Study Shows Oregon's Minimum Wage Sets National Standard for Profitable Welfare Reform

News Release
May 29, 1998

The voter-approved minimum wage increase of 1996 reversed a three-year decline in starting wages for welfare recipients, according to a new study by the Washington, D.C.-based Center on Budget and Policy Priorities (CBPP). The earnings increases in 1997 and the first quarter of 1998 amounted to 76 cents an hour, a nine percent increase after adjusting for inflation. Over a three year period prior to the implementation of the first minimum wage increase on January 1, 1997, the real value of the average starting wages declined under Oregon's welfare reform efforts.

The Oregon minimum wage increased from $4.75 per hour to $5.50 per hour on January 1, 1997, and to $6.00 on January 1, 1998. Under the voter approved 1996 initiative, the minimum wage will increase again on January 1, 1999, to $6.50 per hour.

"The study shows that from 1993 through 1996, the Oregon welfare agency — the Adult and Family Services Division or AFS — let the average wage of job placements decline when adjusted for inflation," noted Charles Sheketoff, Executive Director of the Oregon Center for Public Policy. "Over a three year period AFS failed to keep the average starting wages up with inflation, while poor working Oregonians, saw their wages decline by 5 percent as a result," added Sheketoff.

Adjusted for inflation, wages fell from $6.54 in 1993 to $6.44 in 1994, $6.33 in 1995, bottoming out at $6.22 in 1996.

To help determine the effectiveness of the state's welfare reform program, state welfare officials monitor the starting wages of parents who go to work and leave welfare. Through 1995, AFS's goal for starting wages for former welfare recipients was $7.50 per hour. According to the agency, it was set at that level because $7.50 per hour represented seventy-five percent of what the state Workforce Quality Council established as a "family wage." The actual average starting wage for former welfare recipients was $6.01 in 1995.

Sheketoff noted that the welfare agency responded to the inflation adjusted falling wages by lowering their expectations for the welfare reform program. Starting with the first quarter of 1996, the agency lowered its goal from $7.50 to $6.00 per hour, even though it had attained that goal in 1995 ($6.01 per hour) and averaged $ 6.15 per hour during the first quarter of 1996. In mid-1997, AFS raised its goal to $6.75. The actual average starting wage at that time was $6.55.

"Addicted to the rhetoric of welfare reform, AFS keeps cooking its performance goals and, like many addicts, has been in denial about its failures - the inflation-adjusted falling wages," said Sheketoff.

Sheketoff noted that recent studies by the state Employment Department, the Center on Budget and others, have shown a growing income inequality gap, with the rich getting richer and the poor and middle class becoming poorer.

"Until the minimum wage increased in 1997, welfare reform in Oregon has been a part of that problem," said Sheketoff.

Sheketoff noted that during the time of declining wages the welfare agency changed its focus from providing education and training to pushing untrained welfare recipients into the workforce with a "work attachment" or "work first" model.

"While the per capita income of all Oregonians rose seven percent between 1993 and 1996, the starting wages of Oregon welfare recipients fell during that same period," said Sheketoff. "The three year decline raises questions about the value of the education premium and the decision by welfare officials to reduce education and training." "Oregon voters reversed welfare reform's tide of the declining wages when they enacted the minimum wage increases in 1996," said Sheketoff. "By the last quarter of 1997, the average starting wage was 50 cents higher than the similar time period of 1996, a 5.4 percent increase after adjusting for inflation," added Sheketoff. "By the end of the first quarter of 1998, the wages were 76 cents an hour higher than the 1996 average, a nine percent increase after adjusting for inflation," he added.

The Center on Budget study also showed that the minimum wage increase did not just help minimum wage earners. "The study gives further credence to the argument that a minimum wage increase has a 'ripple effect,' raising the wages of workers with earnings modestly above the minimum wage," said Sheketoff.

Critics of the minimum wage have argued that the minimum wage increase can result in lost job opportunities for low wage workers. The Department of Human Resources has even made this claim when considering the policy implications of the minimum wage increase. The Center on Budget study, however, shows that job opportunities for Oregon welfare recipients did not worsen as a result of the 1997 minimum wage increase.

"As members of Congress consider proposals to raise the federal minimum wage, they should know they can look to Oregon to see that raising the minimum wage would help make work pay for the parents seeking to leave welfare and support their families," said Sheketoff. "Oregon's congressional delegation can proudly tell their colleagues from other states to look to Oregon's minimum wage as an example of how to make welfare reform profitable."

"Candidates and elected officials in Oregon concerned about welfare reform, our low wage workforce and our economy should take note of this study and question efforts by the agricultural industry, the National Federation of Independent Business and the Oregon Restaurant Association to roll back the minimum wage gains voters enacted in 1996," said Sheketoff.

The study, New Findings from Oregon Suggest Minimum Wage Increases Can Boost Wages for Welfare Recipients Moving to Work, is available from the Center on Budget and Policy Priorities. The Oregon Center for Public Policy is a Silverton-based nonpartisan research group that analyzes budget and tax issues and government programs, and their impacts on low to moderate income Oregonians.