Saturday, April 2, 2016

California Minimum Wage to Raise to $15

Governor Jerry Brown is set to sign a measure to raise the state minimum wage from $10 to $15 within the next five years, making it the highest minimum wage in the nation. (The federal minimum wage is currently at $7.25.)

The raise could increase pay for 5.6 million Californians by an average of 24 percent and would especially benefit minority groups who hold the majority of low-wage jobs.

Yasmin Fernandez works two jobs to make enough money to support herself as well as family in Mexico. After paying her expenses, she has only about $150 a month for herself. She calls the raise "heavenly," saying that she can now have money to treat herself every once in a while and even more money for her family.

Other urban cities such as Seattle and New York City have followed in California's footsteps in raising their wages. However, NYC bakery owner Joseph Sferrazza brings up a drawback to the plan: "The rent is so high, the profit margin is already so low, I don't see how we can make it work," says Sferrazza, who will eventually pay his workers $15 instead of the current $9. "You can only charge so much for a cookie."

Raising the wage may seem like a good idea in retrospect, but in reality, it may just cause a domino effect that leads to higher prices, rendering the raise useless. It could put more people out of jobs since stores or companies may be unable to support the number of workers they currently have, ironically hurting the people that the higher minimum wage is supposed to help. Small businesses, in particular, will have a hard time keeping up.

However, perhaps the scariest thing is that this wage jump is way larger than economists have tested in the past, making it difficult to predict what exactly will happen to the economy in the long run.

"I would go so far as to call this reckless," says David Neumark, a UC Irvine economics professor. 

Thoughts? Was raising the minimum wage a good move?

Sources:
http://latino.foxnews.com/latino/money/2016/03/30/analysis-finds-raising-ca-minimum-wage-to-15-hour-would-cost-taxpayers-36b/
http://www.nytimes.com/aponline/2016/04/01/us/ap-us-minimum-wage.html?em_pos=large&emc=edit_nn_20160401&nl=morning-briefing&nlid=72521305
http://www.usnews.com/news/business/articles/2016-03-29/californias-15-hour-wage-could-help-workers-cost-jobs

2 comments:

Caroline Mameesh said...

We had minimum wage talks in class, and I do not agree in a huge spike in the minimum wage. Jumping all the way up to $15 is a rather large change, and, as mentioned, it has not been tested by economists. Who knows what could result. One thing that is almost assured is that smaller businesses whose profit margins may already be pinched will now find it significantly harder to employ workers at $15/hr and may be forced to close down. That will not be helping business.
Further, as we saw in class depicted in price ceiling graphs, there comes a point when too high a wage becomes more harmful than anything else. As these profit margins I described shrink, so do the number of employed workers at minimum wage. In the long run, this increase may actually lay off more people than it does increase the profits of those employed.
While a raise in the minimum wage seems wonderful in theory, in practicality, there are too many implications that can (will) go along with it. For that reason, I feel a huge jump in the minimum wage is unprecedented.

Abhishek Paramasivan said...

I think that Governor Brown's intentions were good, but the problem was approached the wrong way. A minimum wage increase might be helpful but for small business owners it will force them to raise prices in order keep a profit eventually decreasing the number of small businesses. I think raising the minimum wage in general is a relatively bad move because of the reasons stated above. The long term impact on number of jobs and prices for consumers in places like supermarkets, small businesses, and fast food joints, where minimum wage workers are hired, be negative because owners and managers are not able to keep prices low while still turning a profit.

This event does also bring up the question: Is there an efficient way to help current low income workers make more money?