Eight states will begin the New Year with a higher minimum wage under state laws that mandate minimum wages increase with inflation. Washington State will become the first state in the nation to set its minimum wage above $9 an hour. Oregon’s minimum wage will follow closely behind with an increase to $8.80 an hour.

The minimum wage is a textbook example of a price floor resulting in too many workers chasing too few jobs, especially among those applicants with the fewest skills.  The result is higher wages for those who get a job, but no jobs for many who are seeking employment.

Statistical research on Oregon and Washington’s minimum wage increases finds that the states’ higher minimum wages have, on net, a negative impact on employment and wages.

Higher minimum wages in Oregon and Washington are associated with reduced employment: Oregon and Washington’s higher minimum wages are associated with a statistically significant reduced probability of being employed.

Younger members of the labor force are more likely to be adversely affected by increases in the minimum wage: Oregon and Washington indexing policies produce annual increases in the minimum wage that, in turn, are likely to increase unemployment, especially among the young. The table below shows the impacts of higher minimum wages on youth unemployment over time. As Oregon and Washington’s minimum wages increased over time relative to the federal minimum, the states’ youth unemployment increased relative to what it would have been otherwise.

Higher minimum wages have no statistically significant impact on wages of Oregon and Washington hourly wage earners: Some proponents of higher minimum wages argue that the increases have a “ripple effect” for employees just above them on the pay scale.  However, statistical analysis of Oregon and Washington does not find any “ripple effect.” Indeed, controlling for employment impacts, increasing minimum wages has no statistically or economically significant impact on incomes.

Bottom line: Minimum wage indexing seems to impose employment costs with no measurable income benefits.

For more information on data and statistics, please see Fruits, E. (2009). The Impact of Minimum Wage Indexing: Employment and Wage Evidence from Oregon and Washington. Employment Policies Institute.