Washington State’s Minimum Wage Hike Affects Idaho Businesses

The state of Washington’s high minimum wage puts pressure on wages in northern Idaho, especially in the communities closest to the border — Lewiston, Moscow, Coeur d’Alene, Post Falls and the Priest River area. With Washington’s jump from $9.47 to $11 per hour on Jan. 1, 2017, wage pressures on the Idaho side increased.

In November 2015, the Washington Legislature approved Initiative 1433, which will increase its minimum wage incrementally until it reaches $13.50 an hour in 2020. After that, it will automatically increase with the cost of living. Three other states – Arizona, Colorado and Maine – also passed initiatives in November increasing their minimum wages. All three will raise their wages incrementally until they reach $12 in 2020. Prior to the election, California, New York and Oregon already established pathways to $12 an hour or more in the coming years. Altogether, 29 states and the District of Columbia now have minimum wages above the federal minimum wage of $7.25 per hour. In addition, some cities impose minimum wages above their states’ minimum wages. For example, Seattle’s minimum wage for larger employers is set to increase to $15 by 2020.

Idaho’s minimum wage is the same as the federal minimum, which hasn’t increased since it rose to $7.25 in 2009. Washington’s minimum wage has exceeded $7.25 since 2005. In 1998, Washington voters approved an initiative that automatically increases the state’s minimum wage by the increase in the consumer price index annually on Jan. 1. That made the Washington state minimum wage the highest among all the states, until January of this year when increases took effect in several states. A total of 21 states and the District of Columbia raised their minimum wages Jan. 1 or will do so within the year. Currently, the District of Columbia has the highest wage at $10.50 per hour and is slated to reach $14 by 2020. It will remain higher than Washington state’s minimum wage. In New York,  which has three different minimum wages set by the state government — one for New York City, one for three counties and one for upstate New York — New York City will have the highest minimum set by a state at $15 in 2020.

Employers who meet the criteria for the federal Fair Labor Standards Act (FLSA), which is the vast majority of employers, must pay the higher of the state or federal minimum wage. So, when a state’s minimum wage is lower than the federal, all employers who meet the criteria for the FLSA must pay the federal minimum wage. And when a state’s minimum wage is higher, employers must pay the state’s minimum wage.

Table 1 shows the effective minimum wages — the state minimum wage, if it’s higher than the federal minimum wage; otherwise, it shows the federal minimum. The minimum wages for 2018 through 2020 reflect projected changes in the cost of living, which several states use to ratchet up their minimum wages. As the table shows, Idaho’s neighbors — except Utah and Wyoming — have higher minimum wages than Idaho..


table-1_kt

Since the federal minimum wage last increased on July 24, 2009, its purchasing power has fallen 12 percent as inflation eroded its value. As Figure 1 shows, the federal minimum wage reached its highest point in terms of buying power in 1968, when it increased to $1.60, which has the same buying power as $11.03 today.

figure-1_ktThe increase in Washington’s minimum wage will put upward pressure on wages on the Idaho side of the border. Although raising wages to compete with Washington businesses for workers is an expensive proposition, failing to respond to the change may be even more expensive. Currently, relatively low unemployment rates also are putting considerable upward pressure on wages. Employers who don’t raise wages based on labor market conditions may end up paying more in turnover costs, which can take an enormous toll on a business.

Recruiting replacement workers is just the beginning of the expense. Factor in the cost of enrolling, orienting and training new employees; the loss of productivity and change in customer relationships while the new employee learns the job, potential mistakes that a more seasoned worker would not make, or the new employee’s limited ability to provide the best customer service, and the expense increases. Even for basic entry level jobs, turnover costs can easily be the equivalent of paying three month’s wages. For more sophisticated jobs, turnover costs can equal a year’s salary. Washington’s rising minimum wage may benefit some Idaho businesses.

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Kathryn.Tacke@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 799-5000 ext. 3984

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