One of our ongoing themes has been the consequences for California’s economy of having laws that are so protective of employees. See this one, for example. With a fresh take on this issue, here’s a post by Summer Associate Keith Yetter.
The impact of higher wages has been hotly debated across the country as many localities pass big increases in their minimum wages. Locally, San Francisco and Oakland recently passed minimum wage hikes up to $15 (effective July 1, 2018) and $12.25 an hour (effective now), respectively.
Debates surrounding these measures often forget the ripple effect that raising the minimum wage can have on the number of available jobs and on the price of everyday consumer goods. As one post from Forbes rather sardonically pointed out, “there is no such thing as a free lunch.” According to the article, the San Francisco minimum wage increase is to blame for Chipotle’s decision to raise its prices in the Bay Area by 14%, as opposed to the 4% increase in most other markets.
Nationally, advocates of a higher minimum wage argue that the current minimum of $7.25 an hour is actually significantly lower than its peak, adjusted for inflation, of $10.34 an hour in 1968. However, this argument looks to the past rather than the future when it ignores the actual impact a higher minimum wage would have on the economy. The California Department of Finance just released a report describing the impacts of proposed legislation that would raise the minimum wage statewide. “For the economy, losses from higher production costs to businesses would . . . lead to slower employment growth,” the report said.
Lawmakers must remember that raising the minimum wage does not just increase wages. Higher wages increase prices for the goods that we all buy, and having to pay higher wages constricts employers’ ability to hire more people.