Minimum wage increases are a hot-button issue in many states. As such, minimum wage increases are politically challenging to implement. To avoid the knock-down/drag-out fights associated with minimum wage increase, several states—including Oregon and Washington—have introduced minimum wage indexing. With indexing, the minimum wage increases automatically each year based on some measure of inflation. As a result, Oregon and Washington have some of the highest minimum wage rates in the country.

Now that Oregon’s economy is in a tailspin, with record unemployment and business closures, the legislature is considering HB 3053 that would halt increases in the minimum wage during an economic downturn.

A study by Eric Fruits for the Employment Policies Institute measures the effect of minimum wage indexing on employment and wages in Oregon and Washington.  The study finds that minimum wage indexing imposes employment costs with no measurable income benefits. In particular:

• Higher minimum wages in Oregon and Washington are associated with reduced employment.
• Younger members of the labor force—age 25 and younger—are more likely to be adversely affected by increases in the minimum wage and minimum wage indexing. The figure above shows that Oregon and Washington would have significantly lower unemployment if the state minimum wage rates were equal to the lower Federal rate.
• Higher minimum wages have no statistically significant impact on wages of Oregon and Washington hourly wage earners.