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Studies debate effect of Prop. 202's minimum-wage hike

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In five days, you can vote on whether to raise the minimum wage in Arizona.

Actually, you'll be able to vote on whether to raise it every year from now on.

Proposition 202 would end Arizona's prohibition on minimum wages, establish a minimum wage at $6.75 and then automatically increase it each year to account for inflation.

If voters here approve the proposition, Arizona will join four other states whose wages are tied to inflation.

To get an idea how minimum wage cost-of-living raises work, look to Washington and Oregon, where the minimum wages have been increased every year since 1998 and 2002, respectively. In addition, Florida started indexing its minimum wage two years ago and Vermont will start next year.

Economists in Washington and Oregon agree the economic effects of indexing are hard to measure.

As long as the annual increases are modest, there are no noticeable effects on the economy, said Tim Duy, director of the Oregon Economic Forum at the University of Oregon.

Business groups say the volatility of the increase is the catch.

"We've seen the economy do well, but that's not always the case. You might have an off-year and you're still obligated to pay a higher wage based on a national index," said Todd Sanders, vice president of public affairs for the Greater Phoenix Chamber of Commerce.

Mike Flynn, director of legislative affairs for the Washington, D.C.-based Employment Policies Institute, warned that inflation was in the double digits in the late 1970s and early '80s.

By tying the minimum wage to something potentially so volatile, "what you do is you essentially put some form of labor policy on autopilot, irrespective of whatever else is happening in the state's economy, and you bind the hands of future legislators and future citizens," Flynn said.

Supporters view the automatic cost-of-living adjustments as the best way to get around the political resistance that has kept the federal minimum wage unchanged for nearly a decade.

Washington and Oregon have the highest minimum wages in the nation, and they also have some of the highest unemployment rates, according to the Bureau of Labor Statistics. But both states had high unemployment rates before voters changed the minimum-wage laws. And because the Northwest region is an attractive place to live, there is a plentiful supply of people looking for jobs and low job turnover.

Washington's and Oregon's seasonally adjusted unemployment rates in September were around 5.4 percent, compared with 3.7 percent in Arizona. In those states, the minimum wage has climbed about 20 percent since 2000, when workers in both states were paid a minimum $6.50 an hour.

In Washington, the minimum wage is $7.63 an hour and will increase about 4 percent to $7.93 on Jan. 1. Employers in Oregon will pay a minimum $7.80 an hour next year, up 30 cents.

The restaurant industry is burdened by the raises because Oregon doesn't have a subminimum wage for tipped employees, Duy said.

If Arizonans pass Proposition 202, waiters and other tipped workers could be paid $3 less than the minimum wage if they make up the pay difference in tips.

In Oregon, some restaurant owners fired bussers — some of the lowest-paid entry-level workers in the economy — and put the extra duties on their wait staff, Duy said.

"They have to hire more productive workers to compensate for higher labor costs," he said. "That forces the burden of a higher minimum wage onto lower-productivity workers."

Teenagers also are directly affected by minimum wage hikes, Duy said, because first-time job opportunities drop off.

Duy said restaurant owners face fierce competition and slim profit margins, so they can't raise prices to keep up with inflation and don't have growing revenues they can pass on to employees.

"Activists are saying (a minimum-wage hike) either will be the demise of our economy or it'll just be the best thing for workers. I kind of doubt the extremes," Duy said. "The middle ground is some persons will see an increase in wages, some firms will be squeezed by higher labor costs and have to offset that, and they likely will offset that by eliminating some of the least productive workers."

"Not a poverty-fighting policy"

In terms of fulfilling voters' interest in reducing the burden on the poor, minimum wage increases have "negligible" effects on income distribution and poverty, said Shelly Lundberg, a University of Washington economics professor and a member of the Governor's Council of Economic Advisors.

"This is not a poverty-fighting policy," she said, because most minimum wage-earners aren't living in poverty-stricken families.

However, Washington's minimum-wage law has meant legislators don't fight over the issue every year, raising emotions that are "out of proportion with the actual economic changes that it brings about," she said.

That's exactly why proposition supporters included that language, said Rep. Steve Gallardo, a Phoenix Democrat and chairman of the Arizona Minimum Wage Coalition.

"Politics plays a role and it keeps the legislature from having to deal with the minimum wage," he said.

Passing a minimum-wage law without indexing would mean the buying power of the minimum wage would diminish over time, the way it has since 1997, the last time the federal minimum wage increased, he said.

Sanders, from the Phoenix Chamber, said there's no reason to take the debate out of the hands of policymakers and voters in favor of an automated system.

"It puts us on remote control and we won't have any brakes," he said.