By: Dr. Lynn Reaser
California’s minimum wage will rise from $8.00 an hour to $9.00 an hour on Tuesday, July 1. This 12.5% jump will be followed by another 11% hike in 18 months. On January 1, 2016, the minimum will advance to $10.00 an hour.
Who will be the winners and the losers? What will be the overall impact on the economy?
The rise will help low income families whose breadwinners earn only the minimum wage. It will also help teenagers of high income and wealthy households. As a result, it is an inefficient means of helping the poor, the people whom the wage hike is supposed to benefit most. The increase is likely to bolster spending by minimum-wage workers, although this potential boost to economic activity will be offset by less hiring by firms affected or reduced spending by consumers facing price hikes by affected firms.
Those companies unable to raise prices to cover higher labor costs can be expected to invest in labor saving devices and reduce their hiring rates if they are growing or cut staff levels if they are not. The boost in the minimum wage could have ripple effects in labor rungs above the minimum, raising those average pay levels and impacting jobs in those positions as well. Meanwhile, the hike in the minimum wage is likely to encourage more people to enter or re-enter the workforce. As a result of slower job growth and more labor force gains, the unemployment rate can be expected to fall at a slower pace.
The minimum wage hike is likely to raise the amount of discrimination in the workplace. If there are too many potential workers available at the wage firms can pay, remain profitable, and stay in business, firms will use other criteria to select who is chosen for the position. This will make it even more difficult for individuals with a previous criminal record, language difficulties, little education, limited or no experience, and other characteristics to reach even the first step of the job ladder.
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