Minimum Wage Increase Should Continue, but Needs Close Analysis

On March 29th, California Governor Jerry Brown signed a bill to raise the minimum wage from the current $10 an hour to $15 by 2022. In spite of the recent debates regarding the economic effects the increase in starting salary will cause, the passed legislation has emphasized a “loophole” which grants the governor the ability to halt the expansion of the minimum wage should a recession occur.

This “loophole” highlights the government’s reluctance to enforce the bill, and, more importantly, its ignorance of the growing unrest of Californians.

Although the proposition of earning a higher income sounds favorable and does provide substantial opportunities for the growing population, the effects of this upward wage trend should be monitored with great care.

Critics and supporters for the wage increase first arose in the fast food industry in New York in November 2012. The movement quickly gained momentum in various service industries, including retail, emergency treatment centers and airports. Since then, the fight to close class inequality has gained extensive support from low-income families across the US, including San Francisco, Chicago and Seattle.History_of_US_federal_minimum_wage_increases.svg

The growing labor force and the need for sustainable wages in California has prompted workers across the nation to protest against their state’s current minimum wage rate, creating a domino effect.  

Regardless of the bill’s true intentions — to close the gap between the wealthy and the poor or to promote a more stable standard of living — the government’s hesitance on the effects it will have on the economy signal potential setbacks to annual growth.

According to the Associated Press, Governor Brown previously  believed that, with over two million workers receiving minimum wage, the steady rise in income would prove counterproductive to its initial intentions by raising the unemployment rate.

In the 2015 third quarter, the U.S. Department of Labor reported average weekly wages in Los Angeles at $1074. Fifteen dollar wages would lead total annual income to be $62,452 for an inexperienced worker. As a result, this would force firms to decrease the number of their employees in order to minimize expenses and prevent excessive price hikes on goods and services. This proves troublesome for students beginning to enter the workforce because businesses will prefer candidates with more experience and leadership skills, traits typically developed on-the-job.

However, economist Michael Reich at UC Berkeley reports to the Wall Street Journal that he predicts employment will not be significantly affected: employee turnover will decrease, businesses will undergo improved productivity by hiring the most qualified applicants, and steady price increases coupled with growing levels of consumption by lower income families will counteract the higher income.

California and New York were the first two cities to implement the plan for a $15 minimum wage. In 2015, the Labor Department declared that 38% of workers in New York and 41% of workers in California earning less than the set $15 an hour could thrive financially from a rise in wages.

With a higher starting salary for individuals in the workforce, the legislation’s goal is to draw poverty stricken families into a more financially stable middle class. The possibility of a future recession foreshadows undesirable consequences as a result, but may prove beneficial with regards to higher levels of productivity and efficiency within a firm. Stricter requirement standards will prompt companies to maintain a workforce that is capable of out-performing competitors both domestically and internationally.

According to the Wall Street Journal, a $5, or 50%, increase will have a significant effect on the nation, both socially and economically. The delayed response to worker’s demand for a $15 minimum wage signifies a state of ambivalence within the government. Should an undertaking of a wage hike have a negative impact, the economy could enter into a state of deep recession. By slowly raising the wage rate, economists can monitor the level of pay that begins to set back GDP growth and place the new value as a reflection of the current state of the economy.

 

Lilith Martirosyan is a first-year Business Administration major. She can be reached at llmartir@uci.edu.