What do economists, local businesses think about Proposition 32, a minimum wage hike?
Every time the minimum wage goes up, Sacramento florist Jim Relles said, employees earning above that floor think they should receive a bump in pay as well.
This ultimately leads to raising prices for customers, Relles said, and he’s not certain how long this can go on before a greater share of shoppers opt for cheaper alternatives and his midtown Sacramento business suffers.
Relles is voting no on California Proposition 32, a ballot initiative that would raise the minimum wage.
Nonprofit leader Derrell Roberts, on the other hand, said he’ll be voting in favor of Prop 32. At Roberts Family Development Center in Old North Sacramento, he and his wife Tina equip low-wage families with the resources they need to improve their quality of life.
Proposals to raise the minimum wage provoke strong opinions from voters like Roberts and Relles, and an equally heated debate has been raging for years between two University of California economists over whether such mandated pay hikes lead to a drop in the number of jobs for the very workers they’re intended to help.
Under Prop. 32, businesses with 26 or more employees would have to pay $17 an hour this year and $18 next year, while companies employing 25 or fewer people would make the jump to $17 an hour next year and $18 in 2026.
The wage sits at $16 an hour but is set to rise to $16.50 on Jan. 1. State legislation currently mandates that the hourly pay be raised by 3.5% or the consumer price index, whichever is lower.
Before voters decide on how to vote, Roberts suggested that they go check out who’s working minimum-wage jobs on the day shift when many high school and college students are in classes.
“It would surprise you — adults with families and seniors on fixed incomes,” Roberts said.
His anecdotal observations are confirmed by researchers in the Labor Center at the University of California, Berkeley: “Over half of all low wage workers are over the age of 30, and the low wage workforce is older than it was a generation ago. The share of the workforce 55 years or older doubled (to 11.9%) from 2000 to 2022.”
Half of low-wage workers are married or have children, and low-wage workers are more likely to be at or near poverty and consequently dependent on public assistance programs. The Labor Center researchers mined these statistics and other data from the U.S. Census Bureau, the Economic Policy Institute and the California Employment Development Department, creating an online data explorer that describes the low-wage workforce in California.
They discovered that roughly 5.6 million Californians worked in low-wage jobs in 2022, 35.2% of the state’s workforce ages 16 and older.
The median wage of this 35.2% is $15.89. That’s $10.20 below the median pay for all California workers. The wage gap between the state’s highest- and lowest-paid workers decreased as pay rose for low wage workers, but top earners still made five times as much money as those at the bottom.
There’s not one single definition of “low wage,” the researchers said. They compared wages in the job market to establish their standard, following the practice of the Organization for Economic Co-operation and Development and “social inclusion” methods.
Ultimately, they defined “low-wage work” as jobs that pay less than two-thirds of the median full-time wage in California. Low-wage jobs paid less than $19.69 in 2022, the latest year for which they could mine data for their online tool.
Businesses, economists weigh in on minimum wage
The 78-year-old Relles Florist doesn’t employ anyone earning the minimum wage, Relles said, but in the past, he’s brought on delivery drivers and sales people at this pay until they proved their work ethic.
Many potential hires, however, won’t consider a job if it’s paying only minimum wage, Relles said, so he has to weigh business demands and revenue as he — and his son Colby now that he’s taking the reins of the business — to decide what to offer new employees.
“Minimum wages give low-paid workers an opportunity to be paid a rate that’s more commensurate with their skills,” said economist Michael Reich at UC Berkeley’s Institute for Research on Labor and Employment.
His research and studies by many others have concluded that a modest increase in the minimum wage has only a minimal effect on the number of available jobs.
The rising pay has other beneficial effects, Reich said. When minimum wages go up, employers receive more job applications and fewer workers quit, he said.
When wages are low, he said, employee turnover is high as new hires leave for better-paying opportunities, Reich said, and as a result, employers may have to fill a single position several times a year.
Down in Southern California at UC Irvine, however, economist David Neumark has disputed Reich’s findings. Neumark said that his studies and dozens of studies he has reviewed have shown that past minimum wage increases by about two dozen states have resulted in job losses, especially among the least-skilled workers.
