Unintended Consequences of Minimum Wage Increase on Arizona’s Nonprofit Sector 

While the phrase “unintended consequences” is often used to describe unwanted legislative outcomes, the recent enactment of Prop. 206, relating to increasing the Arizona minimum wage, was a self-inflicted wound by an unsuspecting electorate.

Briefly, beginning on January 1, 2017, Prop. 206 will increase the statewide minimum wage from $8.05 per hour to an hourly wage of $10.00. Over the next four years, the hour wage will increase by increments of $.50 per hour until reaching $12.00 in 2020. Further increases, based on inflation, will occur thereafter. In addition, starting in July 2017, hourly workers will earn sick-leave benefits, based on the number of hours worked and the size of their employer.

From a broad perspective, higher hourly wages are certainly a desirable public policy objective, as increased income will lead to a variety of benefits for both the community and the overall economy. However, the debate over statutorily increasing the minimum wage is fiercely contested, with both sides articulating the benefits and deficiencies intertwined within their respective arguments. Advocates cite the need for additional income that will improve the financial well-being of workers, increasing their likelihood to achieve self-sufficiency. Opponents assert that such policies will disproportionately impact small-business interests that cannot afford the increase in personnel-related costs.

However, what was lost in the debate was the impact on the nonprofit sector, as the impacts of Prop. 206 must be analyzed by each sector of the economy. That is, in broad terms, the for-profit sector largely possesses the ability to increase prices to cover the increase in hourly wages, or such interests may choose to invest in automation. Good or bad, the business sector has options. In contrast, the nonprofit sector is typically working with limited resources or government grants, so the passage of Prop. 206 effectively gives this sector the unenviable option of reducing staff or programs.

Interestingly, Prop. 206 has the potential of increasing the demands on social services provided by nonprofit organizations, resulting from business staff reductions or job elimination through automation. Regrettably, the nonprofit community will be reducing staff and programs at a time when such services will likely be most in need, tearing at the heart of many mission statements.

No doubt the passage of Prop. 206 reflects the populist mood of the country. Opponents lacked both the resources and the political courage to oppose the measure outright, given the optics of not supporting wage increases for those who need it most.

The challenge, of course, is the lack of consideration that was afforded to all segments of the economy. The unfortunate and potentially cruel irony of Prop. 206 is that a portion of the population that voted in favor of the measure will directly feel the adverse effects through job loss and a lack of available social services.