Prices will go up with minimum wage hike

Minimum wage earners - and their employers - are undoubtedly keeping a close eye on Prop 206, which if voters approve in November would mean a pay raise for workers and a likely increase in costs to consumers.

Photo by JC Amberlyn.

Minimum wage earners - and their employers - are undoubtedly keeping a close eye on Prop 206, which if voters approve in November would mean a pay raise for workers and a likely increase in costs to consumers.

PHOENIX – If Arizonans approve a hike in the minimum wage, be prepared to pay an extra 30 cents for that $5 burger, fries and soda at your favorite fast-food restaurant.

That’s the conclusion of a study by the Grand Canyon Institute, which looked at the effects on Arizona if voters approve Proposition 206. That measure would hike the state minimum wage, currently $8.05 an hour, to $10 an hour in January, eventually hitting $12 an hour in 2020.

Dave Wells, research director for the institute, also figured that the move would mean more money for about 790,000 Arizonans. That includes not only those at the very bottom of the pay scale, but also those now making above $12 who likely would find their salaries pushed up.

On the other side of the equation, Wells estimated employers seeking to blunt the effect of higher costs would mean about 13,000 jobs.

Garrick Taylor, spokesman for the Arizona Chamber of Commerce and Industry, said the study backs at least some of the arguments his organization has been making in its bid to convince voters to reject the initiative.

“There is finally evidence and acknowledgment that this nearly 50 percent wage hike will result in job loss,’’ he said.

But there are two problems with Taylor’s prediction of that “nearly 50 percent wage hike.’’

One is math.

The 2006 voter-approved law that created the state’s first-ever minimum wage requires annual adjustments matched to inflation

It’s what moved the figure from $6.75 an hour back then to $8.05 now. And it’s also what is going to increase the minimum to $8.15 an hour in 2017, even if Proposition 206 fails.

Assuming inflation of 1.5 percent for the next three years, that minimum would reach $8.50 an hour in 2020. So the real difference if this initiative passes is 41 percent.

And there’s something else. Wells said it fails to take into account that a $12 minimum wage finally brings the buying power of Arizonans back to where it was in 1968. That’s when the federal minimum wage was $1.60 an hour.

In fact, the buying power of Arizonans was on a decade-long decline until that 2006 measure was approved. The buying power has stayed pretty much even since then because of that automatic inflation adjustment.

Wells figures close to 30 percent of the state’s workforce would be affected. He said that includes not just those currently earning less than $12 an hour, but also those who are making slightly more than that.

“These workers should also expect a modest pay increase, as employers try to preserve some level of a premium above the minimum wage to encourage better morale, productivity and lower turnover,’’ he wrote.

Wells also cited figures from the Economic Policy Institute in concluding that the vast majority of those who would benefit, close to 90 percent, are at least 20 years old. And more than half of those who could get a pay hike are in full-time jobs of at least 35 hours a week.

Taylor said even if the 790,000 figure is accurate, that does not overcome the anticipated job losses.

“It’s not a small price to pay for the folks who will lose their job or, going forward, will miss out on the opportunities to grab that first rung on the career ladder,’’ he said. “What we don’t know is those positions that won’t be created as a result of this.’’

Wells, however said that 13,000 figure includes layoffs, jobs not filled when workers leave and new positions that would otherwise be created.

That still leaves the issue of what all this will cost shoppers.

Based on other studies, Wells computed the higher cost of labor will boost prices anywhere from 0.5 percent to 1.6 percent. But he said not all employers are created equal.

Hardest hit, he said, are likely to be restaurants.

He said labor represents about 31 percent of total costs in full-service restaurants and about 25 percent in limited-service places like fast food operations.

But full-service restaurants are likely to have a smaller percentage of their workers at minimum wage. For servers, that figure is currently $5.05 an hour, with Arizona law allowing a “tip credit’’ of $3 an hour -- assuming businesses can show their workers earn at least that much in tips. If Proposition 206 passes, the new minimum for tipped workers would be $9 an hour.

The situation is entirely different at fast-food places, where a higher percentage of workers are at or near the minimum wage and tips are not a factor.

Wells said the worst-case scenario would be a 10 percent increase in costs. But he said that presumes every worker at a fast-food establishment is now being paid the bare minimum, something he said is unlikely.

So he settled at a figure of a 6 percent increase in food prices.

There’s an interesting ripple effect from all this.

Wells figures that families earning at least $100,000 a year actually will be harmed a bit by higher wages. That’s because they will be hit by the higher costs but not get any real benefit on the income side.

Neither Taylor nor Steve Chucri, president of the Arizona Restaurant Association who was reviewing the report on Friday, made any particular criticism about the methodology in the report.

But the Grand Canyon Institute does have a history of sorts of producing reports and reaching conclusions that some might consider to be of a more liberal bent.

For example, it published a report earlier this year concluding that efforts to expand a program to use tax dollars to let parents send their children to private and parochial schools was “a perfect example of ideology leading policy.’’ It also concluded that charter schools had higher administrative costs than traditional public schools, that education was a better predictor of economic development than business climate issues like taxes, and that the benefits to the state of restoring the “Kids Care’’ health care program for the children of the working poor exceeded the costs.

Former Democratic state lawmaker George Cunningham, a member of the GCI board, said this study was not sponsored or paid for by anyone.

He said the three largest sources of donations this year to the non-profit groups are Cardinals owner Michael Bidwill, the Arizona Education Association, and the Professional Fire Fighters of Arizona.