Sue Lani Madsen: Higher minimum wage will kill entry-level jobs and economic growth

Washington voters have spoken. We are on a path to pricing unskilled labor out of the job market and slowing economic growth in Washington.

And we can’t make a course correction for two years unless the unintended consequences create incredibly strong bipartisan pressure in the Legislature. That pressure has only developed once in the last 24 years, according to Sen. Mark Schoesler, R-Ritzville.

Seattle started down this road with its own minimum wage ordinance. First step was an $11-per-hour minimum that kicked in on April Fool’s Day in 2014. The ordinance raises the wage to $15 an hour over seven years.

Unfortunately, we won’t get the benefit of watching the results of Seattle’s socialist experiment before the rest of the state gets dragged along. Initiative 1433, raising the minimum wage statewide to Seattle levels, goes into effect Jan. 1, 2017.

A team of economists with the University of Washington’s Daniel J. Evans School of Public Policy and Governance have begun monitoring results in the real world. Their initial study on the impacts of the city of Seattle’s minimum wage ordinance in its first 18 months identified several trends.

The good news is that Seattle’s lowest-paid workers as a group did see an increase in pay, and there was little impact on the rate of business closures or openings. Both results were related to a strong Puget Sound economy as well as the effects of the ordinance.

The bad news is that gains in pay were offset by modest reductions in employment and hours worked. Job growth among minimum-wage workers was less than what would have been expected without the law. The study was silent on whether higher labor costs resulted in higher prices.

Seattle’s Socialist City Council member Kshama Sawant is an economist, and a leader in the national Raise the Wage movement. She accused the research team of ideological bias because she is “concerned about the consequences bad news could have on the nationwide fight for $15 (per hour).” Her worldview doesn’t allow for any bad news.

Proponents of Raise the Wage theorize a higher minimum puts more money in the pockets of low-wage workers, they spend it, the economy booms, and prices don’t have to rise to cover higher costs.

In the land of reality, Phil Altmeyer, executive director of the Union Gospel Mission in Spokane, has hard numbers facing him for 2017. The higher minimum wage will add $60,000 in labor cost to operate the nonprofit’s thrift stores. That directly affects the safety-net services he provides to guests.

UGM thrift stores provide opportunities to practice work skills for those reaching for the first rung of the economic ladder. His choices are simple. He can provide fewer jobs, reduce hours for each worker, increase the volume of goods sold or raise prices. Every nonprofit employer in the state faces similar choices.

A higher minimum wage also means reduced opportunity for teenagers to gain their first job and learn how to be productive. For small-business owners, the easier choice is do the work yourself or hire someone with experience for a few dollars more.

Schoesler has been hearing from parents of developmentally disabled adults who are concerned their adult children will no longer have job opportunities. They aren’t worried about wages, but they understand the power of a job for self-esteem.

And that theory about a stronger economy covering higher labor costs? According to Schoesler, the Legislature is already facing a $30 million to $60 million budget request increase from the Department of Social and Health Services because of I-1433. Picking up an additional $60 million in expenses requires collecting sales tax on over 172 million cups of coffee. It could work – if the 1,848,583 voters who supported I-1433 bought an extra 100 cups of coffee each.

A second report from the UW team isn’t expected until 2018. The most dire unintended consequences of this experiment will be fewer opportunities for those trying to reach the first rung of the economic ladder, reduced social services and higher prices increasing the cost of everything. Put them all together and it might just be enough to create a bipartisan push to amend I-1433 a year early.

Columnist Sue Lani Madsen can be reached at rulingpen@gmail.com or on Twitter @SueLaniMadsen.