Good intentions can produce terrible results. Recently the Oregon legislature passed an unprecedented minimum wage hike in effort to help workers within their state, but the legislation will hurt the workers it’s supposed to help.
By 2022 the states’ minimum wage will rise to $14.50/hour in the Portland area, $12.50/hour in rural areas, and $13.25/hour elsewhere. In six years even rural Oregon will have the highest minimum wage in the country.
Economists examining the 2007-2009 federal minimum wage hike found affected workers’ weekly earnings dropped by an average of $150 month. This is because while some workers got higher pay, others lost their jobs—or could not find work to begin with.
On balance low-income workers job prospects worsened.
So whose jobs will the Oregon minimum wage hike put at risk? Predominantly restaurant workers and cashiers, along with some personal-service workers. The Bureau of Labor Statistics tracks occupational wages across metropolitan areas. This chart shows occupations in the Portland-Vancouver-Hillsboro Metropolitan area where about 75 percent of workers make less than $14.50 in 2022 dollars. (Note that the Bureau of Labor Statistics metropolitan area definition differs somewhat from the Oregon legislature’s definition of the Portland area).
Cashiers, food preparation workers, waiters and cooks will feel the heaviest impact. Childcare workers and personal care aides will be affected. Hiring these workers will become significantly more expensive.
What many advocates miss is that many employers cannot afford these higher wages. The average restaurant has a profit margin of around 4-5 percent. Simply raising wages would completely eliminate most restauranteurs profits—and then some. They will have no choice but to raise prices. That in turn will drive away customers, reducing the number of employees needed.
Businesses will also respond by looking for new ways to automate labor. This will prove particularly straightforward for cashier jobs. Businesses from supermarkets to fast food chains have all implemented some form of automatic check out. Over the next six years Portland businesses will adopt this technology much more extensively than they would have otherwise.
The Oregon legislature can force businesses to pay their employees higher wages. But it cannot force them to hire those employees in the first place. This is a lesson many Oregon workers will soon painfully learn.
As a research fellow in labor economics at The Heritage Foundation, James Sherk researches ways to promote competition and mobility in the workforce rather than erect barriers that prevent workers from getting ahead.
Editor's Note: This piece was originally published by The Daily Signal.