$15 Minimum
California Plays With Fire

In what amounts to a massive and unprecedented economics experiment on its least-skilled workers and its most vulnerable regions, California looks likely to cave to union pressure and enact the highest minimum wage of any state in the country. The Los Angeles Times reports:

Lawmakers and labor unions have struck a tentative deal to raise the statewide minimum wage to $10.50 an hour next year and then gradually to $15, averting a costly political campaign this fall and possibly putting California at the forefront of a national movement.

The deal was confirmed Saturday afternoon by sources close to the negotiations who would speak only on condition of anonymity until Gov. Jerry Brown makes a formal announcement as early as Monday.

The municipal governments in San Francisco and Los Angeles have already passed measures to increase their wage floors to $15 in the coming years. We think those measures are unwise; indeed, early results suggest they may have depressed job growth even without being fully implemented. But at least California’s major metropolitan areas (especially San Francisco) have pockets of vitality that can absorb the hike, as well as costs of living high enough that boosting low-end wages is arguably a more pressing priority than raising the employment rate.

The same cannot be said of places like Fresno, Merced, Tulare, and other depressed counties that have yet to recover from the devastation of the Great Recession. These are regions with sky-high unemployment and underemployment rates, very little new business investment, and some of the highest poverty rates in the country. As the UC Irvine economist David Neumark has pointed out, wages in some of these areas are so low that a $15 minimum would force employers to raise wages for a majority of their workers, likely accelerating the small business exodus to more prosperous parts of the Golden State, and the manufacturing exodus to more business-friendly states like Texas and Arizona, or to countries overseas. Meanwhile, the cost of living in rural California is so low that it’s not even clear why such a radical increase to the hourly wage floor is a priority.

Even the New York Times‘s labor reporter has cautioned that a $15 minimum has no precedent in the United States. High-cost cities like San Francisco and New York City are taking on some risk and probably forfeiting some jobs by wading into these waters. But for depressed rural counties, it could be much worse. Such measures will chip away at any reason businesses might have had for investing. It will also force a substantial portion of the remaining workers to resign themselves to permanent welfare status, as Silicon Valley gets rich making machines to replace them. It’s not an exaggeration to say that this measure is borderline suicidal.

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