minimum wage gap
10:00 am
Wed May 8, 2013

Why won't this McDonald's move 20 feet into lower-wage Idaho?

Tim Skubitz, in white, at his McDonalds in Newport, Wash., looks across the highway into Oldtown, Idaho.
Credit Jessica Robinson

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 of $7.25 an hour. While Washington’s is 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.

Study: Higher minimum wage doesn’t kill jobs

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,” Mendive said.

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 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.

“And when you add up all those comparisons and look at the average of all those differences in employment, the difference is zero,” said Lester.

Or, to put it another way: When the minimum wage increases, said Lester,“On aggregate, there's no job losses.”

Really? No job losses? I wanted to see this for myself, so I went to a place on the map where all things should be equal geographically.

A Wash. border business that stayed put

I visited Oldtown, Idaho, which sits on the border with Washington. In fact, the town of Newport, Wash., is literally just across the street. So, to go from a minimum wage of $7.25 to $9.19 is as easy as crossing the street.

And on the Washington side, one of the very first businesses you see is a McDonald’s.

“Well, we're the second ownership of this franchise up here,” said Tim Skubitz, the owner of the McDonald’s franchise in Newport. “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 McDonald’s in 2011. He built a fancier new one in the same place instead of in the state right across the street with the lower minimum wage. Skibutz says wages are just one piece of a larger puzzle.

“Just because we've expanded our business shows that we're growing our business,” he said. “And so with growing our business, I need more employees. 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 employers to invest more in worker training, which increases productivity.

Not all Wash. businesses chose to stay

Of course, there are some cases of Washington businesses along the border picking up and leaving town. Robin Toth, vice president of business development for Greater Spokane Inc., is engaged in what she calls a “friendly competition” with Idaho to recruit and keep business. And sometimes, she loses.

“There was a bakery that went over to the Post Falls area several years ago,” Toth said.  “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. Toth is courting industries like manufacturing, professional services, and technology, and she says they want to know about the workers.

“(They ask,) ‘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 anymore, and it's not that … nickels-and-dimes.”

Young Idahoans moving for higher pay

Right now, Idaho is facing a skills gap challenge. 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.

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—both things that make her job worth the trip.

“Very much so,” she said. “I drive 16 miles each way and it's worth every cent.”

But there are trade-offs. Back at the McDonald’s 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 said.

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.