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Raising minimum wage too quickly causes unemployment, higher cost of living, economist says

Denver's minimum wage is $17.29 and will increase to $18.29 in 2024
Through an economist's eyes: Denver's minimum wage increase
Posted at 7:08 AM, Aug 17, 2023
and last updated 2023-08-17 09:08:37-04

DENVER — Denver's new minimum wage next year will rank among some of the highest in the country, and will be on par with what workers in Seattle and San Francisco are making this year.

This year, Denver's minimum wage is $17.29. In 2024, it will increase to $18.29. People working in the food and beverage industry who make at least $3.02 an hour in tips will be paid $15.27 an hour.

The federal minimum wage is $7.25 an hour, while Colorado's minimum wage is $13.65 as of 2023.

Dr. Kishore Kulkarni is a distinguished professor in the Department of Economics at Metropolitan State University of Denver. He said the $17.29 per hour wage is not sufficient to live in the city. Axios reported this year that the salary Denverites need to live comfortably is around $70,000.

“That wage price spiral keeps on feeding on itself. As the prices go up, then the wages have to be higher. As wages go up, prices go up even further," said Kulkarni.

Kulkarni said a higher minimum wage can increase the cost of production and raise prices. Raising prices is the solution Kerry O'Brien, owner of Bar 404, will likely implement to meet the new minimum wage.

“I want everyone to make a living. We have a great staff. They've been here from day one," said O'Brien. “Folks are making a good living. But it's costing us, especially with food going up, alcohol, rent, electricity, cable, the NFL package.”

Another potential impact of a minimum wage that increases faster than the inflation rate is unemployment, according to Kulkarni.

“Those people who don't have a job and who don't find a job, they stay unemployed. And there are more people pushed into unemployment when you raise the wages," Kulkarni explained. “A 25 cent, probably half dollar every year increase is quite understandable, but when you push the minimum wage too much, you create the problem of unemployment and higher cost of living.”

Denver's minimum wage is adjusted at the start of every year, and is based on a calculation by the Department of Finance.