The Minimum Wage: Looking Across the Washington-Idaho State Line

Jared Bernstein pointed this out to me six months ago:

For $7.93 an Hour, It's Worth A Trip Across the State Line By TIMOTHY EGAN: Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.

Nearly a decade ago, when voters in Washington approved a measure that would give the state's lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer. But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies -- a real-life laboratory for the debate -- have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits. Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.

Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation's leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy. ''We're paying the highest wage we've ever had to pay, and our business is still up more than 11 percent over last year,'' said Tom Singleton, who manages a Papa Murphy's takeout pizza store here, with 13 employees. His store is flooded with job applicants from Idaho, Mr. Singleton said. Like other business managers in Washington, he said he had less turnover because the jobs paid more.

By contrast, an Idaho restaurant owner, Rob Elder, said he paid more than the minimum wage because he could not find anyone to work for the Idaho minimum at his Post Falls restaurant, the Hot Rod Cafe. ''At $5.15 an hour, I get zero applicants -- or maybe a guy with one leg who wouldn't pass a drug test and wouldn't show up on Saturday night because he wants to get drunk with his buddies,'' Mr. Elder said...

Comments

[Denis Drew]

The Illinois minimum wage just jumped to $7.50/hr and the McDonalds up the block seems crowded like I have never seen it crowded (it was nicely modernized) and they are even starting to get a proportion of American-born employees behind the counter (meaning even if business had dropped off they still would have hired more American born workers).

[anne]

http://www.nytimes.com/2007/01/11/us/11minimum.html?ex=1326171600&en=c2afd9257e4cc6b5&ei=5090&partner=rssuserland&emc=rss

January 11, 2007

For $7.93 an Hour, It's Worth a Trip Across a State Line
By TIMOTHY EGAN

[Timothy Egan, a National Book Award winner, was for many years a correspondent for the New York Times and just weeks ago was a columnist, a terrific columnist for a month.]

[anne]

http://select.nytimes.com/2007/06/23/opinion/23egan.html

June 23, 2007

This Land Was My Land
By TIMOTHY EGAN

MOUNT HOOD, Ore.

Most Americans don't own a summer home on Cape Cod, or a McMansion in the Rockies, but they have this birthright: an area more than four times the size of France. If you're a citizen, you own it — about 565 million acres.

The deed on a big part of this public land inheritance dates to a pair of Republican class warriors from a hundred years ago: President Theodore Roosevelt and Gifford Pinchot, first chief of the Forest Service.

Both were rich. Both were well-educated. Both were headstrong and quirky. Pinchot slept on a wooden pillow and had his valet wake him with ice water to the face. Teddy and G.P., as they were known, sometimes wrestled with each other, or swam naked in the Potomac.

In establishing the people's estate, they fought Gilded Age titans — railroads, timber barons, mine owners — and their enablers in the Senate. And make no mistake: these acts may have been cast as the founding deeds of the environmental movement, but they were as much about class as conservation.

Pinchot had studied forestry in France, where a peasant couldn't make a campfire without being subject to penalties. In England, he had seen how the lords of privilege had their way over the outdoors. In the United States, he and T.R. envisioned the ultimate expression of Progressive-era values: a place where a tired factory hand could be renewed — lord for a day.

"In the national forests, big money was not king," wrote Pinchot. The Forest Service was beloved, he said, because "it stood up for the honest small man and fought the predatory big man as no government bureau had done before."

A century later, I drove through the Gifford Pinchot National Forest on my way to climb Mount Hood, and found the place in tatters. Roads are closed, or in disrepair. Trails are washed out. The campgrounds, those that are open, are frayed and unkempt. It looks like the forestry equivalent of a neighborhood crack house.

In the Pinchot woods, you see the George W. Bush public lands legacy. If you want to drill, or cut trees, or open a gas line — the place is yours. Most everything else has been trashed or left to bleed to death.

Remember the scene from "It's a Wonderful Life," when Jimmy Stewart's character sees what would happen to Bedford Falls if the richest man in town took over? All those honky-tonks, strip joints and tenement dwellings in Pottersville?

If Roosevelt roamed the West today, he'd find some of the same thing in the land he entrusted to future presidents. The national wildlife system, started by T.R., has been emasculated. President Bush has systematically pared the budget to the point where, this year, more than 200 refuges could be without any staff at all.

The Bureau of Land Management, which oversees some of the finest open range, desert canyons and high-alpine valleys in the world, was told early on in the Bush years to make drilling for oil and gas their top priority. A demoralized staff has followed through, but many describe their jobs the way a cowboy talks about having to shoot his horse.

In Colorado, the bureau just gave the green light to industrial development on the aspen-forested high mountain paradise called the Roan Plateau. In typical fashion, the administration made a charade of listening to the public about what to do with the land. More than 75,000 people wrote them — 98 percent opposed to drilling....

[anne]

http://www.nytimes.com/2007/07/21/washington/21interior.html

July 21, 2007

U.S. Agency May Reverse 8 Decisions on Wildlife
By JOHN M. BRODER

[Ah, and in case you were wondering George Bush's deputy assistant secretary for fish and wildlife and parks just resigned having been found by the agency inspector general to have "browbeat department biologists and habitat specialists and overruled their recommendations to protect a variety of rare and threatened species."]

[andres]

Time for my cynical moment of the day: it's a good thing that Idahoans are not brown-skinned gibberish-speaking munchkins with a liking for chilis, tortillas and tequila, or else Washington Republicans would be screaming for a border fence, US laws be damned.

