Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Saturday, April 01, 2006

Higher minimum wage helps us all

Notice how unemployment spiked when we began indexing the minimum wage? Not.

A recent column from John Burbank reminded me that Washington is almost civilized in its treatment of low wage workers. Burbank is head of EOI, the Economic Opportunity Institute, based in Seattle. He and EOI were prime proponents of initiative 688, which garnered two-thirds of the vote in 1998 and tied the minimum wage to inflation. He is, and should be, justifiably proud of the measure. The wage rate is now $7.63, highest in the nation, two and a half dollars above the federal minimum of $5.15.

Watch out! The sky has not fallen! Quite the contrary. Jobs are plentiful.

Burbank's column tied the minimum wage into a cheery little formula for job and income growth that he projects onto the current situation: "the blossoming economy, increases in productivity, a minimum wage that keeps up with inflation, and public investment in education and transportation."

As you know, I do not see a blossoming economy. I see one juiced on debt, which includes the poison pill of its own demise. The increases in productivity Burbank sees we could debate, and may another time. (I certainly do not see productivity improvements translated into wage increases.)

I do agree – even more than Burbank does (and if one can agree more) – that the minimum wage is helping economic vitality. No doubt.

It once was a tenet of economics texts, right behind the first law, that the minimum wage discouraged employment because it kept wages above the equilibrium intersection of supply and demand. Then a study was done on the East Coast (for $5 I'll get the cite) which demonstrated that employment went UP after an increase in the minimum wage.

Foam could be seen seeping through the beards of academia. Humph! Not possible!

Possible and true. Even if it is still ignored in the classroom. Why? As a demand sider, I say the wages of low-paid people tend to get spent quickly and possibly in venues operated by other low-paid people. An increase in demand generates its increase in supply, as always.

The same sort of dynamic is taking place in Washington. A dollar spent on low-wage labor very likely doesn't go very far geographically or temporally, and generates far more stimulus than a dollar spent on high-wage labor or profits or rents.

Beyond that, it could be that people are drawn to the state for these low-wage jobs, particularly as other state's economies weaken. Illegals and those who assist them. People create wealth. More people, more economic activity. Whatever the reason, it is only too clear that jobs have not died under the burden of our civilized minimum wage policy.

The last element in Burbank's formula was investment in education and transportation. Yes. These produce a healthy society and a healthy economy, improving productivity. I disagree that we have invested as much as we need to in these critical areas. I also question whether our spending on highways and their partners automobiles and gasoline is very smart. (Rail, high efficiency rail, publicly managed rail, clean, Washington-made, future-oriented, community-building rail. Is better.) Aside from productivity, remember, too, the jobs in education and transportation (both construction and operation), while not high-paying, can generate middle class households.

Lastly, and perhaps closer to the core of Burbank's contention, we need to fully appreciate that business comes looking for good education and transportation infrastructure. I know this is what the Guv believes. And both of them are right. The most instructive matrix on business siting decisions I ever saw is from work done for the 2002 Gates Commission, the Tax Structure Study. (You'll have to rotate it on your PDF reader.) It's on page 12 of this link.

See how taxes are far down on the list, behind workforce, transportation, and of course, number one, market. Notice that higher taxes are necessary for better education and transportation. Draw your own conclusions.

(Hint: Investment in education and transportation is the right answer.)

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