We give a study of the pay and employment implications of the anticipated minimum wage rises to $15 by 2023 in California as a whole, as well as in Fresno County, one of the state’s poorest counties.
Critics of minimum wage hikes frequently point to reasons that may result in job losses, such as automation or lower sales, as businesses raise prices to recuperate their increased costs. Advocates frequently say that better-paid workers are less likely to quit and are more productive, and that raising the minimum wage has a favorable impact on jobs and economic activity because workers can spend more. To analyze the policy’s net consequences, we take into consideration all of these often competing aspects.
Our study used a unique structural labor market model that we developed particularly for the purpose of examining the implications of a $15 minimum wage. We consider how workers, firms, and consumers will be affected by the policy and how they will respond, and we combine these responses in a coherent approach. We use sophisticated economic studies of labor and product markets to accomplish so. The key effects of minimum wages, as we explain in the report, are substitution, scale, and income effects.
Our data comes from the American Community Survey of the Census Bureau, as well as other Census and Bureau of Labor Statistics databases. We also draw on contemporary research on minimum wages undertaken by economists, including ourselves, as well as research on relevant economic problems.
Our predictions of the effects of a $15 minimum wage are based on existing labor market, business operations, and consumer market studies. Our estimations compare the number of jobs created by the policy to the number of jobs created if the policy had not been implemented. Other factors that may have an impact on employment by 2023 are thus beyond the scope of our investigation.
Our research excludes recent laws that increased the minimum wage in many California towns to $15 per hour at a quicker rate than the statewide policy. This is done to keep the presentation simple and to concentrate on the overall statewide impact by 2023.
Fresno County is one of the poorest areas in the state, so we pay special attention to it. Many of California’s wealthier and more expensive cities have already studied the effects of increasing minimum salaries and passed their own $15 legislation. The consequences of a $15 minimum wage in a less affluent and lower-cost-of-living section of the state are examined here.
The Economic Situation
The state of California has fully recovered from the Great Recession. Indeed, California has one of the fastest rates of economic growth among the fifty states. As a result, California’s unemployment rate has dropped from 12.5 percent during the recession in 2010 to 5.3 percent in November 2016, which is close to the pre-recession yearly figure of 2007. (5.4 percent in November 2007).
Despite better economic conditions, California’s median real wages were around the same in 2015 as they were before the recession in 2007.
Effects on employees
5.26 million workers, or 38.0 percent of California’s employment, would see their incomes rise if the minimum wage was raised to $15.
Annual salary for those receiving raises would climb by 25.4 percent, or nearly $3,900 (in 2015 currency).
96 percent of those who would receive raises are above the age of 20; 58.2 percent are over the age of 30.
Latinos account for 55% of those receiving raises.
Workers who would receive salary raises are less educated than the rest of the workforce, yet nearly half (47.3%) have some college experience.
Workers who receive raises are disproportionately working in part-time jobs and are less likely to be covered by their employer’s health insurance.
Workers who are eligible for wage raises make up over half of their family’s income.
The planned wage rise will have downstream advantages, such as improved health outcomes for both employees and their children, as well as increases in school achievement and cognitive and behavioral outcomes for children.
Business and consumer ramifications
Retail trade (16.5 percent), restaurants (14.6 percent), and health services (14.6 percent) account for over 40% of the private sector workers in California who would be earning raises (8.2 percent).
A salary raise would be given to 79.2 percent of restaurant workers.
Restaurants’ total wage costs would rise by 15.7 percent, while all employers’ costs would rise by 2.8 percent.
Some of these payroll expense increases could be mitigated by lower employee turnover, automation, and increased worker productivity.
Businesses might absorb the remaining increases in personnel costs by raising prices by 0.6 percent until 2023. This price increase is significantly lower than the yearly inflation rate of 1.8 percent experienced during the previous five years. Restaurant prices would climb by 5.1 percent.
We estimate that state employment will rise 1.40 percent annually without minimum wage increases between 2016 and 2023, based on past population and employment trends.
In comparison to what would happen if the minimum wage were raised, our forecast predicts a relatively minor boost in employment growth. By 2023, this somewhat greater job growth would have added 13,980 new positions, increasing employment by 0.1 percent.
Our results, like any forecasts, may fluctuate if other economic conditions change.
By 2023, a $15 statewide minimum wage will result in a large rise in earnings for California’s 5.26 million workers, while also causing a slight price increase for all consumers.
For Fresno County, our predictions predict higher wage and cost effects, as well as a near-zero but favorable effect on employment.
How can such a significant rise in living standards occur without causing job losses? Minimum wage rises have both negative and positive employment consequences, according to the answer. The negative implications of a higher minimum wage include some automation, increased worker productivity, and somewhat higher costs. Increases in the minimum wage minimize employee turnover, which lowers business costs, while also increasing worker purchasing power, which boosts consumer demand. These are the favorable outcomes. In both California and Fresno County, these negative and positive effects on employment nearly offset each other.