Minimum Wage Hikes Hurt the Economy and the Poor
California has raised its minimum wage four times over the past 13 years, with each increase outpacing the federal minimum wage. California’s current minimum wage is 138% of the federal level, and with the impending statewide increase mandated by current law in 2016, California will have the highest minimum wage in the country.
Despite clear negative impacts on both California’s economy and low income citizens, Senate Bill 3 (Leno) would mandate an additional statewide increase to $13 per hour with annual, auto-scheduled wage increases thereafter.
With another increase already teed up for January 2016, pre-programing additional increases is reckless. The weight of economic data compels the conclusion that arbitrary minimum wage increases do more harm than good. Motivated by the understandable desire to help the state’s lowest wage earners, the reality is that they reduce access to jobs for those citizens who need them most and further suppress upward mobility for those clinging to the bottom rung of the employment ladder.
Capitol Matrix Consulting studied the fiscal impact of a $13 minimum wage to the state and, not surprisingly, found devastating consequences. The study identified a $200 million annual cost to the state due to the recent minimum wage increases already being phased in. Worse yet, it projects a cost of $860 million to the state in the 2016-2017 fiscal year if the minimum wage is raised to $13. (Most of these costs are incurred due to increased state payments for providers of In-Home Supportive Services (IHSS) and increased state costs to the Department of Developmental Services (DDS)).
These negative financial impacts would not be offset by any additional revenue to the state. Paying for burdens would have to come from higher taxes – further accelerating an economic death spiral – or cuts to vital services and fewer public sector jobs.
While Capitol Matrix’s study analyzed the direct fiscal impacts of another increase, the projected costs to the state – totaling nearly a billion dollars a year – do not represent the full impact of such an increase. Increasing labor costs on California’s millions of small businesses creates additional unintended consequences, including higher prices for the goods and services we rely on and reduced access to jobs for teens and low-skilled workers. California’s recent minimum wage increase is not yet a year old, and another increase is only eight months away. These two increases are a 25 percent wage increase in just 18 months, and small businesses are already feeling the pressure to cut hours, eliminate jobs and raise prices.
Like many well-intentioned progressive policies the actual effects of a significant increase in the minimum wage won’t match the promise of helping the working poor – in fact, just the opposite. For struggling Californians looking for work, what good is an increase in the minimum wage if you can’t get a job?
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.