University of Colorado study backs concerns from businesses over raising the minimum wage
Author: Peter Marcus - June 16, 2017 - Updated: June 16, 2017
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.”