California’s decision to raise the minimum wage to $15 an hour by 2022 represents a big gamble on behalf of the working poor. Supporters hope that improved living conditions for people who earn the minimum will offset any pain caused by job losses.
That’s a trade-off that can never really be analyzed objectively, since any conclusion rests on a value judgment. Anyone who gets a raise and keeps their job will probably think it was a great idea. People who end up unemployed will likely feel otherwise.
The nature of economics suggests that the upside will be easier to measure than the cost. It is a fairly straightforward task to count how many people are earning less than $15 an hour now, and then see how many people are earning that amount once the higher minimum is fully phased in.
The UC Berkeley Labor Center projects that 5.6 million workers, or about 37 percent of the workforce, will get raises, either directly or through the ripple effect as wages increase for those who now make slightly more than the new minimum.
But if the goal is to pull people out of poverty, raising the minimum wage may not be the best way. Research shows that more than half of those in poverty are in a household where no one has a job, so raising the minimum is of no help to them.
Even many of the working poor are already earning well over the minimum wage but are stuck in poverty because they are not employed full time. Raising the minimum wage won’t change their part-time jobs into full-time employment.
Finally, many people who earn the minimum wage are not poor at all, but are secondary wage earners in well-off families. Think teenagers working their first jobs in middle-class neighborhoods.
David Neumark, a UC Irvine professor and longtime student of the minimum wage, estimates that just 12 percent of the benefit from raising the minimum to $15 will go to poor families, but 38 percent will go to people in families with incomes at least three times the poverty level.
The fact that the benefit does not go entirely to the poor wouldn’t matter if it were not for the fact that the minimum wage hike comes at a cost. Part of that cost will be borne by employers. Some of it will be passed on to consumers, sometimes poor ones, in higher prices.
And in some cases, the higher minimum will likely lead to job losses as employers make do with fewer workers. Typically, when the price of something goes up, people buy less of it. And most studies have shown that this is the case with labor. At a wage of $10 an hour, an employer could afford six workers for $60 an hour. At a $15 minimum, that same payroll can support only four employees. So something has to go.
No state has ever raised its minimum wage by so much so quickly. As this change rolls out, it will be important for California to try to track the number of winners and losers and their demographics. At least then, future policymakers can have some data to help them decide whether the risk was one worth taking.
Daniel Weintraub is editor of the California Health Report. He can be contacted at Daniel.firstname.lastname@example.org.