Minimum wage proposals could hurt our working poor

by Sen. Doug Whitsett

Bills to significantly increase Oregon’s minimum wage will be a main topic of vigorous and divisive debated during the upcoming 2016 legislative session.

Signatures are being gathered for initiative petitions that would raise the minimum wage from its current rate of $9.25 per hour to $13.50 and $15 per hour.

Governor Brown is also floating a minimum wage proposal.  Her concept would raise the wage in all areas outside of the Portland Metro Urban Growth Boundary to $10.25 in 2017 and to $13.50 by 2022. Within the Boundary the minimum wage would be increased to $15.52 by 2022.

Another legislative proposal by Sen. Michael Dembrow (D-Portland) would create three separate minimum wages throughout the state.

These are compromise proposals by Brown and Dembrow. They are purportedly being advanced in hopes of avoiding an expensive, multi-million dollar fight at the ballot box in the months leading up to the November general election. Several other bills have been introduced.

House Bill 4054 has been referred to the House Committee on Business and Labor. It would increase the state’s minimum wage in graduated steps to $13.50 per hour by 2019. It would also repeal the state preemption of local minimum wage requirements, thereby allowing cities and counties to enact their own minimum wage laws.

A nearly identical proposal has taken the form of Senate Bill 1592. It has been referred to the Senate Workforce and General Government Committee.

SB 1532 has also been referred to the same Senate committee. It would establish a tiered system for determining minimum wage based on an employer’s size and geographic location and suspend the annual inflation adjustment for the state’s minimum wage rate until 2020. The bill would also repeal the state preemption of local minimum wage requirements.

What is obvious is the minimum wage issue will either be decided by legislators next month or by the vote of the people at the November election. Much less obvious are the affects that the proposed increases could have on the state’s overall economy.

A new report has been compiled and released that details those affects. The January 12 report, entitled “Impacts of Increasing Oregon’s Minimum Wage,” was written by Eric Fruits, Ph.D. He is the president and chief economist for Economics International Corp. and an adjunct professor at Portland State University.

For the sake of full disclosure, Fruits is also a former chairman of the Multnomah County Republican Party. His report was prepared on the behalf of the Oregon Neighborhood Stores Association.

The report uses detailed analysis to describe the potential aftermath of the proposed increases.

According to the study, increasing the minimum wage to $13.50 would result in the loss of around 55,000 jobs, and raising it to $15 would cost 67,000 jobs. Those losses would occur by 2020, when the measures are fully implemented.

A minimum wage of $13.50 would reduce wages and salary incomes in the state by an estimated $6.2 billion, and by $6.9 billion for $15 per hour by the year 2020. The reduced average annual income per worker would be $1,512 for $13.50 per hour and $1,515 for a $15 per hour minimum wage.

Information in the report makes clear the minimum wage proposals being advanced in the name of helping the working poor will actually do them a huge disservice over the long-term.

The report cites this data provided by the non-partisan Legislative Revenue Office (LRO) in July 2014 regarding the impacts of an increase in the minimum wage. LRO analyzed raising the wage only from $9.10 to $11.50, beginning in 2015.

LRO’s findings of fact includes that an increase of only $2.40 per hour would result in net employment losses over the long-term. According to LRO, the state would lose nearly 3,000 jobs in the first year, and would continue to experience increased job loss through 2025.  At that point the job losses would stabilize at around 20,000.

A positive, first-year impact of $900 million in personal income would remain slightly positive until the year 2020.  At that point the LRO analysis shows personal income trending negative into the future.

Although SB 1532 takes a unique tiered approach to raising the minimum wage, it does not appear to take some very important factors into consideration. A salient point of Dr. Fruit’s report on the impacts of raising the minimum wage is within the state and within the City of Portland, employment, incomes, poverty and cost of living are unevenly distributed.

“The assertion that Portland has a higher cost of living than the rest of the state turns a blind eye to the differences in the cost of living within the City of Portland,” the report states.

It goes on to state that rents in the low-income, high-poverty areas on Portland’s outer east side are less than half of what they are in other parts of the city. There are huge disparities, for example, within North and Northeast Portland.

Given the logic of the solution presented in SB 1532, it would make just as much sense to establish differing minimum wage levels on either side of the Willamette River, where it divides Portland’s east and west sides.

Another important point is a substantial increase in the minimum wage could limit economic opportunities for thousands of Oregonians.

The report states unemployment is a “major source of rising inequality and stagnating incomes”. It adds that a three-percentage point increase in unemployment is associated with a two-percentage point increase in family poverty.

The report makes quite clear, through thoroughly documented research, that unemployment and underemployment lie at the core of poverty. It states that higher unemployment leads to greater inequality and weakens the relative position of low-income groups and vulnerable populations.

Poverty is best solved by providing job opportunities for all adults. “Minimum wage increase takes 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,” the report states.

As it is, Oregon has the highest rate of poverty on the West Coast. Raising the minimum wage would actually do little to improve the situation, and would arguably make it worse. The report states that the working poor face a disproportionate share of job losses, and that employed persons affected by an increase in the minimum wage are less likely to be employed a year later.

Youth unemployment in Oregon is higher than the national average. That trend worsened in the early 1990s as the state’s minimum wage became higher in relation to the federal minimum wage. According to the report, raising the minimum wage even further would reduce upward mobility and create less access to the kinds of opportunities for young people to acquire work experience. What this means is that teens and low-skilled workers would be the most adversely affected by an increase in minimum wage.

Oregon has consistently ranked among the top five states with underemployment since 2003, the year after voters approved Measure 25 in the November 2002 election, and has experienced the nation’s highest rate of underemployment in seven of the last 13 years. Oregon also has experienced a significantly lower labor force participation rate than the national average.

Attempts to raise the minimum wage through legislation or through the ballot box will undoubtedly lead to unintended consequences for businesses and workers alike. I strongly urge voters to read the reports and consider their findings as this issue makes its way through the legislative process in the coming weeks.

I believe increasing Oregon minimum wage will cause the same people who are currently struggling to make ends meet to be significantly worse off than they already are. Their ability to achieve the American Dream and improve their standing in life will be severely limited by public policies that actually cause harm to their economic status in the long-run.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls