The city of Santa Fe recently set a record. On March 1, it raised its minimum wage to $10.29 an hour, the highest minimum wage rate in the nation. City officials claim that the minimum wage (which they call a “living wage”) is necessary to help improve quality of life for Santa Fe citizens. Are the officials right? Will this wage usher in a new era of prosperity for the minimum wage workers of Santa Fe?

Tom Sharpe of the Santa Fe New Mexican interviewed two business owners who oppose the minimum wage increase, Simone Koutsouflakis, owner of Old West Signs, and Al Lucero, owner of Maria’s New Mexican Kitchen. As stated in the article:

“‘We’re now going to be the highest minimum wage in the county,’ (Lucero) said. ‘There’s not enough jobs to go around the way it is and we’re going to have a situation where this is going to make jobs go away…’”

Business owners like Koutsouflakis and Lucero are worried about the negative impact of minimum wage laws. These laws make it difficult to maintain current employment and even harder to create new jobs, especially for low skilled workers — the group the law is intended to help the most. While the advocates for minimum wage laws are almost certainly well-intentioned, their policies actually make employing workers more difficult.

New Mexico’s minimum wage laws are restricting the state’s economic freedom, and this is important because economic freedom affects every aspect of an individual’s life. Living in a society with high levels of economic freedom leads to more jobs, higher incomes, lower poverty, and less unemployment, among a host of other benefits.

Minimum wage laws, however, restrict economic freedom by preventing business owners from determining how to use their resources as they choose and mandating how they compensate their employees. Also, these laws prevent individuals from using their own labor as they see fit. In other words, if an individual wants to sell his or her labor to a business for $7, he or she is unable to do so without breaking the law.

This declining economic freedom is reflected in the state of New Mexico’s economic freedom score. It has set a record for its worst score in the history of the Fraser Institute’s Economic Freedom of North America Report. This report rates each American state on its level of economic freedom, and the 2011 report gives New Mexico an overall score of 5.41 —the state’s lowest score ever in the index reaching back to 1981.

To put that score in perspective, New Mexico ranks 49 out of 50 states. Only one American state has less economic freedom than New Mexico. Not only is the score low, it has rapidly been decreasing. Why is economic freedom in New Mexico declining? Increased government spending and taxation, coupled with declining labor market freedom (including minimum wage laws) are driving the decrease. Economic freedom is an important factor in creating prosperity, and New Mexico is next to last in America in upholding this vitally important concept.

Many factors contribute to the health of a state’s economy. New Mexico’s unemployment rate is currently lower than the national average, and after losing jobs for several years in a row it is beginning to add some back. Any signs of economic growth are welcome, and the evidence is clear on how to build on that trend: states and countries with more economic freedom are more prosperous in the long run than those with less economic freedom.

Residents of New Mexico are faced with an important decision. They can allow their economic freedom to continue to decline, or they can take a stand and demand that the state instead dedicate itself to upholding economic freedom. Only the latter path will lead to prosperity.