Last week, a group calling itself the Colorado Families for a Fair Wage proposed a ballot measure hiking the state’s minimum wage to $12 per hour. This comes after several attempts to raise Colorado’s minimum wage failed in the state Legislature.
For good reason: A minimum wage increase is a bad move for Colorado. Because hiking the minimum wage makes employees more expensive and therefore less employable, it would actually hurt rather than help.
Only about 3 percent of Coloradans earn the minimum wage, according to the Bureau of Labor Statistics. So raising the minimum wage would do little to help the working poor. And 60 percent of minimum-wage earners fall between the ages of 16 and 24 – when people are just entering the workforce and earning entry-level wages.
This means that there are only about 64,000 minimum wage employees in Colorado above the age of 25 who aren’t entry-level but are in need of some help. A better way to help them is expanding the Earned Income Tax Credit, or EITC. The federal EITC, or as we’re calling it the “Working Americans Credit,” helped lift more than 98,000 people in Colorado above the poverty line in 2013, according to the Denver-based Piton Foundation.
The Working Americans Credit, or WAC, boosts incomes of low-wage employees through the tax code, supplementing incomes at a sliding scale. The tax credit phases out as income rises so that work is always incentivized – those who earn less qualify for a higher tax credit, but the payout never falls greater than earnings increase. It props up the paychecks of Americans who need it most, keeping career pathways open and the career ladder free of obstruction.
Colorado introduced its own version of the WAC for the 2015 tax year, but it is severely limited. For example, a married couple with two children could receive more than $6,000 in combined state and federal credits, but a qualified single person can receive only $550 at most.
Expanding Colorado’s WAC would help low-income employees while avoiding the job-killing pitfalls of a minimum wage increase.
Minimum-wage proponents no doubt have good intentions, but mandated wage hikes force employers to cut workers’ hours (or worse, employees) and reduce job opportunities for the people who need them most.
A recent study from the National Bureau of Economic Research found that minimum wage hikes led to a 6 percent drop in employment opportunities for workers between 16 and 30 years old during the Great Recession. Those without a high school diploma were hit particularly hard: Their labor participation rate plummeted by 13 percent between 2006 and 2009.
If Colorado implements a $12 minimum wage, economists project a loss of nearly 10,000 jobs.
Colorado Families for a Fair Wage misunderstands the importance of entry-level employment. These opportunities are designed to provide job seekers an entry point into the workforce, which they can then use to jump start their careers. One recent study found that about two-thirds of minimum wage employees earn a raise within their first year of employment.
Forced minimum wage hikes fiat all but eliminate that valuable first step on the career ladder.
Colorado would be wise to find better tools to help the working poor – like the Working Americans Credit.
Alfredo Ortiz is the president and CEO of the Job Creators Network. Tony Gagliardi is the Colorado state director for the National Federation of Independent Business.