Another of the nine ballot measures Colorado voters will be deciding this November is one to raise the minimum wage, making it illegal to hire the lowest skilled workers and harming those at the bottom of the economic ladder.
There has been agitation nationwide for an increase in the minimum wage to $15, however, the out of state activists driving this ballot initiative settled for a $12 minimum wage by January 2020.
Basic Economics
What’s sad about “feel-good” measures of this type is that they ignore the basic laws of economics, which are as immutable in their own way as the laws of physics or mathematics.
At a very simple level, as shown in the graph below, the “equilibrium price” of labor is at W*, shown on the wage scale where the Supply (S) and Demand (D) curves intersect. The “equilibrium quantity” of workers is shown at L* on the “# of workers” scale. This is the point at which every worker is employed at the price which employers are willing to pay for their labor.
When the minimum wage is raised, say from W* to Wmin, more people will want to work for the higher wage (shown as the intersection of the Ls line and the Supply line). However, fewer employers will be willing to pay the higher rate, so the number of workers demanded at the higher wage goes down (represented by the intersection of the Wmin and the Demand line). The result? There will be workers who want jobs, but will be unable to find anyone to hire them. That group of unfortunates is represented by the “unemployed workers” arrows on the chart.
Of course, the labor market is made up of millions or workers and employers doing thousands of different jobs requiring different and varying levels of skill, knowledge, experience and training. Other factors come into play as well in labor markets, including overall economic activity and local circumstances.
The effects of a raise in the minimum wage, over time, will result in a lower number of jobs available for those who are between the W* and Wmin lines. Unfortunately, those individuals who are “between the lines” are often teenagers, minorities, the less educated and the less fortunate. These are the people who are harmed by making it illegal to hire them.
Studies Show Raising the Minimum Wage Increases Unemployment
In the United States, the first minimum wage law that wasn’t struck down by the Supreme Court was enacted in 1938 setting the minimum wage at $0.25 per hour ($4.25 in 2015 dollars). In the decades since, economists of all schools of economics have studied the question of whether the basic laws of economics hold true for minimum wage increases. Not surprisingly, as with most other issues, there are studies that support conflicting views of the effects of government intervention in labor markets.
The closest thing I’ve seen to an impartial evaluation of the evidence is the findings of the nonpartisan Congressional Budget Office:
“Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.”
Using either the “Central Estimate” or the “Likely Range” shows that increases of the minimum wage to either $9.00 or $10.10 would result in the loss of from 100,000 workers to 500,000 workers. The effects of a minimum wage increase to either $12.00 or $15.00 per hour would most likely result in the loss of even more jobs. For these people, the true minimum wage is $0.00.
Further, the CBO found that the earnings under minimum wage increases “would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent…would accrue to families with earnings below the poverty threshold…” In other words, minimum wage increases provide very little help to those they are designed to help.
Another study looks at the results of “raising the federal minimum wage to $12 per hour and to $15 per hour, respectively, by 2020. This study found that while the minimum wage increase would benefit some workers with higher earnings, it would also hurt millions of others who would lose earnings because they cannot attain or retain a job. Our estimates show that raising the federal minimum wage to $12 per hour by 2020 would affect 38.3 million low-wage workers. Using our central estimate, we find that raising the minimum wage would cost 3.8 million low-wage jobs.” Again, “…only 5.8 percent would go to low-wage workers who are actually in poverty.”
Will Colorado see an immediate loss of low-wage jobs and increased unemployment among teenagers, minorities and the less educated? Probably not, as many studies show no IMMEDIATE effects of minimum wage increases. But over time, these effects will be seen as businesses employ technology, cut the hours of existing staff, downsize or even go out of business altogether.
Unions Benefit From Higher Minimum Wage Laws
Some of the most avid supporters of minimum wage increases are labor unions, both private and public. Indeed, campaign finance filings for the Issue Committee promoting this ballot initiative – misleadingly calling themselves “Colorado Families For A Fair Wage” – reveal that 62% of the $2.3 million in contributions received through September 14, 2016 are from labor unions, organizations that support them and a national organization for raising the minimum wage.
Labor unions benefit from minimum wage increases even when very few union members actually make the minimum wage. This is because the wages they negotiate with businesses and governments are often based on some formula – either a percentage above the minimum wage or a flat “premium” amount above the minimum wage.
As Mark Berman, the executive director for the Center for Union Facts wrote in the Wall Street Journal a few years ago:
“Minimum-wage hikes are beneficial to unions in other ways. The increases restrict the ability of businesses to hire low-skill workers who might gladly work for lower wages in order to gain experience. Union members thus face less competition from workers who might threaten union jobs.
This view is not speculation. A 2004 study in the Journal of Human Resources by economists William Wascher, Mark Schweitzer and David Neumark determined that lower-wage union workers typically see a boost in employment and earned income following a mandated wage hike. Never mind the corresponding drop in jobs and earned income for nonunion minimum-wage workers. They may have been priced out of the jobs they need, but that is not the union’s concern—its members have landed higher wages and reduced competition for jobs.
Such considerations are worth keeping in mind when contemplating the president’s wage proposal and the fervent Democratic support for similar and often more ambitious measures, such as Iowa Sen. Tom Harkin’s bill to raise the minimum wage to $9.80. Labor unions spent an estimated $174 million on the 2012 election, with 91% of the money going to Democrats, according to the Center for Responsive Politics. Now many union members could see their paychecks grow as the result of a Democrat-backed mandate—even though the overwhelming majority of scholarly evidence says that these wage increases have a negative effect on employment.”
Clearly, unions and their allies the Democrats want to see minimum wages go up. Such increases will accrue to their benefit, generating more cash for union officials and more campaign contributions for Democrats. It’s a self-funding mechanism for Democrats to stay in power, and the poor, lower skilled workers, business owners and consumers are the ones who pay the price.
Not the Colorado Way of Life
Despite ardent support of the drive to raise the wage by Colorado progressives and their plethora of organizations and noisy agitators, the vast majority of the contributions to Colorado Families For A Fair Wage (CFFFW) are from other states than Colorado, including $2.1 million from California, Washington, D.C. and New York.
Of the 70 donations totaling $212,309 in Colorado, a statistically insignificant amount of 53 donations totaling $3,084 were donated by individuals other than Gang of Four member Pat Stryker, who donated $20,000. The table below shows the funding sources. A complete listing is at this link. Where I identified an organization as “Progressive”, I used my judgement from looking at their website and seeing the nature of the organization. More often than not, they label themselves as such. The organizations identified as “Union” are unions, union supporters, a business that supports unions, and union advocacy organizations.
This data shows that support for raising the minimum wage among average, ordinary, non-political Coloradans who go about their daily lives without thinking about politics is non-existent. The drivers of this ballot initiative are unions, their progressive allies, and out of state advocacy groups.
Not Right For Colorado
Between Amendments 69 and 70, the potential to severely impair Colorado’s economy is almost incalculable. Coupled with a behind the scenes effort to increase the unemployment tax burden on Colorado businesses, it is clear that progressive elements in Colorado are moving their agenda forward without regard for the harmful impacts they will have on ordinary people and business owners.
While this may be a “feel-good” measure that is being pitched based on sob stories about hard working people who still can’t make ends meet, the truth is that this will have negative consequences for the very people the proponents claim to want to help as well as business owners. The REAL minimum wage is $0.00, as many will discover if this passes.
For these reasons, I urge a “NO” vote on Amendment 70 in NOvember.
By Richard D. Turnquist
September 21, 2016
Detailed listing of donors contributing $20,000 or more through September 14, 2016
