Arizona’s Minimum Wage Hike Will Cost Taxpayers

By Christina Sandefur
February 5, 2018

Last year, Arizona enacted Proposition 206, the Fair Wages and Healthy Families Act, a mandatory $12-per-hour minimum-wage law. While well-intentioned, the law is a misguided policy that harms the people it is supposed to help – including taxpayers.

Although most economists understand that minimum wage laws slow economic growth, increase consumer costs, and stifle job creation, at the Goldwater Institute, we wanted to take a look at how mandated minimum wage levels affect taxpayers. So we partnered with Rounds Consulting Group to examine the impact of Prop. 206 on the Arizona Department of Economic Security’s Division of Developmental Disabilities (DDD), a state program that provides skills training and assistance with daily life activities to more than 35,000 Arizona children and adults.

This case study offers real-time economic consideration of how the new minimum wage law will affect taxpayers. Our analysis, based on a sample set of 2,300 workers and extrapolated into the larger population, found that Proposition 206 will cost Arizona taxpayers approximately $45 million to maintain current staffing levels in state Fiscal Year 2018 for this program alone. The overall cost to state taxpayers will be many multiples of this dollar amount when all potentially affected state and local programs are included.

This case study indicates that poorly conceived economic policy produces problematic unintended results, including the often-overlooked impact on taxpayers. As this case study proves, Arizona’s minimum wage hike will either result in a greater taxpayer burden or diminished quality of service.

In the words of Mark Wilson, former deputy assistant secretary of the U.S. Department of Labor: “There is no ‘free lunch’ when the government mandates a minimum wage. If the government requires that certain workers be paid higher wages, then businesses make adjustments to pay for the added costs, such as reducing hiring, cutting employee work hours, reducing benefits, and charging higher prices.” We’ll continue to monitor and update you on how the new minimum wage law affects our state over time.

For more, check out our policy report here. 

Christina Sandefur is Executive Vice President at the Goldwater Institute.