Here's How A $15 Minimum Wage Could Change California

The hike would be a boon to most low-wage workers, though rural areas might suffer.
Protesters outside a McDonald's in Los Angeles call for a $15 minimum wage in December 2013.
Protesters outside a McDonald's in Los Angeles call for a $15 minimum wage in December 2013.
Lucy Nicholson/Reuters

Minimum wage activists just took a giant step toward victory in California.

The state's legislature will take up a proposal to increase the minimum wage to $15 an hour, up from its current $10, by 2022. The bill is likely to pass because of a deal reached over the weekend between Gov. Jerry Brown, labor leaders and some of the state's top legislators.

If it does pass, California will be the first state to adopt the $15 minimum wage that food service, retail, health care and other low-wage workers have been agitating for since 2012. That makes it a game changer for minimum wage politics. Certain cities have passed a $15 minimum wage, including San Francisco, Los Angeles, and Seattle, but so far no state has. Success in California could lead to success in other states.

Higher wages in California alone could boost a lot of people: Almost 18 million individuals are employed in the country's largest state economy, and 118,000 of them make the minimum wage or less. Further, unlike federal law, California law does not permit employers to pay tipped workers a lower minimum wage. That means a hike to $15 would apply to the state's tipped workers as well.

Housing costs are a particular problem for California's low-income residents. Many parts of the state -- particularly along the coast and in areas within commuting distance of Los Angeles, San Francisco and Silicon Valley -- are facing a dearth of affordable housing. California rents are the second-highest in the country, after those in Hawaii.

Take Guadalupe Salazar, a McDonald's employee who lives in Oakland and makes $12.55 an hour. It’s not enough. Her monthly rent is $900, nearly half of her take-home pay if she works 40 hours a week.

With $15 an hour, she said, she might be able to qualify for and afford a loan for a car, something she’s currently without.

“It’s not just me. My mom and my kids will be affected by it. And family who lives in LA, they make only $10 [an hour],” Salazar said. “It’s due to the Fight for 15 and the union that we have accomplished this victory. It is something to be proud of.”

Labor leaders praised the California bill on Monday. "It shows the power of standing up," Mary Kay Henry, president of the Service Employees International Union, told The Huffington Post. "It shows that by sticking together, working people speak with a powerful voice and are heard by our elected representatives."

While thousands of California workers would see huge increases in their weekly paychecks, a statewide $15 minimum wage comes with some risks. There's a real question -- and not much good economic data -- as to how a 50 percent increase in the minimum wage across a large state would affect the economy.

Basic economic theory suggests that when you increase the price of something, demand decreases. In minimum wage terms, that would mean when it's more expensive to hire people, businesses won't hire as many people. But in practice, the research doesn't bear that out. Studies show that small minimum wage increases don't affect employment that much.

Adam Ozimek, an economist at Moody's Analytics and a frequent economics blogger, wrote Monday about some of the initial results out of Seattle, which started phasing in a $15 minimum wage in 2015. Very early results seemed to indicate that the higher minimum wage, which is only $13 as of Jan. 1, 2016, led to people losing their jobs. But more recent revisions to the local data more or less erase that dip.

"So far there haven't been any smoking guns" to prove that higher minimum wages kill jobs, Ozimek wrote.

But California is much bigger and more diverse than a single city. The real question is not what is going to happen in San Francisco or Los Angeles, whose robust economies can likely handle higher wages (presumably the reason they already got on board with a wage hike), but what happens in the lower-income and more rural towns in the state's eastern half.

University of Oregon economist Tim Duy thinks those towns could have some problems with a $15 minimum wage. The eastern part of the state is "where we’ll see some more interesting and negative results than we have seen in the past," he told HuffPost.

Small towns that lose jobs could start losing people, too. "Policymakers should have that on their radar as a potential negative impact," said Duy.

People have also raised concerns about the manufacturing sector, based mostly in Los Angeles. Some 600,000 of the state's 1.6 million manufacturing workers make less than $15 an hour, according to a separate post by Ozimek. At least some of those jobs could be in trouble, although people might well find other work in the Los Angeles area.

In short, predicting how one economic input will affect the whole system is hard. A $15 minimum wage might have no effect on certain low-wage work, and yet those jobs still might not be safe.

"Consider the issue of fast-food employment. Some of those jobs, in particular the cashier, are almost about to be automated away regardless of what happens to minimum wages," said Duy.

Regardless, California looks ready to raise the pay of thousands of people -- and once again set the pace for the nation.

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