Raising the Minimum Wage to $12 an hour: The Impact of Prop. 206 on Arizona

October 10, 2016

Raising the Minimum Wage to $12 an hour:

The Impact of Prop. 206 on Arizona

Dave Wells, Research Director


Executive Summary


Proposition 206 if passed by voters would increase the state’s minimum wage from $8.05 per hour ($5.05 for tipped workers) to $12 an hour ($9 an hour for tipped workers) by 2020 through the following steps:

  • January 1, 2017: $10 an hour ($7 an hour for tipped workers)
  • January 1, 2018: $10.50 an hour ($7.50 an hour for tipped workers)
  • January 1, 2019: $11 an hour ($8 an hour for tipped workers)
  • January 1, 2020: $12 an hour ($9 an hour for tipped workers)

In addition, it would require that employees accrue a minimum of 1 hour of paid sick time for every 30 hours worked up to a maximum of 24 hours for a calendar year.  This analysis evaluates the potential impact of the higher minimum wage.  The paid sick time should enhance the ability of lower wage workers to handle personal and family emergencies and medical issues without loss of employment and should have a fairly negligible impact on employers.

This analysis will cover the following areas:

  • Historical changes in the minimum wage and how $10 and $12 an hour compare to past minimum wages in today’s dollars.
  • Portion of Arizona workers impacted if the minimum wage is increased.
  • Presenting a range of estimated impacts on employment based on three differing and competing estimates in the economic literature
  • Estimating likely impact on price levels due to higher labor costs in impacted sectors
  • Evaluating which households will be impacted by a higher minimum wage
  • How costs to cover the minimum wage would be distributed.


In short, Prop. 206 would increase the minimum wage to a level that was last seen in the late 1960s when controlling for inflation, so the change is within historical experience, though for only a short period of time.  Using data from federally done employer surveys, this evaluation finds that approximately 803,000 Arizona workers would be directly or indirectly impacted by an increase of the minimum wage, 30 percent of those employed.

Following the spirit of the Congressional Budget Office’s approach, the Grand Canyon Institute estimates a $12 minimum wage in 2020 will lead to approximately 13,000 fewer jobs with 790,000 workers receiving positive hourly wage gains.

This study explores three possible employment outcomes with the middle one following the spirit of the Congressional Budget Office’s (CBO) approach when they evaluated a $10.10 minimum wage in 2014.  Adjusting the CBO approach for a more significant increase in the minimum wage to $12 an hour, the Grand Canyon Institute estimates employment losses of approximately 13,000, meaning 790,000 receive positive hourly wage gains.  Using higher end estimates in the economic literature would mean about 26,000 job losses and 777,000 receiving positive wage gains.  Alternatively, a significant body of literature finds no significant job losses from minimum wage increases.  The model used by the  Institute for Research and Labor Employment at the University of California, Berkeley finds no job loss due to the added buying power provided from the higher local consumption rate of those workers benefitting compensating for jobs lost due to higher labor costs or price increases.  As job losses to the degree they occur may manifest themselves as lower employment growth, for perspective, the state of Arizona currently adds approximately 15,000 jobs at all pay levels per quarter.

The economic literature also suggests consumer price impacts due to the higher minimum wage overall would likely range from 0.5 percent and 1.6 percent, though fast food restaurants may increase prices by about 6 percent by 2020.

Among those benefitting from income gains, nearly 90 percent of beneficiaries will be 20 years or older and two-thirds of beneficiaries will be at least 25 years old. Women will benefit a bit more than men and 40 percent of working single mothers are expected to benefit. A higher minimum wage will reduce inequality, but only have a modest impact on poverty.  Half the gains will go to families with incomes up to $40,000 a year, twice the poverty rate for a family of three.

Overall, higher wages are paid for primarily through higher prices and to a less extent improved efficiencies, and probably to some degree a reduction in profits.  Rural areas would both benefit the most and bear the greatest costs.  Wage levels in rural areas are lower, so consequently a greater portion of the workforce would receive higher wages.  However, rural businesses and customers would bear that cost, so businesses may be placed in greater strain in rural areas as compared to urban areas.

The Grand Canyon Institute does not take a formal position on this initiative.