February 12, 2016

Business Committee
House of Representatives
Idaho Legislature
Boise, Idaho
Honorable Representatives,
I write today in support of House Bill 463, which would prohibit political subdivisions
from establishing minimum wages higher than the minimum wages provided by state law. All
attempts to fix prices distort markets and create incentives that misallocate resources, but when
such laws or schemes are not applied uniformly the distorting effects are larger and costs to
society rise. The establishment of a minimum wage in the State of Idaho should remain with the
state legislature.
The minimum wage is what economists call a price floor, that is, a legal minimum on the
price at which a good can be sold. Economic models predict two possible outcomes when a price
floor is put into place in a market. If the law sets the floor lower than or equal to the equilibrium,
or market-clearing price, the law is not binding and has no effect. In contrast, when the price
floor is higher than the equilibrium price it is a binding constraint and a surplus is created. In the
case of the labor market this is a surplus of people willing to work.
When the minimum wage is above the equilibrium wage rate in any labor market a
surplus of labor develops, or what we know to be unemployment. However, the minimum wage
is only a binding constraint in markets where equilibrium wages are already low. Thus, economic
theory predicts and historical evidence shows that minimum wage laws have their greatest
impact on the labor market for young workers (teenagers) and others with less experience and
skills.
Proponents of a local-option minimum wage may argue that the cost of living differs
significantly across the state. However, these costs are not the only thing that differs throughout
Idahos economy. Both the demand for labor and the supply of labor differs from place to place.
Labor skills required for various positions also differ from place to place. Workplace
requirements change over time and across geography. Setting a minimum wage at the city or
county level will distort not just the cost of living in various areas but also the type of work that
is offered in such areas.

623 S. University Blvd., Nampa, Idaho 83686, 1-877-NNU-4YOU, www.nnu.edu

We can reasonable predict, therefore, that if minimum wage laws are not uniform across
the state those areas with a workforce compromised of mostly younger or low-skilled workers,
and those areas where either labor demand is low or labor supply high, will be disproportionally
hurt. When unemployment is higher in some locations the overall state expense for
unemployment insurance will rise and benefits vary by location.
In January of 1987 the editorial board of The New York Times published a position
entitled, The Right Minimum Wage: $0.00. Their argument for no law setting a minimum
wage was essentially that the distorting effects of such a law made it an inefficient way to help
the poor. The Times argued in part that these laws dont directly target the poor, often benefiting
minimum-wage workers in affluent families. Considering this fact for local minimum wage
laws, a higher rate in more affluent areas of the state will increase income inequality.
The Timess editorial board argued instead for tax credits, health insurance subsidies, and
other welfare programs. However, with such programs currently in place the consequences of a
higher minimum wage will be exacerbated. The State of Idaho already has Medicaid expenses
and worker assistance programs. The additional expenditures for these programs that arise when
minimum wage laws raise unemployment will disproportionally benefit some Idahoans over
others.
Thank you for your time and attention. House Bill 463 will minimize the market
distorting effects of the minimum wage law by insuring that the establishment of the rate remains
with the state legislature. The views expressed here, and any errors or omissions, are my own. I
welcome your comments or questions.
Respectfully submitted,

Peter R. Crabb, Ph.D.

Professor of Finance and Economics
Northwest Nazarene University
Nampa, Idaho