Oregon's Smart Approach to a Minimum Wage

Last week, Oregon’s house of representatives passed a bill that would make the state’s minimum wage one of the highest in the country. While the bill still needs the approval of Oregon Governor Kate Brown for the bill to pass, Brown has already said that she intends to sign the bill.

But what’s most noteworthy about the Oregon bill isn’t how high the minimum wage will be. It’s that different minimum wages will go into effect in different parts of the state, roughly based on their population density. In and around Portland, the state’s biggest city, the increase will be the largest: The minimum wage will rise there to $14.75 in 2022. Outside of Portland, the minimum hourly wage in mid-sized counties will go up to $13.50 over the next six years, and more rural areas will see theirs increase to $12.50.

Oregon’s tiered system is interesting because it addresses one of the chief concerns some economists have about raising federal or state minimum wages: that rural areas will struggle to weather a decrease in jobs that may come with the increased cost of labor. A 2014 study by the Congressional Budget Office estimates that while a federal minimum-wage hike to $10.10 (from $7.25) would lift nearly a million workers above the poverty line, it’s expected that it would also result in 500,000 fewer jobs nationwide. Many economists point out that these job losses would not be evenly distributed—they’d likely cluster in the cities and states whose economies aren’t strong enough to start paying their low-wage workers a bit more. Oregon’s tiered approach is an attempt to try and avoid this consequence.

In addition, Oregon’s tiered system might allay a related concern: that the minimum should be adjusted for the cost of living, since $15 goes a lot less far in metropolitan areas than it does in more rural ones. If the point of raising the minimum wage is to pay a living wage to workers, some say, then that amount should be determined regionally instead of nationally. (It is also worth noting that, according to a Fed study, when Oregon’s previous minimum wage was adjusted for the state’s cost of living, it was already among the highest in the country.)

Because the federal minimum wage hasn’t moved since 2009, states and cities have been increasingly taking minimum-wage levels into their own hands in order to make life more affordable for their residents. Because the cost of living is so much higher in cities, it’s no wonder that so many of them—including New York, San Francisco, and Seattle—have already raised their minimum wages to well above the current federal level of $7.25.

Even though it would seem like a straightforward calculation involving supply and demand, raising the wage floor remains one of the big economic experiments of our time. Would it cause businesses to move? Decrease the number of jobs? Reduce turnover? Hurt some industries more than others? Researchers have gathered some data—much of it mixed, and some of it contradictory—about how raising the minimum wage would impact the economy. If Oregon’s experiment works, it could end up setting an important example for the many states that are contemplating large minimum-wage hikes more seriously than ever.