Yesterday, California Governor Jerry Brown and the state legislature agreed to a plan to raise the minimum wage to $15 per hour across the state by 2022 in order to gradually increase the earnings of 6.5 million Californians.
Regarding the proposal, Brown said:
This plan raises the minimum wage in a careful and responsible way and provides some flexibility if economic and budgetary conditions change.
Brown makes raising the minimum wage sound like a fantastic idea that could really benefit a lot of people. That raises a question: Why didn’t we implement something like this before?
Professor Anthony Davies explains:
A $12 minimum wage doesn’t force employers to pay $12 to every worker; it forces them to pay $12 to the workers the employer chooses to keep. The employer pays $0 to the workers that get laid off or who are never hired in the first place.
In other words, a higher minimum wage is great for people who are able to keep their jobs. It’s not so great for people who lose their jobs because their employers can no longer afford to keep them on, or for people who are currently on the job market.
This is especially devastating to young, low-skill, or low-income workers.
For this reason, Professor Arindrajit Dube, an economist at the University of Massachusetts, supports raising the minimum wage, but is concerned about increasing it too high too fast. He suggests that the minimum wage should not be set above 50 percent of the median wage in any locality (California’s current minimum wage of $10 per hour is already 52 percent of the state’s median wage).
And here’s where things get really complicated.
According to Preston Cooper, a policy analyst at the Manhattan Institute, the statewide median wage fails to account for the local median wage. In Fresno, for example, the median wage is $15.02 per hour whereas in San Jose, it’s $27.61. In other words, raising the minimum wage across the state is going to hit lower-income regions harder than higher-income urban areas along the coast.
Keith Humphreys, a psychiatry professor at Stanford University, and a public policy adviser explains the potential impact:
Will the local family who runs a gas station or a convenience store on a tight margin in El Centro truly start hiring cashiers at a rate higher than what the store manager currently makes? And how will people on fixed incomes (e.g., Seniors living on social security) in low-income counties survive as the wage increases in different sectors increase the price of food, clothing and health care?
Columnist Megan McArdle adds:
Unfortunately some of those poorer regions are at the mercy of urban policy makers. Big states like California and New York combine a large and politically powerful urban population with a much poorer rural population that cannot afford the kinds of government interventions that the urban voters want. Policy gets made for the big, powerful urban populations, who don’t know, or necessarily much care, whether that smothers the local economy of their rural counterparts.
If you want to better understand why a significant mandatory minimum wage hike would devastate workers, check out the video below to see a scenario in which the minimum wage impacts three individuals in very different ways.