Everett, Wash.
Published: Wednesday, December 27, 2006

A realistic minimum wage helps the overall economy

John Burbank / Syndicated Columnist

 Next week minimum wage workers in our state will get a 30 cent per hour wage bump. Well, it's not really a wage bump, since it just makes sure that the minimum wage makes up for inflation over the past year. It's just like the Social Security cost of living adjustment. Ask any retiree, and he will tell you that the annual adjustment he gets is not an increase in his Social Security, it just lets him keep up.

How did we figure out this policy that ensures low-wage workers' purchasing power won't be whittled away by inflation? Nine years ago, Washington voters passed a first-in-the-nation minimum wage initiative that included an automatic annual inflation adjustment. So every Jan. 1, the minimum wage is increased to take account of inflation. This year the wage goes from $7.63 to $7.93 an hour.

We will hear news reports of individual small business owners complaining about having to pay their workers another 30 cents per hour and how they may have to lay off workers because of the minimum wage. But they always bellyache about the minimum wage, and yet employment in the low-wage food service and accommodation industries has jumped by almost 10 percent since 1998, accounting for close to 20,000 new jobs. Health services and social assistance employment, also disproportionately low-wage occupations, have added close to 50,000 jobs in our state.

It's a good thing the voters approved a COLA for the minimum wage in our state, because the federal minimum wage has been languishing for almost a decade at $5.15 an hour. That's $893 a month for a full-time job. It's a wage that generates poverty and hopelessness. That's not what we should be getting from work.

Because the Congress and the president have refused to act, 29 states with well over half the U.S. population have followed our lead in increasing the minimum wage above the federal sub-standard minimum. Just this November voters in Montana, Missouri, Colorado, Ohio and Arizona followed the Washington example by supporting ballot initiatives that raised their minimum wage and indexed it to inflation.

Now there is mounting evidence that a higher minimum wage creates jobs. It captures money that might have leaked out of the local economy for trips to Hawaii or Europe, and instead goes to your local restaurant. It is the "Henry Ford" effect at work: if you pay workers more, they can buy more, boosting the overall economy, especially among small retail businesses.

A recent study by the Fiscal Policy Institute compared states that have a higher minimum wage to those that have the sub-standard federal minimum wage. They found employment and payrolls in small businesses grew faster in the states with minimum wages above the federal level. Total job growth was also faster, as was job growth in the retail trade sector, the sector of the economy employing the most workers at low wages.

You can do your own math on the minimum wage while you are listening to the complaints about it. Consider retail business operating costs: labor costs account for approximately 20 to 25 percent of total operating costs. Even if all employees in a firm are working at the minimum wage, the minimum-wage COLA of 3.9 percent would result in, at the most, an annual increase in total costs of 0.9 percent. What could be an extremely small increase in labor costs is countered by increases in productivity, decreased costs for training and recruitment of new employees, and/or a decrease in profits. The possible profit decline is what drives the opposition to the minimum wage increase. "You'll hear a lot of whining, like I'll go out of business," Taimi Dunn Gorman, owner of Clopohon Cafe in Bellingham, said back in 1998. "But what it really amounts to is that raising wages might mean one less trip to Hawaii."

So there you have it: the choice of keeping up wages for the lowest paid workers, or a trip out of the state for a business owner. Washington voters were right when they chose the inflation-adjusted minimum wage. Thanks to their foresight, we lead the nation with the best minimum wage that keeps up with inflation. Now, with Congress considering an increase in the federal minimum wage, low-wage workers in the rest of the country may be given a chance to catch up. Washington, D.C., only needs to follow our example.

John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org), writes every other Wednesday. Write to him in care of the institute at 1900 Northlake Way, Suite 237, Seattle, WA 98103. His e-mail address is john@eoionline.org.
© 2009The Daily Herald Co., Everett, WA