Nevada: No Longer “the Service State”?

It’s been a big year for Nevada. The Las Vegas monorail is finally up and working. MGM Mirage acquired Mandalay Bay Resorts. Electronic voting machines managed to print out thousands of paper receipts. And yes, Silver State resident Dudley Hiibel failed to overturn a Nevada Supreme Court ruling that you must answer if a police officer asks for your name. But Nevada’s biggest story of 2004 proved to be overwhelming success for a measure raising the minimum wage. Previously, Nevada had used the federal guideline. The measure must be approved again, because under Nevada law there must be two affirmative referendum votes if an issue amends the state constitution. This proposal would.

Even so, why is this perhaps the most neglected story in America in 2004, let alone Nevada? Nevada is a state where nearly everyone works in the service sector. Some jobs in mining remain, but the state has almost no manufacturing presence or other raw materials like timber. A service sector job tends either to be a highly lucrative professional career, or low-paid part-time work. Nowhere is this truer than Nevada. While lawyers and doctors continue to be in demand, there are more openings for bellhops, housekeepers, and security guards. But the ballot measure was not just popular in Clark County, where Las Vegas sits, but across the entire state. It triumphed even in the most Republican and conservative counties.

In short, it appears that in other states where manufacturing jobs have been replaced by service ones there will be growing support to raise the minimum wage. After all, Nevada represents the future of the America. It grapples not only with labor issues, but also public transportation failures, water shortages, and urban renewal. For years, the lure of low state taxation spurred development. Nevada has been the fastest-growing state since 1986. But solutions have been few and far between. The monorail system closed abruptly in September only to reopen last week. Lake Mead’s water level continues to drop, exacerbating drought conditions. MGM Mirage meanwhile, is trying to lure people to live in a new mixed-use development on the Strip. This is heresy in a town where most residents never venture onto Las Vegas Boulevard unless they are going to eat at a good restaurant. While no solution to these ills may gain the currency that gambling has in other states, a higher minimum wage just might. Florida, equally dependent on tourism and low-wage work, passed an identical measure on the same day as Nevada. Support is growing in other, rapidly developing states, such as Arizona.

Yet perhaps the most curious thought for 2005: job growth is set to rise precipitously in both the South and West. The largest openings: low-paying jobs like customer service. That news is sending shockwaves already to state governments like Nevada’s, which are worried the federal government will not increase Medicare funding. Part-time employees are not entitled to medical coverage under federal and state laws. Many of them have to rely on Medicare. In Nevada and other states primarily reliant on part-time service sector work, there are two likely outcomes.

One, states are forced to raise their own Medicare premiums. A raise in the minimum wage would not be enough to send hundreds of families or individuals into bankruptcy. With interest rates set to rise, home refinance and credit cards will become less viable ways to underwrite big expenses. Ensuing personal bankruptcies would trigger a wave of foreclosures, flooding the home market with numerous properties priced to move. This in turn would push down home prices in states with red-hot real estate markets, of which Nevada is the leader. While a real-estate dip along might not be enough to cause a national recession, it could be the proverbial straw that breaks the camel’s back.

Two, Nevada could raise taxes to offset the Medicare gap. Just less than forty percent of all tax revenue in Nevada comes from gambling. Property taxes are low, and the constitution prohibits a state income tax. With MGM-Mirage now the largest employer in Nevada by far, larger than even the state itself, it would be hard to imagine a hike in property or gaming taxes. That leaves a sales tax increase of some sort. It could take the form of higher hotel taxes, but this would hurt MG-Mirage who runs among the most expensive resorts in the state. It could also be an across-the-board sales tax hike, which would eat up most of the gains made by raising the minimum wage. The drop in consumer spending also would lead to economic sclerosis equal to if Medicare premiums go up.

The obvious solution would then be to diversify the labor market with higher paying jobs. More are coming in the form of government scientists. The Department of Energy has decided to close its nuclear weapons laboratory at Los Alamos, New Mexico in favor of a more secure and remote location at the Nevada Test Site. But the influx of researchers is probably not enough. The state will have to find other ways to attract higher-paying jobs if it wants to avoid the reputation of being “the Service State”.