Minimum wage divides experts

minimum wage raiseVoters will likely decide on the November ballot whether or not to raise California’s minimum wage to $15 per hour, even though experts are still divided on the issue.

There will be plenty of anecdotes in between now and November about the fruit picker or dish washer whose wages would rise 50 percent if the minimum wage were to jump from $10 to $15 per hour. But experts say that’s not the only factor to consider.

Experts agree that increased wages will increase prices, as employers are forced to compensate for increased labor costs. This means minimum-wage workers will lose some of their new-found earnings to inflation.

“Obviously, when minimum wage goes up, businesses try, if they can, to pass the extra costs to consumers,” said Dr. Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. “So, a person who got a higher minimum wage will be paying higher for the products or services that they received, and as a result they may not be as well off.”

Some industries are more reliant than others on minimum-wage workers, so price increases won’t be universal, said Adibi, adding that not all of the increase will be passed on as higher costs, as businesses “cannot really proportionately pass all that cost onto consumers.”

Experts at the UC Berkeley Center for Labor Research and Education estimated in a 2015 study for the city of Los Angeles that increasing the minimum wage to $15 per hour incrementally over a five-year period would increase prices overall by less than 1 percent, and just under 8 percent in the restaurant industry, with the cost of the increased wages being absorbed through savings from lower turnover and increased productivity (better paid workers are happier workers).

“The increase in prices reduces overall demand for goods,” said Ken Jacobs, chair of the UC Berkeley Labor Center. “On the other side of the equation, workers have more money to spend, which increases the overall demand for goods. As a result, the net effect on economic activity is very small.”

What Does It Mean For Workers?

The UC Berkeley study on Los Angeles estimates that once all factors are considered, the average earnings for low-wage workers will increase 30 percent.

“That represents a very real economic gain for the workers,” said Jacobs.

UC Berkeley experts point to research highlighting how an increase in the minimum wage reduces dependency on public assistance programs, like food stamps, and how this, plus the increased minimum wage, would have a positive effect on poverty.

The Public Policy Institute of California reported in 2014 that 16.4 percent of Californians were living below the poverty line, which was at $24,000 per year for a family of four. That comes to $11.54 per hour for one income.

“Raising the minimum wage is not a cure-all, especially in the face of larger forces generating inequality that require national attention,” wrote the UC Berkeley experts. “Still, our assessment of the research evidence is that these policies have worked as intended in raising the incomes of low-wage workers and their families.”

But another study, by the Los Angeles County Economic Development Corporation, estimated that because of increased wages, employers may turn to automation, may reduce hours, may substitute the lowest-skilled workers with those who are more productive and may reduce thier share of the profits.

And as a result, prices will increase, employment for those at the bottom of the skills ladder will be diminished, employment growth will slow, and “there will be little impact, if any, on poverty in Los Angeles,” according to the LACEDC report.

What Does It Mean For Employers?

Many experts point to a ripple effect. As those at the bottom wage scale are paid more, workers slightly ahead of them — the shift supervisor, for example, who makes a few dollars more per hour than the minimum-wage workers — would have their status diminished as they’d be no longer making as much compared to those below them.

Even if the increased minimum wage bumps these workers up, employers may still have to give them another increase to compensate for their higher level of responsibility, tenure or skills.

Also, the minimum wage requirement for exempt employees (exempt from overtime) is based on the minimum wage. State law requires, in most instances, they be paid at least twice the minimum wage, so even employers with no minimum wage employees may see labor costs rise.

“That does affect everybody,” said Peter Tateishi, president and CEO of the Sacramento Metropolitan Chamber of Commerce.

And in some instances, the negative effects of an increased minimum wage are already being felt. An Oakland city councilman told the San Francisco Chronicle last month that when Walmart decided to close some local locations as part of nationwide downsizing, it was partially due to Oakland’s increased minimum wage.

The Chronicle also pointed out that a San Jose location — also subject to a higher minimum wage — would close as well, while two stores in San Leandro — where the minimum wage was no higher than the state’s — would remain open.

Income Inequality

Throughout the presidential debate, voters are reminded of the widening gap in income inequality. The rich are getting richer, the poor are getting poorer and the middle class is shrinking.

While proponents, like the experts at UC Berkeley, argue that increasing the minimum wage is worthwhile, detractors say that raising the minimum wage does nothing to increase upward mobility and fill in the gap.

According to Adibi, worker training, education and opportunity for advancement is the “fundamental issue,” so that the minimum wage is more “transitory.” According to Adibi, the increased minimum wage would certainly help, but isn’t going to make minimum-wage workers substantially more prosperous.

“The public policy should address the core policy here rather than put a band-aid on by increasing the minimum wage,” Adibi said.

21 comments

Write a comment
  1. Richard Rider
    Richard Rider 3 February, 2016, 08:37

    As I understand these two propositions, the $15 minimum wage will apply to “tip” employees — waiters, barbers, valets, casino dealers, bellhops, etc. CA is one of only 7 states that requires an employer to pay a full minimum wage for these employees — a $15 minimum wage would result in a waiter making $25-$45 an hour (if the job is not eliminated, the cost is tacked on to the meal price).

