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Minimum Wage Hikes Fuel Jobs Debate In Oregon, Washington by Paula L. Stepankowsky of Dow Jones Newswires Wall Street Journal - January 14, 2005

LONGVIEW, Wash. -- Washington and Oregon rank first and second on the list of states with the highest minimum wage, as of this month.

That the two states have also been struggling over the past three years with unemployment rates among the highest in the nation has renewed the debate over whether the high minimum wages have played a role.

In Washington, on Jan. 1 the minimum wage went up to $7.35 an hour, making it the highest minimum wage in the country. Washington's rate is pegged to changes in the Consumer Price Index. Neighboring Oregon has a minimum wage of $7.25 an hour.

Only 14 states have minimum wages higher than the federal minimum of $5.15 an hour, which hasn't been adjusted since 1997.

At the same time, unemployment rates for Washington and Oregon over the past four years have been dismal, although conditions started to improve in the second half of 2004.

In the late 1990s, Washington was booming as Microsoft Corp.'s (MSFT) growth accelerated and dot-com companies, lead by Amazon.com (AMZN), were springing up by the dozens. Boeing Co. (BA) was also enjoying the end of a cyclical boom. In Oregon, Intel Corp. (INTC) was growing along with Microsoft, and Nike Inc. (NKE) was expanding its brand globally.

But then the nation's economy began to slump and the terrorist attacks of Sept. 11, 2001, pummeled an already-faltering airline industry. The dot-com and telecom bubbles burst, giving an extra kick to the jobs recession in Oregon and Washington.

Washington's unemployment rate peaked at more than 8% in early 2002 before falling to 5.7% in November. The state will release December figures on Tuesday.

In Oregon, the rate peaked at nearly 9% in the second quarter of 2003. Oregon's unemployment rate improved to 6.8% in December, down from an adjusted 7.2% in November.

But while jobless rates recently came down in both states, unemployment is still higher than the 5.4% rate in December for the United States as a whole.

Oregon's stubbornly high unemployment rate is also due, in part, to continued migration to the state at the same time the state's high-tech companies have been suffering, said Tom Potiowsky, chief economist for the state of Oregon.

"If you have population growing faster, you have to assimilate people coming in," Potiowsky said.

Labor Backers Say High-Paying Jobs Were Lost Labor advocates in these West Coast states say the high minimum wage has had nothing to do with the high unemployment rates in recent years.

Most of the jobs lost were in manufacturing and high-tech, "all jobs that pay considerably more than minimum wage," said David Groves, spokesman for the Washington State Labor Council, AFL-CIO.

Groves doesn't think the state's high minimum wage is affecting the state's ability to attract and retain businesses.

"These wage and service jobs are not something you can export overseas to really take advantage of dirt wages," Groves said. "You can't hire someone in China to clean your building or flip your burgers in Seattle."

Raising the minimum wage does have a multiplier effect as those workers have more money to spend and circulate in the economy, Groves said.

"There is definitely an economic boost to having a higher minimum wage - it's just difficult to measure," Grove said.

Business advocates differ, saying high minimum wages affect certain industries and geographies disproportionately.

Don Brunnell, president of the Association of Washington Business, said the state's high minimum wage particularly affects communities bordering Idaho, which has the federal minimum wage. In areas such as Clarkston and Spokane, Wash., businesses with entry-level wages tend to set up on the Idaho side of the border, Brunnell said.

The state's wine and agriculture industry have also been affected as a higher minimum wage fuels a trend toward increasing mechanization, Brunnell said.

An asparagus canning plant in Dayton, Wash., for example, is slated to close, costing the state 1,200 seasonal and 50 full-time jobs, Brunnell said. The work is being transferred offshore.

"When you raise the wage to the level it is, all of a sudden transportation costs become more affordable," Brunnell said.

While labor and business advocates continue to differ on the issue, regional economists agree the minimum-wage increase affects certain industries and geographic areas in the two states more than others.

Service businesses that are highly competitive and try to keep their costs down as much as possible are most affected.

"For those businesses, it can be problematic, but I think for the whole scheme of the state, it has not been a problem," said Potiowsky, Oregon's chief economist.

In the Puget Sound area, home to Boeing, Microsoft and other large companies, the labor force tends to be well-educated and well-paid. As a result, the minimum wage increase does not have a dampening effect, said Roberta Pauer, regional economist for the Washington State Employment Security Department.

As a whole, Washington doesn't tend to be a state that attracts minimum-wage industries, Pauer said. Low-wage industries generally locate in other parts of the country where the cost of living, taxes and real estate is lower.

"We certainly lose that business, but you can't be a state that has a well-educated labor force, a sophisticated range of industries and a high cost of living, and then imagine you can compete at the low end of the labor market," Pauer said. "You can't have your cake and eat it, too."