Arizona business owners have gone to court to challenge Proposition 206, Arizona’s newly enacted $12 per hour minimum wage. They argue that the law increases the costs of government services—often outsourced to cash-strapped nonprofits that now must pay employees more—but doesn’t offset those costs with new revenue as the state Constitution requires. They’re right. As the Arizona Republic’s Abe Kwok has noted, some 700 non-profits in the state are now “nearing panic mode” trying to figure out how to make ends meet with the new mandates.
They’re not the only ones. Prop. 206 is a mix of foolish policy and political favoritism that harms the people it’s supposed to help.
The reason minimum wages are a bad idea is simple: When something costs more, people will buy less. Force businesses to raise wages, and companies must stop hiring, start firing, or close entirely.
It’s no answer to say they can charge more or take less profit. Obviously that won’t work for non-profits. But even for-profit companies operate on razor-thin margins, and every price increase means fewer customers. As journalist Kevin Thomas recently put it, “If you have 10 hourly employees working eight-hour shifts, five days a week and you raise the wages a dollar an hour, that comes out to a nearly $20K increase on the year. In [high-end restaurant] AQ’s best year—a phenomenal year by restaurant standards—that would have been nearly 10% of profits.” Lower profits make it less likely investors will help a business expand or survive setbacks.
Minimum wage laws are laws against jobs. Last year, someone with little experience, who couldn’t compete against other job applicants, could have told a business owner, “hire me for $9 per hour, and let me work my way up to $12.” Prop. 206 makes that illegal.
These laws also hurt low-income consumers, who are more likely to shop at places that pay their employees the lowest rate. Walmart shoppers will have to pay more for groceries; Whole Foods customers will hardly notice a difference.
Supporters of minimum wages sometimes claim that economists have disproven the idea that these laws cause unemployment. But recent economic scholarship has only said that they can sometimes be counteracted by temporary market fluctuations. The basic principle—that higher labor costs mean less employment—is still the overwhelming consensus among economists.
True, some workers will benefit from Prop. 206. But those benefits come at the cost of people seeking jobs, who find opportunities reduced, and consumers who must pay more for goods and services they need. They are what Kwok calls “victims of unintended consequences of living wages.”
Actually, supporters of Prop. 206 are counting on that. Hidden among its back pages is a special loophole that exempts union shops from meeting Prop. 206’s expensive time-off mandates. The reason is obvious: left to their own choices, fewer than 5% of Arizonans join unions. Union labor is often expensive and inefficient, and businesses offer plentiful benefits to non-union workers. By making life harder for non-union companies, and then exempting companies that sign a union contract, Prop. 206 forces non-union companies to cave in. It’s no surprise that unions were the initiative’s loudest backers.
Such political favoritism is a bad idea for a state that wants a dynamic and flourishing economy. Workers and employers should be free to decide for themselves what pay workers earn. If a company pays too little, job-seekers will go elsewhere. It’s not the government’s job to put its thumb on the scale.
It’s not just a bad idea; it’s also illegal. Government isn’t allowed to use business regulations to pick winners and losers in the economy. Prop. 206 doesn’t just violate laws limiting government spending, it also violates the Constitution’s requirement that the state treat people equally.
It would be nice if everyone could have more money. If we could wave a magic wand, we could make the minimum wage $100 or $1000 an hour. But in real life, those costs must be paid by someone. In this case, they come from the pockets of taxpayers, low-income consumers, and people who need jobs. The Arizona Supreme Court should strike it down.
Timothy Sandefur is the vice president of litigation at the Goldwater Institute
The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.