    A bad policy on SOOO many fronts. To learn more, check out my article:
    http://riderrants.blogspot.com/2014/02/many-permanent-minimum-wage-workers.html

    For more on how restaurants are gearing up NOW to get rid of waiters, go to:
    http://riderrants.blogspot.com/2015/11/my-applebees-robot-waitress-auditioning.html

    Reply this comment
  2. Dude
    Dude 3 February, 2016, 08:44

    I’m waiting for the kid who does my lawn to demand $45 to cut my grass and pick the weeds. He will lose his job like all the other “No skill, or education needed” workers out there.

    Reply this comment
  3. SDVeteran
    SDVeteran 3 February, 2016, 09:37

    What is slowly happening is a socialist effect on the way we do business in America. As a small employer, I despise the government taking away my ability to reward my employees for their hard work. I also can’t compete at the same level as larger companies. This is a no-win situation for employees looking for higher wages (they will actually receive fewer hours).

    Minimum wage shouldn’t be discussed in the same discussion as “living below the poverty line.” The two have nothing in common. Minimum wage has NOTHING to do with “living wage.” I find it remarkable that unions, some workers, and the government have ZERO financial integrity.

    The last minimum increase was 11%, and if it goes to $15, that’s a 50% increase in one year. On June 30, 2014, the CA minimum wage was $8/hr. It increased 12.5% to $9/hr on July 1, 2014. On Jan 1, 2016 it increased to $10/hr (11.11%). In 18 months it went from $8/hr to $10/hr – a 25% increase. Tell me what business can raise their prices or wages by 25% in 18 months? Absolutely no logic here… And that’s the start of it… For salaried exempt employees, the minimum will go to $62,400. The same increases apply here! That is completely unacceptable for small and mid-sized companies.

    Reply this comment
    • Rex the Wonder Dog!
      Rex the Wonder Dog! 3 February, 2016, 11:08

      Wow, Teddy Steals is gong to HATE YOU!!!!!

      Reply this comment
    • DavidfromLosGatos
      DavidfromLosGatos 4 February, 2016, 13:54

      I don’t at all “find it remarkable that unions, some workers, and the government have ZERO financial integrity”.

      Unions and workers are concerned only about their own financial self interest; no different than anyone else – including small business owners and large corporations.

      Government is embodied by the individual elected politicians and non-elected bureaucrats. If you expect these people to have “integrity” instead of being about their own financial self-interest, you will live a life of disappointment.

      Reply this comment
    • NTHEOC
      NTHEOC 5 February, 2016, 13:16

      I despise the government taking away my ability to reward my employees for their hard work
      ========================
      You mean like taking them to Del Taco before dropping them back off in the Home Depot parking lot!

      Reply this comment
      • SDVeteran
        SDVeteran 5 February, 2016, 14:35

        Really! No clue NTHEOC… Most people like yourself do not even comprehend what raising the minimum wage by 25% in 18 months does to a small business. Because of my employees classifications (government enforced), I must pay my people double the minimum wage. I didn’t need the government to tell me what wage to pay… that was driven by my desire for a good workforce and to treat people well. And I had planned increases for those employees, but not 25% in 18 months. You have no clue of business or wages.

        Reply this comment
        • NTHEOC
          NTHEOC 5 February, 2016, 19:58

          SDvet,
          Cmon man! you small business owners are some of the biggest TAX CHEATERS. I know you don’t claim your true annual income at tax time, Its easy to hide your money huh. I can never hide my income, in fact anyone can look at my income on transparent Cal. I especially like the guy i recently talked with who’s son had a soccer tournament up north and he said they stayed in the 4 seasons hotel! Oh ya, he claimed it was a business trip. Or when you eat out at expensive places, oh ya that’s a business dinner. Write that off. Another good one is the Beamers, escalades, and range rover vehicles your family drives, yep its a company vehicle, claim it buddy! So the money you small business owners save by cheating on the backside, you can cover on the front and pay your workers. If your business is large enough you should be thankful they don’t unionize…

          Reply this comment
          • SDVeteran
            SDVeteran 6 February, 2016, 06:14

            Always love the stories of… “I recently talked to a guy…” Like there’s any reality or truth to that. I feel sorry for you – having a such a negative perception of how real small businesses operate. That small deli, gas station, consulting company, plumber, electrician, pool service, dry cleaner, restaurant, niche manufacturer, carpenter… I can name a thousand more. All working hard to make a living in this country. And not a single one is living the life or doing the things you suggest. Must be the people you hang around with dude. You might want to check your own integrity meter.

