T he highest state minimum wage in the nation will rise again, unnecessarily and against the guidance of our attorney general. With job creation the public’s primary concern, state officials chose to increase labor costs and stifle new hiring.

That this is so provides another opportunity to consider decision-making in Olympia and the lingering legacy of Initiative 688, overwhelmingly adopted by voters in 1998.

In retrospect, 1998 was the perfect year to place a minimum wage initiative on the ballot. The economy was strong. Inflation was low. Unemployment hovered near 4 percent. Consumer confidence soared. The good times were rolling. In other words, it was nothing like today.

Washingtonians chose to share the wealth by casting an easy vote requiring employers to increase the minimum wage from $4.90 an hour to $5.70 in 1999 and $6.50 in 2000. The initiative also directed the Department of Labor and Industries (L&I) to increase the wage annually thereafter to “maintain employee purchasing power by increasing the current year’s minimum wage rate by the rate of inflation.”

Currently, Washington’s $8.55 minimum wage is the nation’s highest state rate. The wage did not increase for 2010 because the inflation rate declined between August 2008 and August 2009. This year, it’s rising again, slowly, but hasn’t yet caught up to the 2008 level. In a pair of questions, L&I asked Attorney General Rob McKenna whether the minimum wage had to be raised to reflect the most recent year’s inflationary increase, even if the increase did not take the inflation index above the earlier peak value.

Good questions, they produced a comprehensive and thoughtful response from McKenna’s office Sept. 15. The attorney general noted the essential dilemma. The law created by the initiative does not allow for a reduction in the minimum wage when inflation falls, which would be the most straightforward, direct calculation. If the state adjusts wage rates upward whenever the CPI gains and holds them constant when inflation drops, it “permanently (increases) the minimum wage beyond that presumed necessary to ‘maintain employee purchasing power.’”

The attorney general presents a better alternative, a calculation that holds the minimum wage constant until the inflation index regains the level it reached before the decline. Only this approach “avoids an impermissible decrease in the minimum wage and preserves employee buying power without allowing it to increase more rapidly over time than (inflation).”

The opinion concludes, “…no minimum wage increase is authorized” if the August 2010 CPI does not exceed the previous peak.

Makes sense to me. Let’s use a football analogy. On the first down, the home team lost 5 yards. On the next play, they gained 10. That earns them a third and 5, not a first and 10. You have to make up the lost ground before you get a reset.

Yet, L&I director Judy Schurke said in a statement Friday, “Our best read of the law is that when the cost of living rises over the previous 12-month period, the minimum wage rises accordingly.”

So executive branch staff substituted their best guess for the advice of our elected attorney general and bumped it to $8.67 effective Jan. 1.

It is precisely the wrong move. The right one is for L&I to follow the attorney general’s advice, hold the rate constant and wait for the inevitable lawsuit from the Washington State Labor Council. The labor union, which ran the I-688 campaign, cheered the easy win, which now sets a potential precedent. It should not stand uncontested.

Acting unilaterally, the department added to the burdens of Main Street businesses already anticipating steep increases in the costs of unemployment insurance and workers’ compensation. Because Washington is one of only seven states without a reduced minimum wage rate for tipped employees, restaurants are particularly hard hit.

Most economic research, including specific studies of Washington and Oregon, demonstrates that minimum wage hikes reduce employment, particularly for entry-level workers and teens. When something costs more, people buy less of it. Higher labor costs mean fewer hires, prolonged joblessness, and lost opportunities.

By choosing to raise the wage rate unnecessarily, Olympia makes a bad economy worse. And they wonder why people are upset.

Richard S. Davis, president of the Washington Research Council, writes on public policy, economics and politics. His e-mail address is richardsdavis@gmail.com.