As it currently stands, California’s minimum wage is set at $10.00 per hour. In San Francisco, workers can expect to make a minimum of $12.25 per hour. However, by 2022, the California minimum wage is set to jump to $15.00 an hour. While San Francisco and Los Angeles had already implemented minimum wage hikes, with a San Francisco $15 minimum wage expected to be established in 2018, this move is unparalleled on a statewide level.
While the San Francisco 15$ minimum wage was passed with little criticism, receiving 77% of the popular vote, the California minimum wage hike has received praise, harsh criticism and everything in between. Analysis from the Berkeley Institute for Research on Labor and Employment estimates that the wage hike will raise the wages of five million Californians by an average of $4,000 annually. According to their report, the consequences of the increase in wages will come int he form of “moderate” price increases on consumers. According to a Washington Post estimate, a 17 cent raise in the price of a McDonald’s Big Mac would allow for McDonald’s workers to earn $15 an hour, all without compromising executive pay.
Critics of the movement say that young and unskilled laborers will suffer as a result of the wage spike, able. An editorial written by Ed Rensi, the former president and chief executive officer of McDonald’s USA, claimed that automated jobs could cost Americans upwards of a million job in the restaurant industry alone. It is worth noting that despite recent profit growth of 35%, McDonald’s only raised the pay of workers at 1,500 restaurants by one dollar an hour, and the workers at 12,500 other U.S. McDonald’s did not see any wage increase.
So what will be the consequences of a minimum wage increase across California? At this point, no one can say for sure. Preliminary data from Seattle, which recently implemented a $15.00 minimum wage, has been promising, but there is a stark contrast between urban centers like Seattle and small rural towns like Auburn, California. According to data analysis by FiveThirtyEight, in San Francisco, the 2018 minimum wage of $15 an hour will only be worth $8.18 adjusted for the cost of living and projected inflation. However, in rural areas, it may appear that the $15 hourly wage will go a lot further. Estimates from the Bureau of Economic Analysis suggest that overall prices are more than 20 percent higher in the Bay Area than in Fresno and that rents are almost double.
This may negatively affect businesses in these areas. FiveThirtyEight projects that 95.4% of occupations in Fresno will be “significantly” or “highly” affected by the minimum wage increase. Statewide, that figure is 72.6%, but in places like San Francisco and San Jose, the figures are only 40.4% and 42.1% respectively. With such a high percentage of workers being affected by the minimum wage, it may put a severe burden on businesses there, which could manifest itself in the form of larger price increases or a higher unemployment. Data from UC Berkeley from 1991 to 2006 suggests little to no correlation in employment growth between states with the federal minimum wage and states that have higher minimum wages, but $15 an hour is an unprecedented wage spike, and opinions are divided as to whether or not there will be a negative impact. Proponents, such as the thriving Fight for $15 movement, have noted that $15 is a living wage. The Fight for $15 movement’s mission statement declares, “we need a living wage of $15 an hour to pay our rent and support our families and not the poverty wages that our extremely profitable employers give us.” Some detractors, like billionaire investor Warren Buffett, claim that the minimum wage spike will have too many negative effects. In an op-ed he wrote in 2015, Buffett stated, “I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills.”
On a nationwide level, Buffett offered a different approach to a minimum wage increase to $15, as he believed it would distort the U.S. market system. In a Yahoo! article, Buffett sought for the expansion of the Earned Income Tax Credit, an existing benefit for millions of low-income workers. In this system, you file your income taxes, and you receive a government check. The more income you make, the smaller the check is, but the check value is such that you always have an incentive to make higher wages. While Buffett notes that the system needs to be corrected to allow for monthly payments and to avoid fraud and corruption, he sees an expansion of the Earned Income Tax Credit as a more viable solution than a $15 hourly minimum wage.
So, in the state of California, what will be the positive and negative consequences of a $15 minimum wage? At this point, it’s impossible to say for sure. In the fall of the upcoming school year, I will be pursuing that very question as part of an independent study with Mariel Triggs. I will then write a follow up article with my own conclusions.