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National Review: Colorado’s Intrastate Minimum-Wage Compacts Will Hurt the State

Experience shows that businesses pass on increased costs to consumers, hurting the very people wage hikes are supposed to help.

In Colorado, the debate over the minimum wage presents a complex and contentious issue. The state legislature has avoided implementing a significant statewide increase in the minimum wage, essentially turning over that task to municipalities. The issue has sparked a unique response: Neighboring municipalities are banding together, creating ad hoc intrastate compacts, to set regional minimum-wage standards. This move raises critical questions about its impact on businesses and consumers.

Minimum wage, fundamentally, is a form of price control imposed by the government on the labor market. It sets a legal minimum for the hourly wage that can be paid to workers, intended to ensure a basic standard of living for employees. But like all forms of government-mandated price controls, it has unintended consequences, particularly for consumers. When the government sets a minimum wage that is above the market equilibrium, it can lead to increased production costs for businesses. These costs are often passed to consumers through higher prices for goods and services.

This inflationary effect can disproportionately affect lower-income households. Furthermore, elevated wages can lead to reduced employment opportunities, as businesses may cut back on hiring or reduce hours to maintain profitability. This reduction in employment can then lead to decreased consumer spending power in the economy, creating a ripple effect that affects economic growth and consumer welfare. While minimum-wage laws are enacted to protect workers, they lead to a cascade of economic adjustments that ultimately place a burden on consumers, particularly those who are economically vulnerable.

Colorado’s approach to minimum-wage increases has been cautious. As of 2023, the statewide minimum wage was set at $13.65, with a bump to $14.42 in 2024, as reported by KDVR. This gradual increase reflects a measured response to economic factors, including inflation. However, some municipalities, such as Lafayette, Denver, Edgewater, and unincorporated Boulder County, have taken a more aggressive stance, setting higher local minimum wages. Denver, for instance, will see its minimum wage rise to $18.29 in 2024. The formation of regional compacts to raise minimum wages presents a novel and dubious approach to labor economics.

The Seattle minimum-wage study, as detailed by Mark C. Long, offers insights into the potential impacts of significant wage increases. In Seattle, a pioneering city in raising the minimum wage to $15, the policy had mixed results. It modestly reduced inequality among lower-wage workers, but it also led to an overall increase in earnings inequality. Moreover, the study suggested that local minimum-wage laws might not significantly reduce earnings inequality. This lesson is pertinent for Colorado’s municipalities considering substantial hikes in the minimum wage.

Raising the minimum wage in a region could lead to increased business costs. Small businesses might struggle with the higher wage bills, potentially leading to reduced hiring or increased prices for goods and services. Ironically, this scenario highlights the harm to the very individuals the policy aims to help. Consumers, too, might bear the brunt of these changes through higher costs of living, offsetting the benefits of a wage increase.

While cloaked in the guise of worker support, minimum-wage increases are economic quicksand threatening to engulf the very foundation of local markets. Colorado now stands at a precipice, following the unhappy examples of Seattle; California, with its the ever-present minimum-wage horror stories; and Oklahoma, where minimum-wage hikes inflated earnings inequality and brought about a lopsided economic structure. Businesses, particularly small ones, are now burdened with an onerous financial yoke, forced to navigate a landscape riddled with overreaching government regulations.

“Cleverly crafted artificial wage inflations could spell a death knell for job availability, crush the competitive spirit, and inadvertently hike prices, punishing the consumer.”

These ad hoc intrastate compacts are a red flag and should serve as a warning to other states throughout the country: cleverly crafted artificial wage inflations could spell a death knell for job availability, crush the competitive spirit, and inadvertently hike prices, punishing the consumer.

As a consumer, I trust free markets and competition to create high-quality products and services while naturally reducing costs. These minimum-wage compacts are a classic case of policy myopia — choosing popular sentiment over practical sustainability. The economies of Colorado and the nation deserve a strategy rooted in long-term prosperity, not a misguided minimum-wage mandate that risks unraveling the threads of our economic fabric.

Originally published at nationalreview.com on February 2, 2024.

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