The Impact of Minimum Wage Indexing: Employment and Wage Evidence from Oregon and Washington

Abstract

Minimum wage increases can be politically challenging to implement. Consequently, many states have introduced minimum wage indexing. With indexing, the minimum wage increases automatically each year based on some measure of inflation. The goal of this research is to evaluate quantitatively the economic effects of minimum wage indexing, with a focus on Oregon and Washington’s experience. Impacts are quantified by how they affect (1) employment, and (2) hourly wages for hourly workers. The project uses wage data from the annual March Current Population Surveys (CPS) covering the period 2003–2008 for Oregon, Washington, and their neighboring states (California, Idaho, and Nevada). This information covers the period in which both Oregon and Washington have indexed their minimum wages. The data provides sufficient detail for individuals in Oregon, Washington, and other states; that thus differences in and changes to the wage and employment distribution can be tested statistically. The model used in this study accounts for the possibility that factors affecting whether an individual is employed also affects the hourly wage earned. Rather than assuming that younger individuals are differentially affected by the minimum wage and minimum wage indexing, this study tests and quantifies minimum wage impacts by age.

Keywords: minimum wage, indexing, employment, unemployment

JEL Classification: E24