Tuesday, October 13, 2009
Another chapter in the law of unintended consequences: Colorado's decision to tie its minimum wage to inflation will result in a decrease in that rate in 2010. Targeting the minimum wage to inflation was spurred by concerns that minimum wage workers frequently watch their real wage rate decline as the minimum wage remains fixed during years of inflation. But the reverse, even if not contemplated, can happen too. Because the consumer price index in Colorado has declined, so too will the state's minimum wage rate.
The drop is small, however--from $7.28/hour to $7.24/hour (really $7.25/hour because of the federal minimum). Moreover, in the long run, minimum wage workers are still likely to benefit. Deflation will probably not last long in the state, so when prices start rising again, the state minimum wage will as well.