          • Rex the Wonder Dog!
            Rex the Wonder Dog! 6 February, 2016, 12:29

            SDVet, do NOT try to reason with NTHEOC, he will talk BS out of his hat all day long, just like Teddy Steals (from us 🙂 ) trying to convince everyone the per capita private sector income in CA is not $29K per year, while he has a GED gov workfare job- gifted to him by nepotism -that is comp’ing $200K-$300K…. let NTHEOC live his little fictional fantasy, it is all he has…

  4. Sean
    Sean 3 February, 2016, 10:16

    There is such a push to increase the cost of employees through wages, health insurance coverage, workers compensation, etc while the cost of automation is declining and the capital costs of financing that automation is also at historic lows. An article in Tech Insider has robots increasing warehouse worker productivity 800%. http://www.techinsider.io/robots-in-warehouses-for-online-shopping-2016-1 But this warehouse is actually what’s replacing retail outlets that used to employ many entry level workers. I could not imagine a more poorly timed campaign to raise minimum wages. The age of the robot will is going to arrive earlier than planned by these wage decisions.

    Reply this comment
  5. Queeg
    Queeg 3 February, 2016, 17:32

    Comrades

    Employment is a contract berween employer and employee….you rent an employee not marry them.

    Regulating wages is like price fixing and is disastrous, for employers develop business models devoid of unproductive labor….

    The so called service industry is morphing rapidly to DIY consumerism…already fool internet junkies do free order entry data input for companies…..soon you will bake your own cupcake at your local coffee joint!

    This is progress?

    Reply this comment
  6. TruthorDare
    TruthorDare 4 February, 2016, 12:16

    “Obviously, when minimum wage goes up, businesses try, if they can, to pass the extra costs to consumers,” said Dr. Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. “So, a person who got a higher minimum wage will be paying higher for the products or services that they received, and as a result they may not be as well off.” Sounds bit loopy to me.

    Reply this comment
    • Richard Rider
      Richard Rider 4 February, 2016, 12:38

      While you point is well considered, that’s an incomplete and thus unfair analysis. Since businesses will seek to reduce labor costs through shorter hours, automation, etc., many of those $15 an hour unskilled and semi-skilled workers needn’t worry about stretching their paychecks for the higher prices — they won’t HAVE a paycheck to stretch! 😉

      Reply this comment
      • Queeg
        Queeg 4 February, 2016, 17:31

        Comrade Rider

        How bout update on the winery who had volunteer vintner trainees working for “experience” and the Commissars shut him down……no one allowed to work for non money compensation…..

        What you do with your mind or body is ….of no interest of government ……to better yourself-

        Reply this comment
        • Richard Rider
          Richard Rider 4 February, 2016, 18:05

          Solid comment. Ya can’t work even for free any more. And you can’t even volunteer to cut the weeds on school playgrounds — that a UNION job.

          I feel SOOOOO much safer.

          Reply this comment
  7. desmond
    desmond 4 February, 2016, 17:47

    It is difficult for govt moochers to weigh in on this. They make too much for any work they might do. They all know a govt employee who jerks off in the cubicle, fire truck, police car, courthouse, or any place of hiding. Do not shake hands with any of them.

    Reply this comment
  8. Ted. Mentor to the doomed....Builder of the FUTURE!
    Ted. Mentor to the doomed....Builder of the FUTURE! 5 February, 2016, 09:33

    Shouldn’t poor people be kept down? I say lower the min wage so the job creators can do more magic!

    Reply this comment
  9. Ronald
    Ronald 7 February, 2016, 09:02

    The new minimum wage crusade will result in ALL wages increasing, but it will benefit the rich more than the financially challenged.

    The unintended consequence of higher wages for everyone will benefit the rich more than those on minimum wage via those annual Cost of Living Adjustments in the years ahead. The separation of the rich from the financially challenged continues to be perpetuated with the “traditional” COLA wage adjustments.

    Cost Of Living Adjustments (COLA) to wages favors the well paid: A 3% COLA adjustment for someone making $100K= $3,000 more per year, but for someone making $20K=$600 per year. Is it fair to give a COLA adjustment to someone making the big bucks $2,400 more than the person making lower wages for “their” cost of groceries, housing, utilities, transportation, and health care? These higher wage folks are eating similar foods and using the same fuels for their cars as those making fewer wages.

    It may be better to stop beating up on businesses with over regulations, over taxation, and uncontrollable “fees” that are slight inconveniences to those making the big bucks, but the California financially challenged will continue to disproportionally pick up the costs “camouflaged” at businesses. COLA wage adjustments will perpetuate the growing spread between the financially challenged and the wealthy, as the increases in minimum wage will benefit the rich more than those on minimum wage.

    Reply this comment

Write a Comment

Your e-mail address will not be published.
Required fields are marked*



Related Articles

Redistricting Dogfight Looms in O.C.

JUNE 15, 2011 By JOHN SEILER The lines on the maps just released by the California Citizens Redistricting Commission could

Gun sales continue statewide climb

California’s experience with gun control and gun sales has created an ironic situation with significant implications for policy: Tighter regulations

Steinberg Pushes 'Card Check' Bill

MAR. 10, 2011 By KATY GRIMES If the third time’s a charm, then Senate President Pro Tem Darrell Steinberg can