California’s Minimum Wage Law is Flawed (but NOT Because It’s Raising the Wage)

By December 22, 2017Blog


By Tim Shea

Special Contributor

Just in time to spread some holiday cheer comes a new study from the Employment Policies Institute heralding a labor market implosion as California rolls out its new minimum wage law. All told, researchers David Macpherson and William Even predict a loss of 400,000 jobs will result from the legislative wage hike, with the low-wage retail and food service industries being the most heavily affected. Even more damning is that they are touting their findings as a conservative estimate.

Now, to be clear, the word ‘conservative’ is significant to this study in more ways then one; the EPI makes no efforts to hide its right-leaning tendencies. As such, it would be easy to write off their paper as biased or partisan. To dismiss their findings outright would be a mistake, though.

First is the fact that, while modest increases to the minimum wage have been shown to have equally modest effects on employment, we truly are entering unknown territory as to the sheer magnitude of the wage hikes in question. As such, it’s entirely possible that the recent wave of $15/hour minimum wages will have more exaggerated effects than have been observed in the past. The 4 percent reduction in employment predicted by Macpherson and Even is thus not outside the spectrum of possibility. More importantly, though, their analysis doubles down on a critique frequently levelled against California’s law: it does not account for cost-of-living differences between rural and urban areas.

Putting it bluntly, the value of a dollar is vastly different in a dense urban core than in a rural farming community. For high-costs cities like Los Angeles, it’s entirely plausible that a $15 minimum wage will be absorbed without much fuss, though Seattle’s experience leaves even that in question. For low-cost rural areas, the negative affects of such a radical wage increase will almost certainly be hard-felt. Given that the Bureau of Economic Analysis reports that the cost-differential between California’s non-metro areas and most expensive cities is over 20 percent, that equals a lot of hurt for the state’s rural communities. It simply does not make sense to have the minimum wage in San Francisco equal the minimum wage for a place like Imperial County.

What’s even more frustrating about this aspect of California’s policy is that it is wholly unnecessary. Oregon has already demonstrated that tiered minimum wage systems are feasible, and with no shortage of tools available to calculate cost-of-living differentials, the additional administrative costs of a more nuanced law would be minimal. There is also a strong case to be made for such a tiered system being more equitable than what California has put in place. After all, the one-size-fits-all approach gives rural workers a higher effective wage than their urban counterparts, while simultaneously making it more difficult for those rural workers to actually find a job in the first place. This hardly seems the ideal outcome for a law his stated purpose is to increase economic justice.

Of course, “Fight for a Minimum Wage that Accounts for Cost-of-Living Differences So the Net Outcome is an Effective $15 Minimum Wage for All Workers Nationwide” is a bit of a mouthful. So instead we get Fight $15. Clean, catchy, and utterly devoid of nuance. Which is a shame, at least for anyone who wants to see robust and effectual policy debate return to a landscape ravaged by partisanship

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