But Reich and economist Arindrajit “Arin” Dube at the University of Massachusetts, Amherst, have challenged the methodology used in studies cited by Neumark. Recently, Dube has used what’s called the own-wage elasticity formula to compare the results of minimum wage studies using an older methodology to those using more current approaches.
The formula measures how responsive employment is to changes in wage rates, a method that a growing number of researchers and the Congressional Budget Office has adopted.
After evaluating 72 studies published in academic journals, Dube found that only around 13% of the earnings gains from minimum wage increases were offset by job losses. In practical terms, he said, this means that for every $100 increase in wages due to a minimum wage hike, total earnings for all workers increased by $87.
Neumark said he disagrees with Dube and others over just how much minimum wage increases help the poor, but he’s not saying that minimum wage increases are a bad idea. What voters and policymakers need to determine, Neumark said, is whether there’s a benefit that outweighs the potential loss of jobs.
Half of poor households have no one working, Neumark said, and a good number of minimum-wage job holders are high school or college-age workers who live in middle-class or affluent households.
Count Colfax High School student Nate Schmidt among those teens whose parents make a good living. Still, he said, he recognizes that his parents have other priorities for their money, and by working, he can pay for some of his own expenses.
A 16-year-old junior, Schmidt earns $16.25 an hour at a grocery store up in the Sierra Nevada foothills. He’s a member of his high school’s snowboarding team, and in his wood shop class, he’s “working on a project, making a guitar, and it costs a lot of money.”
A minimum wage increase would give him a few extra dollars for gas for his 2005 Nissan Sentra, wood and other supplies for his class, food and entertainment when he’s socializing with friends, and the gear and fees involved with snow sports.
Still, Schmidt said, “you’re not supposed to live off minimum wage.”
Economist Christopher Thornberg, the founding partner of Beacon Economics, said unemployment among California teenagers has soared over the last two years, growing to 19.2% from 10.8%. The national jobless rate for workers age 16 to 19 has not seen a similar upswing, he said.
“The loss of employment opportunity carries with it very real long-run harm by depriving youth of work experience that has been empirically shown to improve their chances for long-run success,” Thornberg said.
Reich said that, although the share of teens in the workforce has declined since 1990, he had thus far seen no evidence that the rise in youth unemployment can be tied to the minimum wage increases..
Still, if teen employment rates have fallen, Reich said, that means employers are now hiring somebody who’s supporting a family instead of a teen who may not need the job as much.
Wage gap among race
Reich has found that minimum wage hikes help to reduce pay inequities for African Americans, according to research Reich published in February 2023.
“Higher minimum wages expand the financial resources at their disposal, improve their credit ratings and thus their access to automobile financing and expanded commuting options,” he said. “Since the speed of automobile trips typically greatly exceeds those using public transit, the expanded commuting options allow Black workers to search more extensively and to obtain better paying jobs, potentially at less discriminatory firms.”
Their wages jumped by between 16% and 64% more than for white workers, reducing the overall Black-white wage gap by 10%, Reich said, but their improved rate of employment did not crowd out white or Hispanic workers or reduce their hours.
Reich also pointed to a 2019 study Dube published in the American Economic Journal: Applied Economics which found that about a third of income increases resulting from higher minimum wages went to families with income below the federal poverty level. About 80% of the pay hikes accrue to families in the bottom 30%.
The gains are sizable enough that families in the bottom 20% lost some public assistance for food, tax credits or other needs because of their improved finances, Dube said. If the federal minimum wage increased to $12 from $7.25, he said, his study results show that nearly 6.2 million Americans would be lifted out of poverty.
Thornberg and Neumark said they had not seen convincing evidence that increases in the minimum wage have any effect on poverty rates. Rather, Neumark said, the earned income tax credit seems to be a more laser-targeted tool to improve the financial circumstances of poor families.
The nation’s leading economists have been asked over the years about the impact of minimum wage increases on the working poor, and no consensus has yet emerged. The University of Chicago’s Booth School of Business asked in three separate surveys whether a federal minimum wage would lower employment levels for low wage workers.
In February 2021, 45% of 43 respondents said it would. In September 2015, just 26% or 42 agreed. And, in February 2013, 34% of 41 economists agreed.
This story was originally published October 27, 2024 at 6:00 AM.
