Oregon’s Minimum Wage Bill

With Governor Kate Brown’s signature, Oregon will likely soon rank as having the highest state-set minimum wage in the nation. Currently, the minimum wage in Oregon is $9.25 an hour, already one of the highest in the nation, with the federal minimum set at $7.25 per hour.

If signed into law, as expected, beginning July 1st of this year, Oregon’s minimum wage will steadily increase annually for the next 6 years and would set different minimum wage rates in different geographical areas. By 2022, the rate will surge to $14.75 in the metro Portland area, $13.50 in smaller cities such as Salem and Eugene, and $12.50 in rural communities. After 2023, the $13.50 per hour rate would be the “base” rate for the state’s minimum wage and will increase annually as tied to the consumer price index, with urban areas paying $1.25 more than the base rate and rural areas paying $1.00 less than the base rate.

The economic argument against increasing the minimum wage is simple: it costs jobs and reduces economic opportunity. Rising labor costs inhibit businesses’ ability to grow or expand. It can also force business to reduce hours and lay-off staff. This then contributes to shrinking opportunities for workers, especially for new entrants to the labor market who have less work experience or fewer skills. Furthermore, customers, including the very workers the bill trying to help, are likely to bear a higher cost on consumer goods with fewer options available.

If history serves as a guide, on balance, we see minimum wages increases usually have done much more harm than good. A recent study found that workers who were “bound” by minimum wage increases saw their employment and income prospects significantly diminished during the Great Recession on both the national and state levels. A 2014 report from the Congressional Budget Office report estimated a national increase in the minimum wage would result in about 500,000 jobs lost.

Both the Oregon chapter of the National Federation of Independent Businesses (NFIB) and the Oregon Restaurant and Lodging Association have expressed deep concerns about the steep increases in labor costs that these the bill requires, citing the uncomfortable realities that member businesses would be confronted with when considering how best to address such a sharp increase in their labor costs. The groups warn that if the measure is signed into law, the state could stand to lose 62,700 jobs and would particularly harm small businesses. The measure would also make it more difficult for businesses that operate in different parts of the state by setting varying rates for the minimum wage. In addition to this proposal, Oregon could also see two ballot measures, one asking voters to approve a state-wide $13.50 per hour minimum wage and the other asking voters to approve a $15 per hour state-wide minimum wage.

Rather than artificially attempting to set unrealistically high wage rates, the state’s lawmakers should focus on creating a competitive tax and regulatory climate that can boost economic growth. As economic growth increases, more jobs and promotion opportunities become available. If this measure is signed into law, it will be a big step toward the wrong direction.