52f44fe2db8d8.preview-300Recent data shows that Idaho has the highest percentage of minimum wage workers in the country (based on percentage of total participants in the state workforce).  Among policy analysts and planners this has caused hand-wringing and cries of dismay.  It has also helped lead to a citizen effort to raise the minimum wage through the initiative process this November.  But among legislators and other officials there seems to be less of a concern (though there is concern under the surface).

Legislators and officials may seem less concerned with the problem (and it is a problem) because it is partly a result of demographics and the market.  Despite Idaho being one of the youngest states in the country it has a large number of retirees who demand low wage services.  For example, the creation of the Villages in Eagle is designed to cater to retirees but will likely only provide minimum wage jobs to workers.

Inevitably this brings up the question of what can be done if the market and demographics are driving an increase in minimum wage jobs?  For many analysts and planners the answer seems straightforward; fund education and infrastructure projects, provide tax breaks to large, high-paying companies to move to Idaho and simplify the state’s tax code (three stool compared to WA and OR’s two stool).

But these ideas run into obstacles.  Pouring money into higher education does not guarantee the state will produce more college graduates (like Kustra needs a raise).  As for K-12 the state does a pretty good job getting kids out of high school.  Infrastructure funding sounds great at first blush but what kind of infrastructure should be funded?  Should it be roadwork, light rail in Boise, or providing Internet to rural areas.  Or should the infrastructure spending focus more on catering to businesses needs in the state such as developing oil and gas reserves.

The idea of economic development in terms of tax breaks to officials is nothing new.  That was largely the idea that fueled the elimination of the majority of the Personal Property Tax in 2012.  But incentivizing businesses to move or open up new facilities in Idaho is far from an exact science.  For example, to get another Micron to move to Idaho would likely require the state to offer millions in tax breaks (that could go to other needs) while larger states with more resources could offer the company even bigger incentives.  Most recently in Idaho the city of Meridian gave owners and developers of the Village a two year tax break on all revenue.

Simplifying Idaho’s tax code would be something most would likely consider a bipartisan effort.  But the debate over the repeal of the majority of the PPT in 2012 showed that this is far from the case.  State economists would likely warn that the revenue lost from repeal of the state sales, income or PPT would have to be made up somewhere else (as in raising other taxes to make up for the repealed tax).  Considering Idaho legislators partisan and ideological bent a net zero income shift is unlikely to be seen as a positive.

None of these suggestions however address the real driver of Idaho’s minimum wage conundrum; demographics.  Idaho wants retirees to move into the state.  In North Idaho they have helped revitalize Kootenai County yet relatively few high paying jobs have resulted.  While these retirees may provide the state tax money they also demand services that are at odds with creating higher paying jobs.  For example, a retiree is unlikely to want or care about a manufacturing plant moving in state.  But a retiree has to eat and thus may care more about there being low paying service jobs in restaurants near where they live.  Retirees are also unlikely to need fancy technological gizmos that require engineers and the like.

State policymakers, legislators and officials, despite their nonchalance attitude about the problem, recognize it is a problem.  That is why Idaho worked hard to bring the Chobani plant to the state and has continued to cater to the interests of Micron and Simplot.  On the education front the State Board of Education has set an aggressive goal of seeing 60% of 25-34 year olds have a degree or certificate by 2020.  How this is going to be accomplished still seems very much in the air.  Spending on infrastructure has been proposed in the form of a six cent gas tax hike (25 cents to 31 cents) over the next three years to deal with Idaho’s estimated $262 million backlog in road and bridge projects.

As for simplification of the tax code, multiple ideas have been presented.  Representative Moyle has proposed a phased in lowering of the income tax for business and individuals of .1% every year over six years.  However, if in any year the state’s general fund revenue does not increase by 3% the next increment would not take effect. The Idaho Association of Commerce and Industry (IACI) wants to see the PPT repealed entirely.  Neither of these ideas are on the scale of repealing a leg of Idaho’s three stooled system but they do incentivize business to come to the state.

Large scale changes to the status quo are unlikely to come this year.  Election year politics has shifted the preferences of lawmakers to prefer the status quo and the minimum wage/demographic conundrum does not seem to be dragging down the state’s economy.  Indeed, at last report the state’s tax revenue was exceeding expectations as of December 2013.

This is unlikely to satisfy those who advocate large scale changes are needed to eliminate Idaho’s minimum wage/demographic conundrum.  But the honest and sad truth is that there is not a single solution to Idaho’s dilemma.  It will take time, demographics and market changes along with smart policy to change Idaho’s minimum wage labor force participation rate.

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