The following is an op/ed submission to the Rocky Mountain News by Trey Fleisher, Steven Call, and Alexandre Padilla, who are professors of economics at Metro State College (Denver).

MINIMUM WAGE INCREASE: A WING AND A PRAYER

by Arthur A “Trey” Fleisher III, Steven T. Call, and Alexandre Padilla.*

Colorado voters will go to the ballot box to decide whether the State Constitution (Amendment 42) should dictate the minimum wage of workers. If passed, the minimum wage will increase by over 30 percent; from $5.15 to $6.85 in 2007 and then increase each year thereafter by the cost-of-living index of the Denver-Boulder area.

If anything in economics is a certainty it is that demand curves slope downward. Simply stated, when the price of a good increases, the quantity desired decreases. This is true for bread, gasoline, condoms…and labor. Legislation (and even worse, a referendum in the State Constitution) cannot repeal the law of demand. Compassionate politicians, voters, and the clergy can hope for the demise of the law of demand, even on bended knee, but the law is immutable.

A fundamental pitfall students in economics learn is that good intentions do not guarantee desirable outcomes. As a society are we willing to accept the myth of gratifying feel-good falsehoods or, do we seek the cold, hard truth? We may feel better by raising the minimum wage, but the people hurt by this legislation are the very people we intend to help.

There is now bipartisan support for raising the federal minimum wage law, including such Democrats as Ted Kennedy and John Kerry and such Republicans as Bob Beauprez and Rick Santorum.

So many of our politicians believe in the tooth fairy!

Here are our four predictions we are confident will occur if voters approve a hike in the minimum wage:

*        Negative Impact on Jobs. Though few workers make less than minimum wage in the Denver metro area, at least some of those who do will lose there jobs. Those workers that do lose their jobs from a hike in the minimum wage will be the ones with the fewest skills, supposedly the ones that would benefit most from such mischief.

*        Little if any Impact on Poverty. The minimum wage increase will have little if any effect on reducing poverty for workers in Colorado. Most of them are not in poverty because of low wages, but because of the lack of full-time employment. For example, if a business will not hire someone at $5.15/hr what makes us think they will now hire them at $6.85/hr? The logic bends to the breaking point.

While some low-skill workers gain from a higher mandated wage, studies show there is about an equal decrease in those who are pushed into unemployment. The net effect on poverty is nil.

As a prominent economist once acknowledged: “Most poor people earn more than minimum wage when they are working; their problem is not low wages. The problem comes when they are not working.”

*        No Impact on Total Compensation for Workers.  People in labor markets are paid monetary wages and non-monetary benefits such as on-the-job training, a safe work environment, child care, and health and dental care. If wages increase without a concomitant increase in worker productivity, the TOTAL compensation package will stay constant.

For example, let us say that workers making $5.15 an hour also get non-wage benefits equal to $4.85 for a total of $10 per hour. If Amendment 42 passes, workers affected will have their wages increase to $6.85, but their fringe benefits will drop to $3.15 per hour keeping their total benefits unchanged at $10 per hour.

Similarly, one study found that just a $.90 increase in the minimum wage reduces the likelihood that workers will be covered by health benefits and increases the number of part-time workers.

*         Reduction in on-the-Job Training. Another key finding by economists is that increases in minimum wage legislation leads to a reduction in on-the-job training. This reduction lead to lower job skills among affected workers, lower productivity, and therefore undermines the very purpose of on-the-job training — higher wages.

These economic realities cannot be wished away by the good intentions of the proponents of a minimum wage increase. It may be a lost cause in asking for some sanity, logic, and rigor in public policy, but this campaign reminds us of an iron-law of politics. To quote Will Rogers: “It’s not what we don’t know that hurts us, it’s what we know that ain’t so.”

*Professors of Economics at Metropolitan State College of Denver. The views expressed are those of the authors and not MSCD.

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