Wednesday, March 5, 2014

The State Of Washington Has Figured This One Out . . . Why Can't South Dakota?

     Here's a news flash--higher wages make for better-than-average job growth.  The numbers are in, and the state of Washington's decision to break with tradition on minimum wage increases in 1998 by immediately raising the minimum and then tying future increases to the cost-of-living has been a resounding success.  A recap by the analysts at Bloomberg was posted on the Yahoo Finance page today and pretty much confirms what I've always taken to be self-evident, that raising minimum wages to at least keep up with inflation makes for better overall economic conditions.  The minimum wage in Washington is now $9.32/hour, more than $2.00/hour better than South Dakota's $7.25. 
     This is actually kind of appalling.  Those that reflexively write this off as a reflection of cost-of-living differentials should know that on a scale developed by The Council for Community and Economic Research (whose data is used by the U.S. Census Bureau for its cost-of-living indexes) South Dakota's ranking as the 31st highest cost-of-living state is marginally exceeded by Washington's rank of 36.  We ain't that far apart, folks, yet look at the difference in our minimum wages.  As to the economic effect of Washington's approach to minimum wage increases, Bloomberg's analysts note that Washington's job growth numbers exceed the national average by a substantial margin, nearly twice the national rate.  Meantime, payrolls at bars and restaurants, thought to be especially sensitive to wage increases, grew by 21 percent.  As for poverty, Washington's level has been below the nation's for at least the past 7 years.
    Given that South Dakota seems to be in a perpetual state of labor shortages, you'd think the connection between a persistently low minimum wage and the fact that we can't seem to get enough people to work here would be obvious.  But no, it seems that every time the subject comes up we get the same tired arguments about how raising minimum wages would be detrimental to our labor force because it would price people out of jobs.  I think Washington state's numbers pretty much shred that argument.  Businesses have ways of absorbing rising labor costs--one of them being that a reduced turnover of labor created by higher wages only adds to a an enterprise's efficiency.   Meantime, getting substantially more money into general circulation by paying workers higher wages adds some financial octane to the consumer-fueled engine that drives our economy in the first place.
     There's a lot of discussion about this going on in Washington, D.C., where some incremental progress is taking place.  I think it would be nice if South Dakota could show some leadership on this issue and take some unilateral steps to raise our minimum wage right here.  For one thing, Washington state's numbers are there for the consideration.  For another, we might find that people are actually attracted to coming to a state that doesn't have the reputation as one of the lowest-paying places in the nation.  Governor Daugaard is committed to a top-down economic development schemata that continues to perpetuate chronic labor shortages.  For once I'd like to see our chief exec consider development through a bottom-up approach that would find a way to start paying workers some decent money.  People in Washington state have figured it out.  Why can't we?

6 comments:

  1. Yes, yes, yes!

    I'm sure the legislature in MN is looking at this too. The current minimum wage here is below the federal. $9.50 is looking good, but they're balking at it being tied to COLA. This report looks like a great response to that concern.

    Good work John, and thanks.

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  2. I really don't get the the resistance to tying the minimum wage to COLA. All that does is guarantee that the minimum wage today will be a pay cut, year to year. Kind of tough on the lowest rung of workers in our economy, don't you think? I think it becomes a moral consideration at that point.

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  3. I worked in Wyoming back in the late 70's. It did happen to be a union job and our wage was tied to a COLA every six months. Back then like now there was a labor shortage. The contractors told the union what to set for wages, because they had to pay more than the unions would ask for, just to get employees.

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    1. Hey, Dallis--yeah, the law of supply and demand applies to labor just as it does to all goods and service. It's really kind of amazing that our elected leadership seems so "gung ho" about economic development even as they scramble to find ways to bring labor into this state, which has one of the lowest hourly wage structures in the country, and, as I noted in an earlier post, the lowest wage structure in our region. Not understanding supply and demand is one thing, completely overlooking cause and effect is another.

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  4. To make an immediate impact on low wage workers exempt those making less than $15 an hour from paying payroll taxes. It wouldn't burden the employer and shouldn't place minimum wage jobs at risk for termination.

    South Dakota lawmakers wouldn't pursue this but our federal representatives could get this passed.

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    1. That is actually one heck of an idea, Thad. Certainly worthy of some analysis and discussion. It will get to SD's federal reps.

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