Bottom Rung: Why One Idaho Border Business Chose Washington

Jessica Robinson / Northwest News Network

Tim Skubitz stands in front of his McDonalds in Newport, Washington. It's right across the street from Oldtown, Idaho.

The border between 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: $7.25 an hour. Meanwhile, Washington’s is nearly $2 more.

At $9.19, Washington has the highest minimum wage 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.

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,” says Mendive.

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.

See, 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.

“When you add up all those comparisons and look at the average of all those differences in employment, the difference is zero,” says Lester. “On aggregate, there’s no job losses.”

Lester is saying when the minimum wage goes up, no jobs are lost.

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.

The very first business you see when you cross from Idaho to Washington is McDonalds. The state of Idaho is so close, says owner Tim Skubitz, you can toss a rock into it. “Whenever we get folks from out of town, they get a real kick out of walking across the street and saying, ‘Hey, I just crossed state lines!’,” Skubitz exclaims.

“We’re the second ownership of this franchise up here,” says Skubitz. “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, Washington. And this busy intersection is so profitable that it didn’t occur to Skubitz to move, even when he tore down the old McDonalds in 2011. He built a fancier new one in the same place — not in the state right across the street with the lower minimum wage, Idaho. He says wages are just one piece of a larger puzzle.

“Just because we’ve expanded our business shows that we’re growing our business and so with growing our business, I need more employees,” he says. “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. First, the wage hike reduces turnover. It also leads employers to invest more in worker training, which increases productivity.

Of course, there are some cases of high minimum wage making a business pick up and leave town. Robin Toth is the vice president of business development for Greater Spokane Incorporated. She’s 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 remembers. “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 manufacturing, professional services, and technology. She says they want to know about the workers.

“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?”, says Toth. “That’s what we hear anymore and it’s not, nickels and dimes.”

The skills gap is a challenge facing Idaho right now. 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 largest 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. The Idaho Department of Labor says 18,000 people live in Idaho but work in Washington.

One of them is 29-year-old Sarah Wagner. She’s a barista at a 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. So it’s worth the trip.

“I drive 16 miles each way and it’s worth every cent,” says Wagner.

But there are trade-offs. Back at the McDonalds 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 says.

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.