May 29, 1998
New Findings From Oregon Suggest Minimum Wage
Increases Can Help Welfare-to-Work Efforts
A study of recent increases in the state minimum wage in Oregon indicates that raising the minimum wage can substantially boost the earnings of parents leaving welfare for low-paid employment.
- New Findings From Oregon Suggest Minimum Wage Increases Can Boost Wages for Welfare Recipients Moving to Work
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The study, by the Center on Budget and Policy Priorities, found that in the three years before Oregon increased its minimum wage, the average wage among welfare recipients who found work declined in purchasing power. But after the state minimum wage rose in two stages to $6 an hour in January 1998, the average earnings of newly employed welfare recipients climbed 76 cents an hour, a nine percent increase after adjusting for inflation.
The study also examined available measures to assess whether the Oregon minimum wage increase resulted in job losses. These indicators suggest there was not an adverse effect on employment opportunities.
Oregon's minimum wage of $6 an hour is close to the $6.15 level the Clinton administration and some members of Congress have proposed for the federal minimum wage. The Oregon findings suggest that such an increase in the federal minimum wage would promote welfare reform efforts by enhancing the ability of parents to support their families through work.
The study is based on data collected by the Oregon state welfare agency on the hourly wages earned by welfare recipients who go to work. These data are particularly useful because they have been collected in a consistent manner for several years and identify the wages that welfare recipients earn when they first enter the labor market.
Wage Trends Turned Positive Immediately After Minimum Wage Increase
The study contains the following findings:
- During the three years prior to 1997, when the state's minimum wage remained at $4.75 an hour, the average starting wage of Oregon welfare recipients who moved into work fell five percent, adjusting for inflation.
- After the state's minimum wage rose to $5.50 an hour in January 1997, this trend reversed itself. The average starting wage of Oregon welfare recipients finding jobs rose through 1997. Between the last quarter of 1996 and the last quarter of 1997, the average wage among this group rose from $6.15 an hour to $6.65 an hour, a five percent increase adjusting for inflation.
- After the Oregon minimum wage rose to $6 an hour in January 1998, wages climbed further. In the first quarter of 1998, the average starting wage of Oregon welfare recipients who found work rose 26 cents above the level in the last quarter of 1997, to $6.91 an hour.
"Debates over raising the minimum wage often focus on the question of who will benefit," said Ed Lazere, author of the Center study. "The Oregon findings confirm that minimum wage increases can help parents who are trying to support their families but must rely on low-paying jobs." The study explains that a substantial number of minimum wage workers are in low-income families, that the large majority of such workers are adults, and that many are their family's primary breadwinner.
The Oregon minimum wage increase helped not only those earning the minimum wage but also those finding jobs paying slightly above the minimum wage, the study found. The study reported that among parents leaving public assistance for full-time jobs, the proportion earning more than $6 an hour rose from roughly half in 1996 to two-thirds in 1997.
The study concludes that based on the Oregon experience, an increase in the federal minimum wage above its current level of $5.15 an hour would likely have positive effects in states across the nation on the wages of parents who move from public assistance to work. Adults who leave welfare for work typically have very low earnings, often at the minimum wage or slightly above it.
Other Factors Do Not Explain the Results
In assessing the Oregon wage data, the Center found that other factors such as economic growth could not explain the sharp rise in hourly wages among newly employed welfare recipients. Prior to the state's minimum wage increase in 1997, wages among this group were declining, even though economic growth in Oregon was strong. This trend reversed itself only after the minimum wage increased.
The study also found that the increase in wages among Oregon's welfare recipients who started working at new jobs in 1997 five percent, adjusting for inflation was much greater than the increase in wages nationally among low-wage women, one percent after adjusting for inflation. By contrast, in the three years before the Oregon minimum wage increased, the wage trend for Oregon welfare recipients finding work lagged behind the national trend for low-wage women.
No Adverse Effect on Employment Evident
The study also attempted to determine whether the Oregon minimum wage increases adversely affected employment opportunities. Although a systematic examination of this issue was beyond the scope of the study, the available measures examined in the Center's report did not indicate significant job losses.
- Data from the Oregon state welfare agency show that the percentage of welfare recipients finding work rose modestly in 1997 following the increase in the minimum wage.
- Employment growth in the Oregon retail trade industry the industry most likely to be affected by a minimum wage increase was positive in 1997 and followed the same pattern as overall employment growth in Oregon. If the minimum wage increase was causing job loss, employment growth in retail trade should have been slower than overall employment growth.
"The strong U.S. economy has done little to lift the earnings of workers at the bottom of the income scale, and wage inequalities remain at exceptionally wide levels," Lazere observed. "The Oregon findings suggest that raising the federal minimum would help make work pay for parents seeking to leave welfare and support their children on low-paying jobs."