L&I Hurts Small Businesses, Young Workers, with Decision to Raise Minimum Wage



Op-Ed By Carl Gipson, Director,
Center for Small Business, November 2010

Olympia, WA - In 1998 voters of Washington passed Initiative 688, enacting a substantial increase in the state minimum wage. A lesser-known provision of Initiative 688 provided that all future increases in the minimum wage would occur automatically each year and that the amount of increase would be linked to the rate of inflation. Since then the minimum wage has increased 11 times, without discussion or debate, and without consideration of employment conditions or job opportunities for young people entering the workforce.

The minimum wage was $4.90 when Initiative 688 passed. In the following decade, the Department of Labor and Industries (L&I) increased the wage according to CPI calculations. Some years the wage increased by as much as 14 percent, some years by as little as 1.4 percent, but the wage increased every year. In time, this resulted in the highest state minimum wage in the nation.

However, in 2009 the Consumer Price Index (CPI) decreased for the first time since Initiative 688 went into effect. Because there was no language in the initiative allowing for a corresponding wage decrease, the rate remained the same in 2010 as 2009.

The Department asked Attorney General Rob McKenna for advice if the CPI experienced a slight uptick during 2010, but not enough to surpass the previous high in 2009. Should the state raise the minimum wage if the CPI went up, but was still below the rate at which the current wage was set? The AG’s office said no, not until the CPI surpasses its previous high may the state government increase the minimum wage.

Unfortunately, L&I decided to disregard the AG’s opinion and will increase the minimum wage in 2011 by 1.4 percent to $8.67 per hour, keeping Washington with the highest minimum wage in the nation.

This administrative decision hurts small businesses in particular, and even more so it harms the young or inexperienced person who is looking for a job in this tough economic environment.

You may know that Washington’s unemployment rate remains stuck at 9 percent. In fact, Washington’s unemployment rate has not been below 8.9 percent since March of 2009. But did you know that the national unemployment rates for workers between the ages of 16 and 24 is 20 percent? Even worse, the unemployment rate for Latino youth is 22 percent and for young African Americans it is 33 percent. The jobless rate for black male teenagers is a whopping 52 percent.

Think about that -- fully one half of black teenagers are out of work. Couple those jobless numbers with the fact that fewer than one half of black teenagers finish high school and you have a recipe for disaster; that black males are much more likely to end up in jail than any other ethnic group.

Some may think that it is a stretch to connect a higher minimum wage to abnormally high incarceration rates among a particular ethnicity. But what most helps troubled youth to stay out of jail is a job. And as talented as many of these kids are, many small business owners simply can’t justify the $8.67 per hour it costs to hire them. The high minimum wage is simply too much to risk on an inexperienced employee who might not work out in the long run. In today’s economy, employers are getting better talent or a more experienced worker for the minimum wage than normal as thousands of people are settling for lesser-paying jobs.

It may not be politically popular to freeze a minimum wage during times of high unemployment or implement a training wage for inexperienced workers. But in rejecting this discussion policymakers are favoring short-term gains (their own re-election prospects) over longer term negative outcomes (higher unemployment and crime). Until this situation is resolved, the least experienced workers and youth will continue to be priced out of the labor market, providing yet another barrier to job creation and economic growth.