The first test comes with proposed legislation to index Alaska's minimum wage. State Rep. Pete Petersen recently introduced a bill that would raise the state's minimum wage from $7.15 to $7.85 in 2010, $8.60 in 2011, and $9.45 in 2012. Following that, the wage rate would rise automatically to match inflation.
The bill is politically popular and being pushed heavily by state Democrats, but it would spell disaster for the estimated 22,000 Alaskans who currently earn minimum wage. Businesses in Alaska are already struggling to stave off bankruptcy, and inflating the minimum wage will only make labor less affordable.
If this legislation passes, a small business with 20 employees at or near the minimum wage will see their labor expenses increase by at least $29,000 in 2010 and over $57,000 by 2012 and that doesn't include the hidden ripple effect on other wages. Add in the indexing and the costs will compound as the wage moves steadily higher. Combined with a slowing economy and dwindling demand, business owners will have to cut back. Many jobs will be culled in the process.
The evidence is clear for Gov. Palin to see: Last year, unemployment rose 25 percent faster in states that indexed their minimum wage than in states that did not. That 25 percent difference, applied nationwide, could mean the loss of up to 1 million additional full-time employees. And all concentrated among the least skilled in society.
Indexing isn't just bad for business -- it's bad for young workers too. Mainstream economists agree that forced wage hikes lead employers to eliminate entry-level jobs or reduce hours.
That squeezes the least skilled workers out of the labor market, where they miss out on more than just money. Simply having a job teaches young people valuable lessons about responsibility, punctuality and being part of a team. An inflated minimum wage will eliminate those jobs and deny Alaska's youth those vital opportunities that serve as an invisible curriculum not taught in school.
Gov. Palin has some hard choices ahead. Blocking a wage increase may be an unpopular move, but living up to her conservative reputation and ideals is going to mean making tough calls for the good of her state. This is one of those times.
Kristen Lopez Eastlick is the senior economic analyst at the Employment Policies Institute in Washington, D.C.
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