Economic Analysis of the Arizona Minimum Wage Proposal
On the November 2006 ballot, citizens of Arizona will vote on a proposal to raise the statewide minimum wage from the federally mandated $5.15 per hour to $6.75 per hour. The measure would also increase tipped workers’ wages from the current federal mandate of $2.13 per hour to $3.75 per hour.
If Arizona voters approve this measure, the $6.75 minimum wage will become law on January 1, 2007, making Arizona the 23th state, plus the District of Columbia, to operate with a minimum wage above the federal requirement.
The federal minimum wage has fallen by nearly 40 percent from its peak in 1968 (in inflation-adjusted dollars) of $8.98 per hour. At present, someone who works full-time for 52 weeks at the $5.15 federal minimum would earn $10,712 a year, an amount that is 32 percent below the 2005 federal poverty threshold for a family of three. The Arizona law would not only raise the minimum wage this year, but take into account cost-of-living increases each year, and automatically increase the minimum wage automatically at the national inflation rate.
This report finds that over one million people will benefit form this wage increase. An estimated total of 345,000 workers—or 13 percent of Arizona’s workforce—will receive wage increases if this law takes effect. Because these workers live, on average, in families with two other people, over one million people—or 17 percent of Arizona’s total population—will receive a direct benefit..
The average net income gain for low-wage workers and their families will be between $650 and $700 per year. The total cost of these wage increases for private businesses will only be about $312 million per year. This increase is equal to 0.08 percent of the total sales of these businesses, which means that the average business in Arizona would only have to increase its revenue by less than 0.1 percent to fully cover the cost of the minimum wage increase.
Arizona’s minimum wage initiative is an effective policy intervention. It directly benefits low-wage workers from low-income families, but its costs are widely diffused. Moreover, many retailers—especially those in low-income areas—will also see immediate benefits as the disposable income of workers increases.
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