“It’s Easier to Fool People Than It Is to Convince Them That They Have Been Fooled.” – Mark Twain

Arizona’s Prop 206, the state’s new minimum wage and mandatory PTO initiative passed by voters in November 2016, could be the poster child for the quote above.  The sell line used by Big Labor to swing the vote their way was a tug on the heartstrings of the casual observer of politics.  After all, who doesn’t want to see someone make more money for their labor and have state government tell employers how to allocate time off to their employees?  C’mon!  It’s the fair thing to do! Right?

Well, maybe not.

Despite warnings by employers and a library full of studies saying that state-sponsored increases in the minimum wage would have negative effects, Prop 206 passed anyway.  In January 2017, employers boosted hourly pay to minimum wage employees from $8.05 to $10.00. That’s an increase of 24%.  Employers immediately went to work raising prices, cutting the hours of their employees, downsizing their workforce and exploring technology to do the work formerly done by people.

I did my own informal survey right after January 1.  Each time I wound my way through a fast food drive-through I noted the prices on their menus.  When I ordered, I asked the person taking my order if prices had gone up.  “Yes, they went up around the first of the year,” was the usual answer.  Indeed, prices had gone up 10-15% as near as I could tell.

The owner of a chain of casual dining restaurants told me this story.  He was in one of his restaurants at the dinner hour walking through to check how everything was going.  A customer who had brought his wife and two kids into the restaurant to eat stopped the owner and asked, “Have you raised your prices?”  The owner said that prices had gone up on January 1 due to the passage of Prop 206.  The customer then responded indignantly, “Hey, I voted for Prop 206…but I didn’t think it would affect me!”  (See headline.)

“It’s not the employer who pays the wages.  Employers only handle the money.  It’s the customer who pays the wages.” – Henry Ford

Starting July 1, employers are now responsible for allocating and tracking time off earned by hourly workers in a way that added yet another layer of big government regulatory compliance to already-overburdened businesses, many of them small businesses without HR specialists or some other dedicated employee to do the compliance work.  The new laws are complicated and loaded with booby traps that can easily land the employer in court.  Only time will tell how much damage and discouragement about doing business in Arizona this aspect of Prop 206 will create.

Perhaps the crown jewel of “I told you so” regarding state-sponsored minimum wage idealism came from Seattle last week. Local government in Seattle has developed quite a reputation for passing all kinds of laws that are nothing short of social engineering, including a very aggressive minimum wage law.   A group of economists at the University of Washington commissioned by the City of Seattle conducted a study on the effects of Seattle’s three-year old minimum wage law.  A Washington Post article on the study’s conclusions stated, “…some employers have not been able to afford the increased minimums.  They’ve cut their payrolls, put off hiring, reduced hours or let workers go…”

The study found that, “The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one.”  Indeed.  The study estimates the average low-wage worker in Seattle lost $125 a month because of the hike in the minimum.

In case you’re wondering about the veracity of the study, it was published by the National Bureau of Economic Research and was called “highly credible” by David Autor, an economist at the Massachusetts Institute of Technology (MIT).  Autor was not involved in the study, but merely reviewed it.  He called the research, “sufficiently compelling in its design and statistical power that it can change minds.”  (Again, see the headline of this essay.)  Autor added, “If I were a Seattle lawmaker, I would be thinking hard about the $15 an hour phase-in.”

“Most of the energy of political work is devoted to correcting the effects of mismanagement of government.” – Milton Friedman

The value of labor should be set by market forces and what the person selling his or her labor brings to the equation, not by the heavy hand of government.  Passage of Prop 206 means Arizona is a less competitive state.  Simply put, higher costs of labor force companies to look elsewhere to do business.

For the record, here is how Arizona stacks up against surrounding states in minimum wage levels:

In my opinion, passage of Prop 206 does something perhaps far more damaging.  As Jacob Vigdor, an economist at the University of Washington and one of the authors of the study states, “Basically, what we’re (state-sponsored artificial increases in minimum wage) doing is removing the bottom rung on the (labor) ladder.”  Put another way, minimum wage jobs are overwhelmingly held by students and people entering the workforce.  Only a small percentage of workers making minimum wage are breadwinners for their families.  No one gets a second job without having a first job.

Sincerely,

Michael V. Varney
President & CEO