The border between the states of Washington and Idaho is like a petri dish for what the minimum wage does to the economy. That’s where two extremes meet. Idaho has the federal minimum wage: $7.25 an hour. While Washington’s? It’s nearly $2 more — the highest in the nation.
You might expect that wage gap to send Washington border businesses fleeing over to Idaho. But that’s not what’s happening.
Idahoans like Ron Mendive pride themselves on having a business-friendly state. The Republican state representative from Coeur d’Alene shares the view of many about the minimum wage.
“Jobs are lost when the minimum wage goes up,” he says.
But in 2010, a group of researchers decided to put that conventional wisdom to the test. And they used counties along the Washington-Idaho border, and hundreds others like them, to do it.
The county that surrounds Coeur d’Alene, for example, has an economy much more closely tied to Spokane’s than to Boise’s. But the state laws governing wages? Those do stop at the state line.
Bill Lester of the University of North Carolina-Chapel Hill was on the team that looked at 16 years worth of restaurant employment data for 316 pairs of border counties.
“When you add up all those comparisons and look at the average of all those differences in employment, the difference is zero.”
Or, to put it another way: When the minimum wage increases, he says, “On aggregate, there’s no job losses.”
The Big Mac example
Take Oldtown, Idaho. It’s a place on the map where all things should be equal geographically. It’s right on the border with Washington. In fact, the town of Newport, Wash., is literally just across the street.
In Oldtown the minimum wage is $7.25 an hour. But across the street the minimum wage is $9.19.
And the very first business you see is a McDonalds.
“We’re the second ownership of this franchise up here,” says Tim Skubitz, the franchise owner of this particular McDonalds. “And I couldn’t tell you what the logic was at the time of placing it in Newport — except it’s location, location, location.”
So, just to be clear: This McDonalds is in the state with the higher minimum wage. And this busy intersection is so profitable that it didn’t occur to Skubitz to move, even when he tore down the old McDonalds in 2011. He built a fancier new one in the same place — not in the state right across the street with the lower minimum wage.
He says wages are just one piece of a larger puzzle.
“Just because we’ve expanded our business shows that we’re growing our business and so with growing our business, I need more employees,” Skubitz says. “So we’ve grown substantially I’d say in the last year and a half.”
The researchers who studied neighboring counties across state lines say there are a couple of reasons why minimum wage increases turn out to be a wash for businesses overall. They say first, the wage hike reduces turnover. It also leads to employers to invest more in worker training, which increases productivity.
Following the money
Of course, there are some cases of high minimum wage making a business pick up and leave town. Robin Toth is the vice president of business development for Greater Spokane Incorporated. She’s engaged in what she calls a “friendly competition” with Idaho to recruit and keep business.
Sometimes she loses.
“There was a bakery that went over to the Post Falls area several years ago,” Toth says. “It was because of the wages.”
But Toth says more often, the retailers and restaurants – the industries that pay minimum wage – follow the industries that pay much higher wages. Manufacturing, professional services, technology – those are who Toth is courting. And she says they want to know about the workers.
“’Can you show me how many people you have in this wage range, what type of skills do these people have, what’s your training program like.’ That’s what we hear more now. And it’s not that … nickels and dimes.”
The skills gap a challenge facing Idaho right now. People in the crucial 25-29 age bracket are leaving the state for higher paying jobs elsewhere. Meanwhile, retirees entering the state are pushing up demand in the service sector. Currently, Idaho has the highest share of minimum wage workers in the nation.
Is anyone moving?
And there’s some indication that Washington’s higher minimum wage may be drawing some of those workers across the border. Eighteen-thousand people live in Idaho but work in Washington, according to the Idaho Department of Labor.
One of them is 29-year-old Sarah Wagner. She’s a barista at this Starbucks in Liberty Lake, Wash., just four miles from the Idaho border. Wagner says the starting pay here is higher than at her old Starbucks in Idaho — and she gets more breaks. So it’s worth the trip.
“Very much so,” she says. “I drive 16 miles each way and it’s worth every cent.”
But there are trade-offs. Back at the McDonalds in Newport, Wash., Tim Skubitz says he used to give employees a raise for each positive evaluation.
“I strongly believe it’s important to reward people frequently and often,” he says.
But the higher minimum wage in Washington gives him less flexibility to do that. Skubitz says, given a choice, he’d prefer to start people at Idaho’s minimum wage. But it’s not going to change his mind about doing business in Washington either.
On the Web:
Minimum wage laws by state - US Department of Labor
Study: Minimum Wage Effects Across State Borders - The Review of Economics and Statistics