What Is Minimum Wage In Southern California - As a researcher in the labor economy at The Foundation, James Sherk investigates ways to promote competition and mobility.
The California Legislature has passed an unprecedented statewide minimum wage increase. By 2023, the minimum wage across California will be $15 an hour. Adjusted for inflation, this would be higher than the state's lowest wage in US history. It will also have the highest minimum wage of any country in the world. The real increase is even greater in the interior and rural areas, which have lower transportation costs. When fully implemented, this law will cover one-third of all workers in California.
What Is Minimum Wage In Southern California
The wage mandate will make it more difficult for many Californians to find work. Businesses will respond by cutting jobs, raising prices, investing more in job-saving technology, or leaving the state. All of these answers are the cost of services. Overall, the order is estimated to reduce employment for affected workers by one-fifth and eliminate about 900,000 full-time equivalent (FTE) jobs by 2023.
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In real dollars, California currently has the lowest state wages in US history. In January 2016, California's minimum wage increased from $9 per hour to $10 per hour. Adjusted for inflation, neither the federal government nor any state has had a higher minimum wage than this.[1] In the first quarter of 2016, the minimum wage covered over a sixth of California workers.[2]
California's minimum wage will rise even higher. The California legislature recently raised the state's minimum wage to $15 an hour for six years.[3] The minimum wage will rise to $10.50 an hour in 2017 and $11 an hour in 2018, and will increase by an additional $1 an hour the following year until it reaches $15 in 2022. a business with less than 25 employees will have until 2023 to reach USD 15. For future years, the legislature indicates the minimum wage for inflation.
This increase has no historical precedent. Chart 1 shows the US minimum wage since 1979.[4] It shows the federal minimum wage (which applies to all states), the highest minimum wage in any state that year, and the lowest wage in California.
Adjusted for expected inflation, $15 an hour in 2023 would be worth $13.39 in 2016 dollars.[5] That's more than a third higher than the state's second-highest minimum wage ever.[6] No state in US history has had minimum-wage reform that has come close to this level.
Higher Minimum Wages In Many Local Cities And Counties Across California Effective July 1, 2019
A third of California's wage earners earn less than this new minimum wage.[7] Such a broad area also has no historical precedent. Figure 2 shows the percentage of workers covered by the minimum wage by state and year, along with the regional average across the United States.
In the late 1970s and early 1980s, the federal minimum wage covered about one in five workers in some southern states (Mississippi, Arkansas, and Alabama) with low transportation costs. But the minimum wage still does not cover a third of a state's workforce. Whether expressed in real dollars or as a percentage of covered workers, no state has raised the minimum wage as recently as the California legislature.
The $15 ordinance would have a major impact outside of California's large coastal cities. Employers in high-income areas must pay higher wages to attract and retain their workforce.[8] However, the California legislature established the same minimum wage statewide. Therefore, employers in Fresno will pay the same as employers in Los Angeles. As a result, the mandate would raise real minimum wages higher in rural and interior California than in California's larger cities.
Some areas of California, particularly San Francisco and Silicon Valley, have a well above average cost of living. Other areas, such as the Sacramento metropolitan area, have costs of living closer to the US average. More rural areas, such as the metropolitan area of El Centro (Imperial County), have below-average housing costs.[9]
Minimum Wage Expected To Hit An All Time High In Southern California
Map 1 shows the minimum wage in 2023 in California counties. The map shows the minimum wage adjusted for inflation (estimated in 2016 dollars) and also adjusted for the difference between regional and average US living costs.[10]
Taking inflation alone into account, California's minimum wage in 2023 will be $13.39 an hour in 2016 dollars. Relative to the average US living wage, that number is only $11.92 – a result of California's cost of living. Within California, however, the minimum wage will range from a low of $11.04 an hour in San Jose and Silicon Valley to a high of $14.69 an hour in El Centro and Imperial County. The wage mandate will have a much greater impact on California's less developed areas than more prosperous cities.
When the law is fully implemented, California will have the highest real or lowest wage of any state in the world.[11] Table 1 shows the cost of living adjusted for minimum wages in California and other major developed countries.
Luxembourg currently has the lowest wage in the entire country at $11.46 an hour, after adjusting for differences in purchasing power between countries. Australia has the second highest minimum at $11.15 an hour, followed closely by France at $11.11 an hour.[12] California's top cities will have the lowest wages in this range.
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Minimum wages in the rest of California will be higher. In cities like Sacramento, which has a cost of living close to the US average, the real minimum wage will rise one-sixth higher than French and Australian levels. In rural areas such as California's Kings County (Hanford-Corcoran MSA), the minimum wage will be about a quarter higher than the state's second-highest or national minimum wage in global.
This unexpected increase will hurt many workers. Firms hire workers when the additional income of their labor exceeds the cost of hiring them. Most workers in California make less than $15 an hour in value. The California legislature has actually made it illegal for Californians to work; few companies will hire workers at a loss.
Furthermore, the legislature did not establish a minimum wage for young people; The income mandate covers everyone regardless of age. This will make it even harder for young workers to find entry-level jobs. Most young people do not have the necessary skills to earn $15 an hour in extra income for an employer.
Countries with the lowest wages in the world know this problem. They exclude all young people and unskilled workers to some extent. Australia, for example, sets the minimum wage for workers under the age of 21 as a percentage of the older rate.[13] For Australian 16-year-olds, that rate is 47.3 per cent - $5.27 an hour in purchasing power parity adjusted for US dollars.
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By avoiding youth rates, California will make it more difficult for young workers to get started in the job market. The wage mandate means that most California businesses cannot hire them profitably.
Employers will have to raise the wages of affected workers by an average of 28.3 percent to meet the new order.[14] Additional raises are possible for workers approaching $15 an hour. Employers prefer to reward more productive workers with wages above the entry level. For example, about a quarter of first-line retail workers in Fresno earn less than $15 an hour in 2023 dollars.[15] Paying these managers the same as the newly hired employees they supervise will eliminate the need to work hard to get a promotion. However, limiting the extent of these "spillover" effects is highly subjective.[16] Wages will increase more than the minimum required to comply with the law, but it is difficult to predict by how much.
Most companies affected by the new law will respond by eliminating positions and reducing the number of employees. Legislature has made labor more expensive and therefore employers will use less of it. For example, the Holiday Inn Los Angeles Gateway has laid off seven of its employees in response to the first phase of Los Angeles' minimum wage increase.[17]
Some businesses, like restaurants, compete only in California. These companies will also react by raising prices - knowing that their competitors will also have to raise prices. When Oakland raised the city's minimum wage to $12.25 an hour, many local restaurants raised their prices—by as much as 20 percent.[18] Higher prices reduce consumer demand and thus the number of workers.
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Companies competing in national or international markets (for example, manufacturing companies) have little room to raise prices. Their competitors outside of California will not do the same. Many of these companies will relocate to another state or country. This exodus has already begun. American Apparel recently laid off 500 of its Los Angeles workers and announced plans to move its LA operations from California.[19]
Many companies will try to keep labor costs down by investing in labor saving technology. As a result, many human activities will be automated much more quickly than would otherwise happen. Ed Rensi, former president and CEO of McDonald's USA, said recently that he expects this order to lead California's fast food restaurants to replace their human cashiers with kiosks.[20]
Some companies will find that such adjustments do not cover their high costs. These companies will go out of business completely. This happened at Mokka, a cafe in Berkeley. The city raised the county minimum wage to $12.53 an hour. Mokka tried to respond by raising prices and introducing new menu items. However, higher prices drove away customers and left overall sales unchanged. He can't
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