On January 1st, Arizona’s minimum wage increases to $7.25 per hour. In this 2006 video clip, John Locke Foundation Vice President for Research Roy Cordato explains why a price control such as a minimum wage is poor public policy.
Or, put another way, as described in the Arizona Republic story (emphasis is mine):
The Employment Policies Institute in Washington says that minimum-wage hikes reduce jobs for those who are the least skilled and who need jobs the most, especially young minority workers and high-school dropouts. It cites research estimating that for every 10 percent increase in the minimum wage, employment falls 8.5 percent for vulnerable groups. The raise would mean extra costs of about $85,000 a year for a company with 20 entry-level employees, the institute said.
Scottsdale-based economist Elliott Pollack agrees that raising the minimum wage takes a toll on entry-level jobs.
“If you have a minimum-wage job, yeah, it (a raise) helps you,” he said. “But it actually reduces the number of minimum-wage jobs available.”
There’s an added twist in Arizona since its wage hike is tied to the Consumer Price Index.
The current recession adds another question to the minimum-wage debate: What happens if the Consumer Price Index shrinks as the economy shifts from inflation to deflation? The Consumer Price Index in October fell 1 percent, the largest monthly drop in 61 years. In November it fell even more, 1.7 percent, largely because of the price of gasoline and other fuels, according to the U.S. Bureau of Labor Statistics.
Karen Axsom, investigation supervisor for the Industrial Commission of Arizona, which enforces the law, said she didn’t know what would happen because decreases were unanticipated.
“We are in some economic waters that we haven’t seen in decades, and so I think anything can happen,” she said. “But it certainly is not addressed in the statutes that I am aware of.”
