How Will The New $15/hr Min Wage Affect Your Business?

How Will The New $15/hr Min Wage Affect Your Business?

On Jan. 1 2017, California’s minimum wage will rise by 50 cents to $10.50 an hour. Then it will increase by $1 an hour each year until it reaches $15 on Jan. 1, 2022. These raises will lag by one year for companies with 25 workers or fewer, so the $15 minimum applies in 2023 for them. And the governor can pause the increases if a big recession hits the state.
An analysis by UC Berkeley’s Center for Labor Research and Education predicts that 5.6 million low-wage workers will earn $20 billion more by 2023. That’s because raising the floor for the 2.2 million who earn the minimum also could boost the wages of those higher on the pay ladder, especially those with labor contracts requiring such linkage. This represents 37% of California’s workforce, of which 47% have some college education, 48% live in families under 200% of the federal poverty level, and 55% are Latino/a. Further, some 66% of affected workers work full time, and 80% work year-round.
Businesses most affected by the raise are retailers (16% of low wage workers) and food services (15%), followed by health services (8%) and administrative and waste management (7%).
The analysis concludes: “Higher wages will be absorbed by employers through reduced worker turnover, improved productivity, and small price increase (less than 1% on average spread over multiple years)…”
It might be instructive to see the effect of previous increases.
– Between 1964 and 1966, Congress lifted the federal wage from $1.25 to $1.60 (28%). Unemployment reached an ultra-low 3.6 percent that year. The rate of poverty, which was 12.8 percent in 1968, fell to a low of 11.1 percent in 1973, even as inflation eroded wages 12%. Since then the poverty rate has steadily increased, attributed to a reduction in real wages and increased foreign competition.
change-in-wages-chart

Real wages for low income workers have declined since 1979. Source: UC Berkeley Labor Center
– On April 1, 1992 New Jersey’s minimum wage increased from $4.25 to $5.05 per hour (19%). To evaluate the law’s impact, Princeton professor Alan Krueger and Berkeley economist David Card, surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after. The result (after a revision): they found no indication that the rise in the minimum wage reduced employment.
– Seattle passed an ordinance in early 2015 requiring a $15 minimum wage. According to a Seattle Times report in December, “Employment in food service and drinking places…, was 110,000 in October, the most recent month available. This is slightly higher than in April, when the new law was passed. It is well above the 96,700 peak before the Great Recession. Retail trade employment hit a record 171,500 in October, compared with the pre-recession high of 148,700. This good news comes with a big caveat. The data are for the Seattle-Bellevue-Everett metropolitan division. They aren’t broken out for the city.”
And as Gov Brown said in his signing statement, “… it is not just an economic equation….Morally and socially and politically, they make every sense because it binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.”

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