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California Weighs a $15 Per Hour Minimum Wage

  • seattle vs portland unemployment rate

Tags Big GovernmentU.S. EconomyInterventionism

03/28/2016

California is on the verge of increasing the statewide minimum wage to $15, from $10. The plan involves incremental steps up to $15 per hour by 2022. According to one pro-minimum wage policy advisor, “It would mean a raise for one of every three workers in the state.”

If this were the case, then why stop at one-third of the workers in California? Why not raise the minimum wage to match the $170,000 average salary for California judges, which works out to be $81.73/hour for a 40-hour work week?

The fact that they limit their recommendation to $15/hour proves that the legislators and proponents of the policy understand that there is a tradeoff at work. The same applies for the growing number of people that advocate the same $15/hour minimum wage for the whole country. For some non-arbitrary reason, they have chosen $15, and not $20, $16, or even $15.01. They understand that we can't just magically give everybody a raise or wave a wand to make goods and services more plentiful. Minimum wage proponents must anticipate that the benefits of the policy outweigh the costs of the policy, or else they wouldn't be a proponent of the policy.

Many of the proponents are probably just going along with what others around them are petitioning, without giving it much thought. Others may have articulable reasons for $15/hour, but it can’t be to help those with low incomes achieve higher incomes, or to raise everybody’s standard of living, because the policy does nothing to bring about those ends, and is even deleterious to those ends. Their reasons may be selfish, like to get more votes to stay in office or to hopefully increase their own wages as employers shift their demands among different types of laborers.

All minimum wage policies make certain lines of work illegal. Entrepreneurs hire human workers at a certain wage because the anticipated revenue generated by some employee is greater than the employee’s wage and all the other costs associated with hiring the employee. A government prohibiting a certain range of these sorts of agreements can only limit the number of jobs available. Firms will avoid the regions with prohibitively high minimum wage policies, substitute away from human labor and into capital, or simply reduce their employment and production to retain the profitability of their production process.

A similar policy of incremental increases to a $15/hour minimum wage was recently enacted in Seattle, and the result has been increased unemployment. Although the $15/hour doesn't take full effect until 2017, 2018, or 2021, depending on the size of the firm, the unemployment rate has already spiked, perhaps as forward-looking entrepreneurs adjust their plans to accommodate increased wages. Even when compared to a similar metropolitan area on the west coast, we see that the effects of minimum wage legislation are not as advertised, according to data from the Bureau of Labor Statistics. Portland, which has consistently had a higher unemployment rate than Seattle, now has a lower unemployment rate than Seattle. What should California expect?

seattle vs portland unemployment rate

 

Author:

Contact Jonathan Newman

Jonathan Newman is Assistant Professor of Economics and Finance at Bryan College and an Associated Scholar of the Mises Institute. He earned his PhD at Auburn University while a Research Fellow at the Mises Institute. 

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