Following a large wave of wage increase initiatives around the country, California is set to start raising its minimum wage, working toward the goal of $15 an hour by 2022. To soften the blow, businesses with fewer than 25 employees will have one extra year to follow suit. This legally mandated wage surge will make significant waves in the state’s economy, and will likely be closely watched by other states considering making such a move.
You’re probably already aware that the minimum wage is a very contentious issue. If you google the term, you’re likely to run into very politicized content that filters the topic through a left or right-winged perspective. Like nearly any political hot-button issue, both sides have valid points.
A world where poor people have more money to meet their basic needs is something that we can all agree upon. This is why raising the minimum wage enjoys broad support among the public and a significant portion of the political establishment. Several Republicans have even warmed up to the idea, including Mitt Romney.
We don’t need inflation statistics to attest to how expensive it has become to get by in modern America. Workers who only make the minimum wage are likely to turn to government welfare to get by, because it’s nearly mathematically impossible for them to meet all of their needs. This is why the $15 an hour movement has been more successful than their leaders could have ever imagined.
Unfortunately, raising the minimum wage to $15 isn’t going to be all rainbows and butterflies for California. In reality, there will be several unintended policy consequences that will emerge from forcing all businesses across the world’s 8th largest economy to pay much higher wages.
Raising the minimum wage creates a system of defined winners and losers. Many economists believe that the net effect of raising the minimum wage is a loss of jobs. So if you’re able to keep your job, you’re golden as long as they don’t cut your hours. If you find yourself on the curb and out of a job, minimum wage hikes make it that much more difficult to find another entry-level position.
Then there’s always the reality check that the rules of the labor market have substantially changed. Amidst globalization and unbelievable advances in technological innovation, many jobs are going the way of the dodo bird–extinct. In an era defined by ever-increasing levels of mechanization and increasing labor costs, many employers will simply decide to eliminate jobs. Once a human is replaced by a machine, those jobs will never come back. Minimum wage hikes are probably hastening this transition.
$15 An Hour Protest in California
Additionally, this one-size-fits-all policy will impact places unevenly. Businesses in the ultra-affluent suburbs of San Francisco probably won’t bat an eyelash at the spike, since they’re probably already forced to pay their employees relatively high wages. While places in the Central Valley of California, which are much poorer, will probably suffer a great deal more.
Minimum wage hikes also tend to create a vibrant black market for off-the-books labor. One of the easy not-so-legal ways to opt-out of this mandate is to increase the number of undocumented immigrants on your payroll. In California, there’s 2.5 million people residing there without legal status, so it’s fairly easy to find someone willing to work under the table in the Golden State.
Minimum wage legislation is a well-intended and noble effort to help the working poor, but we don’t really know enough about the ultimate outcomes of such policies. There is a growing movement of people who believe that minimum wage hikes may worsen inequality, exactly the opposite of what policymakers had in mind when they proposed these increases.
Make no mistake, minimum wage hikes are coming to a city near you. As more local and state governments around the country decide to take the plunge, policymakers and voters should carefully weigh all of these issues. At this point, forcing the private sector’s hand into paying their employees much more robust wages is an economic phenomenon that we don’t entirely understand yet.
David is the Editor of Bold. He's especially passionate about millennial economic empowerment. A former local news reporter, David is originally from the Little Havana area in Miami, and later became a pioneer resident of the Disney-inspired town of Celebration, Florida. David holds a Master’s in Public Policy from the Harvard Kennedy School.