California Is About to Raise Its Minimum Wage to $15. Is That a Good Thing?

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Fast-Food Strikes in 50 U.S. Cities Seeking $15 Per Hour
Fast-food workers and supporters organized by the Service Employees International Union (SEIU) protest outside of a Burger King Worldwide Inc. restaurant in Los Angeles, California. Photo: Patrick T. Fallon/2013 Bloomberg

California has become the first state to raise its minimum wage to $15 an hour. According to the Los Angeles Times, lawmakers and labor leaders have struck a deal to raise the statewide wage floor to $10.50 an hour in 2017, increase it to $11 in 2018, and then raise the wage $1 per year, until it hits $15 in 2022. The move comes as Andrew Cuomo is pushing lawmakers in Albany to adopt the $15 minimum for all of New York.

For conservatives, the proper reaction to this news is clear: Shake your head ruefully while imagining Ronald Reagan rolling over in his grave. But for liberals, it may be more complicated. While all progressives support the goal of raising workers’ wages, some worry about the unintended effects of an unprecedentedly large hike. Here are five reasons to stop worrying and learn to love the Golden State’s new wage floor, and four reasons to keep wringing your hands.

Don’t worry, be happy!

1. In the biggest state in the world’s richest country, workers will finally (eventually) earn a living wage.
America is the richest country on Earth and yet we have people living in poverty while working full-time. Minimum-wage jobs aren’t just for teenagers and part-timers — they’re increasingly how family breadwinners provide for their households. In 2013, the Center for Economic and Policy Research found that 40 percent of fast-food workers were 25 or older, more than 30 percent had some college experience, and 26.6 percent were raising children.

And since $15 hike is so large, it will immediately bring up wages for many workers who are currently earning above the minimum. According to Paul K. Sonn of the National Employment Law Project, the new floor will mean a raise for one out of every three workers in California. By setting a new national standard — and amplifying pressure on national Democrats to back a $15 federal minimum — California’s measure may lead to raises for millions of workers across the United States.

2. The wage hike isn’t as big as it looks.
Remember: The new minimum is being rolled out gradually. Assuming inflation of roughly 2 percent each year, by the time it kicks in statewide in 2022, it will actually be worth more like $13.30 in today’s dollars.

3. It could actually boost employment.
Although many think that raising the minimum wage inevitably reduces the overall number of jobs in an economy, not all economists agree. Sure, employers will seek to eliminate any extraneous positions once they feel the pressure of the wage increase. But that effect could be overwhelmed by increased demand. Since low-wage workers are disproportionately likely to spend what they earn, giving a big raise to large numbers of them could spur greater economic activity and, thus, greater growth. When University of California, Berkeley, economist Michael Reich analyzed the effects of implementing a $15 minimum wage in New York State, he and his co-authors predicted that the policy would actually increase overall net employment in the state by a small fraction.

4. This proves that the labor movement is still a major player in the economy.
Organized labor has been the muscle behind nearly every progressive policy gain in American history, and California’s new measure is a testament to the renewed vitality of workers’ movements. The Service Employees International Union helped launch the Fight for 15 campaign in late 2012. Less than four years after fast-food workers began walking off their jobs, their call for a $15 minimum wage has been answered by three of America’s largest citiesNew York State’s wage board, a Democratic presidential candidate, and now the world’s seventh-largest economy.

These victories remind us how quickly ordinary people can change political “realities” when they assert their collective power. Even in deep-blue California, this wage hike didn’t come from the benevolence of the political leadership. Rather, unions forced Governor Jerry Brown’s hand by getting a referendum to establish a $15 minimum wage onto November’s ballot. With statewide polls showing the measure would likely pass, Brown chose to work with labor to develop a slower, less sweeping version of the proposal.

5. It could spur innovation.
The decline of productivity is one of the biggest challenges facing our economy. By raising the cost of labor for service providers, the new minimum wage will inspire greater investment in automation. While this is often cited as a reason to oppose minimum-wage hikes, greater automation in service industries would increase productivity and economic growth.

Worry.

1. Most economic studies of minimum-wage effects focus on much smaller increases.
Historically, minimum-wage increases haven’t brought about the kind of massive job losses that hyperventilating libertarians tend to predict. But some economists have found that increases decrease employment marginally, especially among teenagers and other low-skill workers. Generally, these job losses are low enough that raising the wage is a net win for poor and middle-class workers.

But none of those studies examined the effects of a hike this massive. If a modest increase comes with modest job losses, it’s possible that a major increase could put a profound dent in the employment rate of those on the lower end of the labor market. As Slate’s Jordan Weissmann notes, California’s minimum wage will likely be worth 60 percent of its median wage by 2022, putting it well above the developed world’s norm and totally out of line with neighboring states.

2. If it doesn’t work, the poor will suffer.
California is home to 600,000 manufacturing workers who earn less than $15 an hour. Los Angeles is home to one of the last apparel-manufacturing hubs in the United States. If the new minimum wage persuades these employers to leave the state, the most vulnerable workers in California could lose employment opportunities that will be difficult to replace.

For immigrants who have yet to master English and teenagers with few skills, the $15 minimum wage could become a barrier to gaining the work experience necessary for increasing their value in the labor market. And since America’s safety net offers greater support to the working poor than to the perpetually unemployed, losing a job — even a bad one — can be utterly devastating for low-skill workers.

3. The stakes are very high for Democrats.  
Jerry Brown’s California has been a triumph for Democratic governance on the state level. With full control of government, the Democratic Party has put the state back on a path toward fiscal solvency, while taking ambitious action to combat climate change and advancing progressive goals on the issues of education and homelessness. At a time when the Democratic Party is historically weak at the state level, Brown’s success is a valuable item on the party’s résumé. If an unprecedentedly high minimum wage chases jobs out of the state — or if the cost of paying public workers $15 an hour upsets the budget math — California’s “blue-state model” could be compromised.

4. It could end up helping the robots most of all.
The restaurant industry is already pursuing schemes to automate food service. Sure, this kind of automation could increase productivity and profits, but to whose benefit? So long as our political system is incapable of significantly redistributing the fruits of such new efficiencies, they will only increase runaway inequality. Since the recession, the U.S. economy has become increasingly reliant on service-sector employment growth. If California’s new wage floor sparks a wave of investment in automation, the results could be catastrophic for the very workers who are supposed to benefit from the hike.

Is California’s $15 Minimum Wage a Good Idea?