Pay hikes generally backfire

Minimum-wage increases have led to fewer jobs, lower incomes

Las Cruces long ago embraced the idea that raising the minimum wage makes sense. The city has raised its wage rate from $7.50 per hour in 2014 to $9.20 per hour in 2017, with another hike due in 2019. And in Santa Fe, there is no shortage of legislators convinced that the rest of the state should follow suit. But a new study provides fresh evidence showing one city’s minimum-wage increase hurt the very people it was intended to help.

The University of Washington study analyzes the effect of a minimum wage increase in Seattle, where a measure passed in 2014 requiring workers be paid at least $15 an hour by 2022. Similar measures have been passed in New York City and statewide in California.

Here in New Mexico, the Legislature debated a number of proposals to raise the minimum wage, including one that cleared the Senate that would have raised it to $9 an hour.

But according to the researchers at the University of Washington, employers in Seattle have been reducing their payrolls, holding off on new hiring, cutting back the number of hours for their employees, and in some cases laying off low-wage workers.

It gets worse. According to the study, the reduction in hours for Seattle’s low-wage workers means they take home $125 less every month, or around $1,500 a year. This amounts to a significant amount of lost income for a working mother or a young adult trying to buy groceries or pay the rent. And it is the exact opposite of what minimum-wage supporters had promised.

One of the study’s authors, Jacob Vigdor, summed it up this way: “The goal of this policy was to deliver higher incomes to people who were struggling to make ends meet in the city. You’ve got to watch out because at some point you run the risk of harming the people you set out to help.”

This is not the first study to sound the alarm about well-meaning but misguided minimum-wage hikes. Just last year, a study by the LIBRE Institute found that minimum-wage increases disproportionately hurt Latinos and younger workers. With just one exception in the 1990s, all seven major minimum wage hikes since 1954 led to a slowdown in teen employment growth. And this downward pressure on employment is magnified as the minimum wage increases.

Higher minimum wages impose costs on consumers as well. Greg Johns, the co-owner of two Daddy O’s Car Wash locations in Las Cruces, says he was forced to hike his prices in response to the increase in the minimum wage and other costs. “As soon as you raise minimum wage, prices go up,” he said.

Several decades of research confirm that businesses pass on much of the costs of the minimum wage to customers. Ironically, prices often rise the most on the goods and services that are disproportionately purchased by the poor, such as fast food.

To be sure, earning a livable wage is important — which is precisely why it’s critical that our economy offers entry-level jobs that give everyone the opportunity to gain the skills and experience needed to advance to more fulfilling careers. For many, that is the first step to living out the American Dream.

And that is also why it’s important to acknowledge how policies like the minimum wage are preventing individuals from accessing that first step on the economic ladder. The hardworking people of Seattle are already coming to grips with this reality.

Instead of enacting policies that will make it more difficult for business owners to hire new employees and retain the ones they have, New Mexico lawmakers should look to places like Seattle as cautionary tales of what to avoid.