Study backs up concerns from businesses over raising the minimum wage
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University of Colorado study backs concerns from businesses over raising the minimum wage

Author: Peter Marcus - June 16, 2017 - Updated: June 16, 2017

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A proposed Colorado constitutional amendment to increase the minimum wage to $12 an hour is among four placed on the Nov. 8 election ballot, while seven more await a decision by state elections officials. (Photo via Colorado Families for a Fair Wage)(Photo via Colorado Families for a Fair Wage)

A recent University of Colorado study backs up many of the arguments made by businesses who opposed raising the minimum wage in Colorado.

The study, published in the journal Regional Science and Urban Economics in May, comes after Colorado voters last November backed gradually raising the minimum wage to $12 per hour by 2020.

The first increase happened in January when the state minimum wage jumped to $9.30 per hour. Prior to that, the minimum wage stood at $8.31 per hour.

In 2018 the wage will jump to $10.20 per hour; $11.10 per hour in 2019; and finally $12 per hour in 2020.

The University of Colorado study, authored by Terra McKinnish, a professor in the Department of Economics, surprisingly found that low-wage workers commute away from states that raise the minimum wage, suggesting that wage-hiking initiatives cause employers to either cut payroll or look for alternatives.

“By making low-skilled workers more expensive, there is the potential for employers to use fewer workers, switch to slightly higher-skilled workers or exchange capital technology — such as self-serve kiosks — for low-skilled workers,” McKinnish said.

The labor economist called it a “disemployment effect.”

But supporters of raising wages across the states question whether the study offers an accurate snapshot. McKinnish looked at census data for 93 labor markets in 23 states where low-skilled workers commonly cross state borders for work.

She assessed out-of-state commuting rates for workers making less than $10 per hour compared to workers making between $10 and $13 per hour, from 2005 to 2008. There was no evidence that low-wage workers commuted at higher rates to neighboring states with a higher minimum wage.

The author then examined data between 2010 and 2011 after a federal minimum wage increase to $7.25 per hour prompted several states to boost their minimum wage, which resulted in less disparity between states.

The last time voters approved a minimum wage hike in Colorado prior to last year was in 2006, when the electorate adopted a wage of $6.85. It was adjusted to $8.31 per hour due to inflation.

“If low-wage workers were previously attracted to commute across state lines in order to receive a higher minimum wage, we would expect the rise in their own state’s minimum wage, relative to that of the neighbor’s, to reduce the rate of out-of-state commuting,” McKinnish said.

But the opposite was found. While moderate-wage workers were more inclined to stay in state, low-wage workers increasingly commuted out. On average, a $1.50 increase in a state’s minimum wage corresponded to as much as a 50 percent increase in the number of low-wage workers commuting out, the study found.

Michelle Webster, manager of research and policy analysis for the Colorado Center on Law and Policy, questioned why the study would have used data between 2010 and 2011, when the economic downturn was showing dire impacts on jobs.

“In 2010 and 2011, many states were still dealing with the effects of the recession, particularly low-wage workers. So I don’t know to what extent she controlled for that and controlled for how particular states were hit harder by the recession based on the industries that made up their economy,” Webster said.

“You can imagine that workers are crossing state lines just to work, and it’s not a function of employers necessarily pulling back on hiring because of the minimum wage, but just dealing with the continuing sluggish economy.”

While Colorado bounced back from the downturn faster than other states, it didn’t return to pre-recession job levels until about 2012. Nationally, jobs numbers didn’t return to pre-recession levels until 2014.

It’s still too early to evaluate any impact on the minimum wage increase in Colorado, though proponents are hopeful that since Colorado’s economy continues to improve, low-wage workers will also see benefits, thereby improving the state’s overall economy.

“I suspect that if the economy continues to do well, then the minimum wage increase in Colorado is only going to support that wage story and continue to lift up the wages of those lowest paid workers in Colorado,” Webster said.

During the debate over raising the minimum wage in Colorado, businesses said it would result in layoffs, reduced hours and fewer benefits.

Employers also said they would have to pass increased costs on to consumers. They argued that small businesses would be hurt the most, especially in rural parts of the state, where economic recovery has been slower.

Some business groups feel vindicated by the University of Colorado study.

“The research confirms the crux of the opposition to Amendment 70 – that such a poorly drafted law, written by out-of-state special interests, will hit rural areas hardest,” said Tyler Sandberg, former campaign manager for Keep Colorado Working, which fought against the wage hike. “Economic policy is complicated and the simplistic one-size-fits-all measure forced into our constitution was exactly the wrong way to address the minimum wage in Colorado.”

Peter Marcus

Peter Marcus

Peter Marcus is senior statehouse reporter for Colorado Politics. He covers the legislature and previously covered politics, the governor’s office, the legislature and Congress for The Durango Herald. He joined The Herald in 2014 from The Colorado Statesman, a Denver-based political weekly. The Washington Post twice named Marcus one of the nation’s top state-based political and legislative reporters.


5 comments

  • Donald E. L. Johnson

    June 16, 2017 at 2:50 pm

    Clearly, consumers can buy products and services online from suppliers based in low-minimum wage states and countries.

    Consumers are spending less on lunches at restaurants that are paying higher minimum wages. I’ve been tipping 20%. With higher minimum wages, I’ll tip 15% and 10% as higher minimums become effective. And I enjoy home cooking.

    As hospitality and other convention related expenses rise, national conventions will be less likely to come to Denver or other Colorado cities. Skiing already is vastly over priced, and the tourist trade is a substantial risk because of soaring costs caused, at least in part, by labor costs.

    Colorado printers will be hurt by higher minimum wages, which force increases in higher wages paid to the most skilled workers. It is so easy to buy printing and mailing services online and out of state.

    And as minimum wages rise, look for people to spend less on home remodeling, landscaping and house cleaning services.

    When prices go up, demand shrinks. That’s especially true when soaring health care costs, thanks to Obamacare, make it impossible to give workers higher wages not mandated by governments.

    Politicians should stay out of the labor markets, but clueless voters have mandated higher minimum wages. They’ll pay the price in lower wages and fewer jobs sooner than later.

    Reply

    • Raul Sanchez

      June 20, 2017 at 12:03 pm

      The geniuses at CU just figured this out? Can the econ majors get a tuition rebate?

      Reply

  • Pingback: Colorado Peak Politics | DISEMPLOYMENT EFFECT: University of Colorado Study Shows What We All Knew about Minimum Wage

  • MoreFreedom

    June 16, 2017 at 7:11 pm

    The minimum wage has always been, and always will be zero. It would be better if there was no legal minimum wage, as it provides opportunities for people to learn how to work, and make themselves more productive and valuable to employers. Smart business owners want to pay a lot for people that are worth it, because they also benefit. The trick is finding people who are productive and valuable to a business. Good employees look for ways to be more productive and valuable.

    It’s ironic that many minimum wage advocates are against internships and apprenticeships because they aren’t paid a minimum wage. If they are right, why do students and parents pay for school rather than the school paying them to do homework? I’d bet if the university professors who advocate minimum wages had to pay their students, they’d quit.

    Reply

  • Russell

    June 17, 2017 at 6:08 am

    When people vote with their emotions, it usually means a loss of jobs or a hit to small businesses. Voting liberals are not the brightest bulbs when it comes to understanding the economic effects of bad laws. Don’t let your friends vote Democrat.

    Reply

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