach.

"The report does a very careful job of trying to make the best use of the available literature," Brown said in an interview. "If I balance short-run gains against short-run losses, this looks like a reasonable thing to do. The problem is, we don't have a good handle on how large those long-run effects are likely to be."

$15 Minimum

Washington's relatively benign experience with a higher minimum has encouraged some communities in the state to push for even more.

SeaTac, Washington, a Seattle suburb where the major employer is the region's international airport, voted in November to raise the hourly minimum by more than 60 percent to $15 for 6,300 people who work at the airport, hotels and nearby businesses.

Companies including parking lot operator MasterPark LLC had said the higher pay might lead to job losses. Since it passed, 140 MasterPark employees have received raises and the company hasn't cut jobs because that might compromise service, managing partner Roger McCracken said.

"We're in the valet business -- that means employees," he said. Instead, the company responded by tacking on a 50-cent daily "living-wage surcharge" to prices.

Seattle's Mayor

Now, Seattle Mayor Ed Murray, a Democrat elected in November, is following SeaTac's lead as he also promotes raising the city's minimum to $15. A task force of business and labor representatives, advised by academics from the University of California at Berkeley and the University of Washington in Seattle, is meeting monthly and hopes to produce a proposal in April, Murray said in an interview.
The Seattle-Tacoma-Bellevue metropolitan area ranks 14th in a list compiled by Bloomberg of 50 cities where it's hard for fast-food workers to gain upward mobility, based on median pay compared with rent, tuition and health-care costs. Advocates such as Murray say a higher minimum would help change that.

"We can't rebuild this economy if it's just people who buy 94-foot yachts and play in the derivatives," Murray said. "You build an economy when a middle class is buying microwaves or flat-screen TVs or the next set of clothes for their kids."

To contact the reporters on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net; Peter Robison in Seattle at robison@bloomberg.net; William Selway in Washington at wselway@bloomberg.net. To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net.


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34 Comments

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betty_brock

Having to provide insurance for migrant workers will put many farmers out of business.
Put welfare bums to work in the fields. That will solve two problems.

March 06 2014 at 8:21 PM Report abuse -3 rate up rate down Reply
Beth Crossen

I am from Washington state. This is a lie. Only one little city got a vote passed for 15.oo dollars a hour minimum wage and employers have been fighting in court ever since. Their hours have been cut and they are downsizing. It is me against 1000 other applicants to get a job here. Laid off twice. Worked there for 12 years. 51 years old and have been searching everyday. The economy is still very bad. I want to work. Where are all these jobs. Half of the jobs online are scams. Reinstate our employment. They need to count how many people just signed up for medicaid. That is how many people that are unemployed right now. How many people are on food stamps. The only reason people signed up for obama care is because they do not have a job with insurance any more and have not been to the doctor in a long time. Duh government get a clue. How stupid do you think the american people are? Me and my whole family have been Republican our whole lives. When I need you to stand up for me, you call me lazy and turn your back on me. Give a billion dollars to another country, what about us......

March 06 2014 at 4:43 PM Report abuse rate up rate down Reply
Don Skaggs

If anyone believes what is presented as news on this outlet, you are a special kind of dumb.

March 06 2014 at 4:41 PM Report abuse +2 rate up rate down Reply
clafoon

I question these job growth figures because I live in Florida and our Republican Governor keeps telling us that Florida is leading the Nation in Job growth. The Republican Governor of Texas says that Texas leads the Nation in creating new jobs.

Is everybody correct?

March 06 2014 at 4:30 PM Report abuse rate up rate down Reply
iamadonkey

a perfect argument for leaving min wage laws as the responsibility of STATES

March 06 2014 at 3:56 PM Report abuse -1 rate up rate down Reply
mantis

President Obama's proposal to raise the minimum wage to $10.10 an hour was designated only for FEDERAL employees, not everyone else. Did the three authors of this article already forget this fact?

March 06 2014 at 3:21 PM Report abuse +1 rate up rate down Reply
minimaniac99

Henry Ford increased pay at his plant to an unheard of $5.00 a day so his workers could eventually buy his car. The economy did not go under and he was over run with people at his plant looking for work. How can anyone live on the minimum wage in most states?

March 06 2014 at 2:43 PM Report abuse +4 rate up rate down Reply
1 reply to minimaniac99's comment
pickaduncetorunthecountry44

.

March 06 2014 at 2:52 PM Report abuse rate up rate down Reply
1 reply to pickaduncetorunthecountry44's comment
mchairmanmao

Glad you shared what was on your mind.

March 08 2014 at 3:12 PM Report abuse rate up rate down
n738

When the national minimum wage increases to $10.10 per hour, businesses will raise their prices to offset the minimum wage increase, thereby adding to inflation and soon we will be back to the same problems we have now. Also those who worked their way up thru the ranks from the old minimum wage levels to $10.10 per hour will want raises above $10.10 by the same percentage as those getting the new minimum wage of $10.10 per hour due to their seniority compared to those who have less seniority &/or experience on the job, thereby adding even more to inflation. And what about people on social security? The amounts they currently get isn't equal to the current minimum wage rate. So to be fair toward inequality of income, the amount they get should also be raised to $10.10, based on 40 hrs per week times 52 weeks per year equals 2,080 per year would equal $21,008 annually. Retirees have to pay the same amounts for gas, heat, electricity, food, real estate taxes, and all other goods and services as everyone else. Inflation here we come.

March 06 2014 at 2:39 PM Report abuse +3 rate up rate down Reply
2 replies to n738's comment
bamy.demsjail2014

.

March 06 2014 at 2:44 PM Report abuse -2 rate up rate down Reply
pickaduncetorunthecountry44

.

March 06 2014 at 2:52 PM Report abuse -1 rate up rate down Reply
alfredschrader

A major problem with Washington State is it's almost always raining there.
To get people to stay there, they have to offer something extra. They've gotten so good at it that the place continues to prosper even better than the non-drizzle states. Go figure.

March 06 2014 at 1:34 PM Report abuse +2 rate up rate down Reply
1 reply to alfredschrader's comment
jelun

Great theory, why do people stay in Nebraska?

March 06 2014 at 2:21 PM Report abuse rate up rate down Reply
Gerry

So much for the reDUMBplican claims that raising the minimum wage kills jobs. In the immortal words of Forrest Gump, "Stupid is as stupid does".

March 06 2014 at 1:28 PM Report abuse rate up rate down Reply