Thursday, November 09, 2006

Minimum Wage: Oregon Case Study

In 2002, voters here raised the state's minimum wage -- and mandated automatic annual increases to keep up with inflation. Oregon's 100,000 or so minimum-wage workers are paid at least $7.50 an hour, a rate that will increase to $7.80 in January, well above the federal $5.15 minimum.

On Tuesday, voters in six other states are considering raising the minimum wage, all of which would index minimum wage to inflation as do Oregon, Washington, Florida and, beginning in 2007, Vermont. Democrats see the minimum wage as a way to bolster their base, much as initiatives on gay marriage and other cultural issues boost Republican turnout.

During the 2002 debate in Oregon, foes of a minimum-wage increase argued that it would chase away business and cripple an economy that traditionally had higher unemployment than the national average. "With so many Oregonians already unemployed, raising the minimum wage and then increasing it annually would devastate our economic recovery," Bill Perry, head of the Oregon Restaurant Association, wrote at the time.

Four years later, though it is impossible to say what would have happened had the minimum not been raised, Oregon's experience suggests the most strident doomsayers were wrong. Private, nonfarm payrolls are up 8% over the past four years, nearly twice the national increase. Wages are up, too. Job growth is strong in industries employing many minimum-wage workers, such as restaurants and hotels. Oregon's estimated 5.4% unemployment rate for 2006, though higher than the national average, is down from 7.6% in 2002, when the state was emerging from a recession.

Some employers are being squeezed, for sure, and their experiences will become ammunition for those who will fight any increase in the federal minimum wage. Agriculture is pinched because sellers can't raise prices, set on global markets, when labor costs go up. Some businesses say they have avoided expanding in Oregon because labor costs have risen, the sort of change in behavior at the margin that foes of a minimum wage worry about.

At Petite Provence eatery in Portland, co-owner Didier Blanc says the minimum wage, while paid only to servers, has had an "aftershock effect," forcing him to raise wages for all employees. While servers earn the minimum, bakers and cooks earn between $9 and $12 an hour. The costs are passed on to customers.

"After it goes up, everybody at $9 an hour and above will want some kind of raise," says Mr. Blanc. "We have to pass it on in our prices because it goes straight to our bottom line."

So far, though, customers have been willing to pay. Mr. Blanc and his partner have two successful shops and are talking of opening a third. "I don't worry about it," he says of the higher wages, "because if I have to raise prices, next door will have to do the same thing, too."

Chris Dussin, owner of Old Spaghetti Factory, a Portland-based chain with 38 restaurants in 16 states, sees it differently. "You can only raise prices so much before you're going to chase the customer away," he says. Costs at his three Oregon restaurants have gone up $300,000 since the minimum-wage increase -- more than revenues. Mr. Dussin says his bottom line "is eroding" and his profit margin has fallen to 2% or 3%. He raised prices on some items, cut the number of hostesses and has increased the number of tables for each server.

"It's important to take care of people in minimum-wage jobs, but what's missed is the impact on the economy and job creation," he says. "It's not feasible to hire 10 people, so I'm just going to hire seven." He says labor costs scotched plans to open a restaurant in Bend, Ore., a tourist hotspot. The next Old Spaghetti Factory will be in Boise, Idaho, which has a minimum wage of $5.15 and -- unlike Oregon -- allows employers to pay less to workers who collect tips.

Oregon's increase has continued to be a political issue. The Republican candidate for governor, former Portland school-board member Ron Saxton, has argued that indexing depresses employment and particularly hurts agriculture, an important employer here. The incumbent governor, Democrat Ted Kulongoski, counters that repealing indexing would amount to a wage cut.

The legislature last year passed a tax credit to help farming operations pinched by the minimum wage. Gov. Kulongoski refused to sign it after state analysts determined it was so broadly written that it could apply to all wages paid and would cost the state too much.

Now restaurant and agriculture industries are lobbying for repeal of the automatic cost-of-living increase, which has raised the minimum wage 8.7% since 2003. "The question is: How many businesses are going to go down until we decide this is unsustainable?" says Tim Bernasek, general counsel of the Oregon Farm Bureau.

Academic economists traditionally have argued that raising the minimum wage inevitably leads employers to hire fewer workers. The experience of the late 1990s and a landmark study of employment in the fast-food industry by economists David Card and Alan Krueger in New Jersey (which raised its wage) and Pennsylvania (which didn't), has undermined that view.

But they haven't won over everyone. In a new report, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board say a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a "consistent" though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact. While there's "no consensus," they say, "the weight of empirical evidence" supports the traditional view.

Art Ayre, Oregon's employment economist, says the effect of the minimum wage varies by region and industry. Amy's Kitchen, a California organic-food producer, opened a 250-employee production facility in Medford, about 270 miles south of Portland, where wages for workers producing frozen pizzas will start at about $8 an hour. Among other things, higher wages were offset by electric and workers' compensation insurance rates, which are lower than in California.

Demand for workers is so strong in some areas that businesses already pay more than the minimum. A 7-11 store in Wilsonville, about 25 miles south of Portland, offers $8 an hour and up for an employee to handle the register and stock coolers.

Supporters of the wage increase say it has been a boon to the state's economy. "Minimum-wage workers are the only class of workers you can give a raise to and guarantee that they're going to spend the money and spend it in the local economy," says Dan Gardner, state labor commissioner. "They're not saving for a Hawaiian vacation."

Foes say Oregon has hurt its ability to attract and retain business, and warn that the effects will be long-term. Restaurant and farm industries argue that voters didn't understand that indexing meant businesses would have to keep raising wages.

The Oregon Restaurant Association is lobbying to freeze indexing and implement a tip credit, which would allow employers to pay tipped workers $7.50 an hour but not be subject to the automatic increases. Still, the number of employees working in the industry has jumped 15% since 2002. Mr. Perry, the head of the restaurant association, says as Oregon's population grows, so does its desire to eat out. But he says the wage increase will force many restaurants to raise prices and scale back on service.

The biggest yelps have come from Oregon's $4 billion farm industry. The 2002 minimum-wage law applies to all workers, even seasonal fruit pickers. So while a competing blueberry farm in New Jersey can pay $6.15 an hour and one in Chile may pay even less, Oregon farmers pay $7.50.

Since 2002, employment in the agriculture industry has grown about 7% to 58,600 workers. But state officials say much of the growth is attributable to the state's booming nursery industry, which is more able to pass on increased costs to customers.

Barb Iverson and her brother say higher wages prompted them to stop cultivating daffodils and potatoes at their Willamette Valley farm. "Why grow a potato here when you can do it in Idaho for $5.15 an hour?" asks Ms. Iverson.

As for the workers, those in low-wage jobs say they're grateful for the state's automatic inflation increase. Pumping gas at a Conoco gas station in Woodburn, Matthew Holt, 25, says the $7.50 an hour he earns is barely enough to make ends meet. "The increase each year does help a little, but when inflation goes up, then everything goes up," he says.

The 25-year-old has two children. His wife works nights at Wal-Mart for $9.80 an hour. Mr. Holt, who completed high school but couldn't afford college, works 40 hours a week at the gas station and plans to get another minimum-wage job at Pizza Hut.

While he says he'd like to have a better paying job, he says there's nothing available for someone without a college degree or training. "You've got to have a skill or a trade," he says. "If you don't, there's no chance of finding a job making more than minimum wage."


How to LIVE on Minimum Wage


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