Rosen: A 'no' on 42 is sensible

Published September 29, 2006 at midnight

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Amendment 42, a proposed initiative on your ballot in November, would amend the state constitution to raise the minimum wage 33 percent above the current federal level - from $5.15 an hour to $6.85 an hour - and index it to inflation in perpetuity. It was hatched by self-interested labor unions and socialistic do-gooders who confuse private businesses with government welfare agencies.

If you believe the polls, it enjoys popular support from well-intentioned citizens moved by misguided compassion but ignorant of the economic realities and unintended consequences of this foolhardy measure. It's a solution for a problem that doesn't exist.

To begin with, only a tiny fraction of workers are paid the minimum wage. If you're running a McDonald's in the suburbs, you have to pay more than that to attract even students. According to the U.S. Bureau of Labor Statistics, of 74 million workers paid at hourly rates in 2004, only 520,000 - seven-tenths of 1 percent - were paid the minimum wage. But 1.5 million are paid less than that. No, it's not illegal. Workers whose wages are supplemented by tips are subject to the lower federal minimum cash wage of $2.13 an hour. But tips alone can be worth $50,000 a year. At some posh eateries, waiters can make more than $100,000. Nonetheless, they show up statistically as minimum-wage workers. Other tipped and commissioned workers who make considerably more than their base wage include cab drivers, hair stylists, bellmen and retail sales clerks who could add to the cost of Amendment 42.

It's a fantasy that millions of American workers are struggling to support a family on the minimum wage. More than four-fifths of minimum-wage workers have no dependents. Fifty-three percent are between the ages of 16 and 24. Two-thirds of those work only part time. About a third of minimum-wage-earning teenagers and young adults, including students, live at home with their parents. The average family income of a minimum-wage worker is almost $50,000 and two or more incomes are typical. Other minimum-wage workers include retirees living comfortably on pensions and Social Security looking to fight boredom and make a few bucks on the side.

The minimum wage is simply the bottom rung on the economic ladder. It's a start, not the destination. Few workers are stuck there for long. The BLS reports that 63 percent of those hired at the minimum wage get raises within a year or less from employers who want to reward and retain them. Workers whose skills can't command a higher wage from an employer will be unable to find work when an increase in the minimum wage prices them out of the market.

Even though very few workers in our economy are paid minimum wages and hardly any have to live on minimum wages, the impact of a minimum wage increase affects many others, especially well-paid workers with union labor contracts indexed to the minimum wage. For example, a 33 percent increase in the minimum wage under Amendment 42 could trigger a 33 percent raise for unionized workers making $30 an hour. And that explains labor union support. As these increased labor costs cascade through our economy, businesses will pass this on to their customers in higher prices for goods and services. Whatever additional money goes to workers would come right out of the pockets of consumers.

In our market economy, supply and demand for anything - products or labor - are brought into balance by a market-clearing price. Wages are determined by the voluntary interaction of employers and employees. Arbitrary minimum wage laws distort this market transaction. Just as it's not nice to fool Mother Nature, it's bad economic policy to fool with the price mechanism in a market economy.

If it's a welfare program you want, we already have one to supplement the income of the working poor. It's called the Earned Income Tax Credit and will provide 22 million families with $35 billion of financial aid in 2006. Let's not turn employers into welfare agencies.

Amendment 42 is bad law and bad economics. It was contrived by liberal activists as a ballot initiative to circumvent the legislature because levelheaded state legislators and Gov. Bill Owens simply wouldn't go for it. Amendment 42 supporters hope the compassion of voters will overwhelm their reason. This is a nuts-and-bolts policy issue, a matter of economic and business mechanics that ought to be responsive to fluctuating conditions. It's inappropriate and irresponsible to set this kind of thing in concrete in the Colorado Constitution, and even worse to index it forever to inflation. Let's hope Coloradans have the good sense to defeat it.

Mike Rosen's radio show airs daily from 9 a.m. to noon on 850 KOA. He can be reached by e-mail at mikerosen@850koa.com.

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