Business/Economy, Denver, Featured, Joshua Sharf, Uncategorized

Sharf: Economic illiteracy around Denver’s minimum wage scheme

Earlier this week elected officialdom of the City and County of Denver announced plans to hike the hourly minimum wage from the current state level of $11.10 to $15.00 over the course of several years.

Along with the usual platitudes – stated without evidence – about how this will raise the standard of living and help solve the affordable housing crisis, was this gem of ignorance and confusion attributed to Mayor Hancock and Councilwoman Robin Kniech: “Hancock and Kniech said that because unemployment is so low, businesses will benefit from the increase, since it will make minimum-wage jobs more attractive.”

In the city’s media release, Kniech is quoted along the same lines:  “This proposal should also help employers attract and keep more workers in a competitive labor market, reducing the costs of turnover.”

Attractive to whom, exactly? If we’re at record-low unemployment, where virtually anyone who wants a job can have one, where are the workers who will supposedly take these jobs? Workers earning more money aren’t going to suddenly find less money more appealing, and there’s virtually no pool of chronically unemployed people to draw from.

What’s more, if there are workers who will move here for $15 but wouldn’t for $11.10, that’s not going to make housing any more affordable.

Second, and more uncomfortable to consider – what happens when we hit our next cyclical recession, and unemployment is no longer so low? Whatever the reasoning behind the statement, it certainly won’t be true then.

In addition, the decision appears to overstate the number of employees who would benefit.

An analysis by the Bell Policy Center claims that somewhat north of 100,000 workers would have their wages increased by this measure, meaning that they are currently earning somewhere between $11.10 and $15 an hour (lower for tipped jobs). But according to the Colorado Department of Labor and Employment, there are only 517,000 employees in Denver. Given that the average weekly wage in Denver is 25% higher than in the state as a whole, and nearly 33% higher than the state with Denver subtracted, it’s hard to believe that 20% of the city’s workforce falls into that wage bracket. At best, the assertion calls for a more precise survey of wages.

Then there’s that old joke about the economist who passes up the $100 bill on the sidewalk because in an efficient market, if it were a real $100 bill, someone would have picked it up already.

Businesses have not always already done something that’s in their best interests. For instance, in a recession, it might make sense to lower wages rather than fire people. But businesses find it unpleasant to lower wages, and this wage “stickiness” sometimes results in higher unemployment for longer periods. Writing wage stickiness into law will only make things worse.

That said, there are plenty of businesses already offering entry-level salaries above the Colorado minimum wage of $11.10, so if they need to go to $15, they will.

When things inevitably turn downward, they’ll be faced with a variety of unpleasant choices. Best if the government doesn’t try to make those choices for them.

Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, and a Denver resident.

Comments

comments

Comments are closed.