On a more serious note, I think what we are seeing in Egan's article is the macroeconomic multiplier effect of income redistribution towards the bottom, which imo is the true refutation of the neoclassical argument that minimum wages increase unemployment.

[Neil B.]

Good to hear about minimum wage, this is what I've always suspected (and there never was an excuse not to index it to real dollars anyway, aside from the effect of any actual effective rate...) For an example of rightist propaganda against the MW, see the following thread and see my hard hits against them (and how they typically respond):

The URL is
Hblahslashslash sayanythingblog.com/entry/the_minimum_wage_a_tax_on_low_wage_workers

(Jeeze Louise, or whatever, WTF I can't put in links?!)

tyrannogenius

[Robert]

The standard intro mainstream textbook treatment of labor markets, like so much else in mainstream economics, has been known to be illogical and incorrect for decades. Here are some references:
http://robertvienneau.blogspot.com/2007/01/steedmans-full-industry-equilibrium.html
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=783005

[anne]

Andres:

"I think what we are seeing in Egan's article is the macroeconomic multiplier effect of income redistribution towards the bottom, which is the true refutation of the neoclassical argument that minimum wages increase unemployment."

Importantly observed, but clumsily expressed. Simplify.

[anne]

There is indeed no reason beyond theory, no reason based on observation that mechanisms such as minimum wage legislation cannot efficiently raise living standards. But, we are continually pushed to turn away from New Deal legacy ideas and programs that built America's middle class and continue to sustain the middle class.

[anne]

Denis Drew:

"The Illinois minimum wage just jumped to $7.50/hr and the McDonalds up the block seems crowded like I have never seen it crowded (it was nicely modernized) and they are even starting to get a proportion of American-born employees behind the counter..."

Nice; but how exactly are we to know when we go to a restaurant who was American born among the staff? Were the staff parents American born? Grandparents?

[Denis Drew]

Anne:
A thick accent and occasional difficulty with English are good external indicators. Knowing how it feels to be a spoiled American who would rather rob banks -- and go to jail -- than work all week for what we would consider a day's pay is what you might call an inertial indicator. The couple of American born folks I saw in orientation to go to work there at $5.15/hr (they didn't last long) appeared to me to have the look of "rape" on their faces.

[johne]

The situation plays out in Russian-dolls fashion, with plenty of Andres' gibberish-speaking munchkins propping up industry and society in both states. While the Republicans haven't called for a wall (yet), the likes of Canyon County commissioner and onetime congressional candidate Robert Vasquez gets a lot of political mileage out of the fact that he won't consent to a Spanish-language media interview in the language he spoke at home growing up, though he will make an exception to insult his grandfather's Eagle-and-Serpent Mexican flag: "He tenido colgada en mi oficina la bandera estadounidense, no la del pollo y el gusano o lo que sea." http://itinerantlibrarian.blogspot.com/2005_06_01_archive.html

[andres]

"Andres:

"I think what we are seeing in Egan's article is the macroeconomic multiplier effect of income redistribution towards the bottom, which is the true refutation of the neoclassical argument that minimum wages increase unemployment."

Importantly observed, but clumsily expressed. Simplify."

Hah. anne, it sounds like you have yet to learn the convoluted, Teutonic-like jargon of official Economese. Stop gawking at birds so much and get with it girl ;-)

Using simpler language also entails more involved arguments. Standard (ie, neoclassical) economic theory holds that wage floors such as minimum wages lead to unemployment because the number of workers willing to work at the minimum wage may well exceed employers' demands for workers at that wage. Or it may lead to black markets for labor where the actual wage paid is less than the minimum, in defiance of the law.

However, this view ignores the possibility that the overall demand for labor by employers depends not just on the going wage, but also on the general level of spending throughout the economy, and that this general level of spending is dependent on income distribution.

If poorer households have a greater tendency to spend (and not save) compared to richer households, then redistributing income towards poorer households in the form of a higher minimum wage (which also includes upward wage pressure on jobs which had wages just above the previous minimum), may actually lead to an increase in total consumption spending, leading to greater sales revenues by businesses, more income from these revenues, and a repeated increase in consumption spending (ie, the multiplier effect). If the effect is prolonged enough, it may even lead to the expansion of local businesses.

Of course, this is all theory, and the devil lies in the practice. If businesses are able to mostly ignore minimum wages by bringing in undocumented labor, then there won't be any significant income redistribution effect within the country and only foreign-born undocumented workers will benefit, so the fears of the anti-illegal immigration ranters are not unjustified. Of course, the real answer to that is to increase wages in other countries in order to prevent destabilizing immigration effects.

There is also the question of whether businesses are able to nullify the increased costs of a higher minimum wage by hiking up prices by the same percentage. This is too complex a question to address on a general bases and depends on things like industry structure, collective bargaining, and whether or not the nation's main banks are going all out to prevent inflation by keeping credit tight.

Wheh. The one advantage of obscure jargon is that it considerably reduces the word count. But if no one can understand it, the efficiency gains are lost.

[anne]

Andres,

"If poorer households have a greater tendency to spend (and not save) compared to richer households, then redistributing income towards poorer households in the form of a higher minimum wage (which also includes upward wage pressure on jobs which had wages just above the previous minimum), may actually lead to an increase in total consumption spending, leading to greater sales revenues by businesses, more income from these revenues, and a repeated increase in consumption spending (ie, the multiplier effect). If the effect is prolonged enough, it may even lead to the expansion of local businesses."

That was nicely and importantly done, indeed. Completely worth the while.