Business/Economy, Politics

Unintended consequences of Colorado’s minimum wage hike

Every time the minimum wage changes, workers will feel it—for better or worse. Colorado is no exception.

In 2014, Seattle, Washington made headlines when it passed an increase in the minimum wage from $9.32/hour to $15/hour over 6 years.  A 10 percent increase per year. Coloradans voted for their own, milder plan in 2016, raising the minimum wage from $8.31/hour to $12/hour by 2020. After one year, Colorado’s minimum wage is up 11% to $9.30/hour. Evidence from Seattle’s experiment with the minimum wage suggests the new policy has harmed the very workers it was meant to help.

When prices rise, people tend to buy less of something. When prices fall, people tend to buy more of something. Generally, when the price for an hour of labor rises, businesses buy less labor. When the price of an hour of labor decreases, businesses buy more labor. An analogy may help connect this basic principle of supply and demand to the minimum wage.

Suppose Netflix raised the cost of their streaming services from $10 to $15 a month. Some people will shrug and pay the higher price. Some people are not able to pay the higher price. Those people will choose a cheaper product than Netflix such as Hulu, Amazon Video, etc. Other people will simply stop paying for any kind of video streaming and drop out of the market.

When labor costs rise even a dollar per hour, you will notice changes. Some businesses may shrug and pay their workers a higher minimum wage. However, some businesses may cut their labor force and/or replace humans with technology to keep product prices low. Some businesses will close down entirely when they cannot afford to pay their workers more.

Articles by Forbes, the Washington Examiner, and others have covered real examples of real people losing their jobs to the minimum wage’s unintended consequence. Spend a few minutes to browse “Faces of $15” and you can read stories from those who have lost their jobs and closed up shop, all thanks to minimum wage hikes.

Recently, the National Bureau of Economic Research (NBER) released a study on Seattle’s minimum wage. The findings are not surprising.  At $13/hour, hours worked were reduced by an average of 9 percent. Each employee makes $125 less per month, according to NBER.

This is what we know: when you raise the cost of labor, minimum wage workers receive fewer hours.

Whether you like it or not, the higher minimum wage and its changes to Colorado’s economy are here to stay. What matters is how you will look at the minimum wage, now that you have seen its side effects. Next time, will you support higher minimum wages and its consequences?

Connor Hansen is a recent graduate of George Fox University in Oregon and a fiscal policy researcher in the Future Leaders Program at the Independence Institute, a free market think tank in Denver.

 

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