Out of Control Policy Blog

California Shouldn't Raise Minimum Wage

Democratic lawmakers in Sacramento, emboldened by their new supermajority status, are now tempted to use their added power to push an aggressive legislative agenda. One such effort, which they have tried, but failed, to implement during the past several years is an increase the state’s minimum wage, currently $8 an hour. Assemblyman Luis Alejo (D-Salinas), has introduced AB 10, which would increase the minimum wage to $9.25 an hour over three years and tie additional increases to inflation growth thereafter.

In a recent column for the Orange County Register, I argue that while a minimum wage might sound like a good and compassionate policy, it actually destroys job opportunities for many (not to mention the damage it does to the freedom to voluntarily agree to the price of one's labor).  The recent imposition of a living wage ordinance on large hotels in the City of Long Beach, California, is a case in point.  Consider the following excerpts from the O.C. Register article.

In the November 2012 election, voters in Long Beach overwhelmingly passed Measure N with 64 percent of the vote. The measure, pushed by labor unions such as Unite Here 11 and the Los Angeles County Federation of Labor, AFL-CIO, requires hotels with 100 or more rooms to pay their employees at least $13 an hour and guarantee annual raises.

After the passage of Measure N, Christine Petit of the Long Beach Coalition for Good Jobs and a Healthy Community, which sponsored the measure, crowed, “This ordinance means a lot to the workers, who will get the wage increases just in time for the holidays.” But this was a case of “Be careful what you wish for.”

In response to the measure's passage, some hotels were unable, or unwilling, to shoulder the extra financial burden. Instead of paying their employees more, they announced they'd lay off workers and reduce their number of available rooms so they would not have to comply with the new rules. The 174-room Best Western Golden Sails and the 143-room Hotel Current plan to dramatically reduce their number of available rooms to 99 rooms each to avoid the ordinance.

In December, just before the rules went into effect, the Best Western Golden Sails also reportedly posted a notice that "all employees will be considered terminated after their last shift of duty on or before Dec. 15." The Long Beach Press Telegram reported that "some" of the employees would be rehired but around 75 people were expected to permanently lose their jobs.

[. . .]

When a minimum wage law is imposed, or increased, business owners have a choice to make. They can reduce their costs, usually by laying off employees or cutting employees' hours, or they can try to increase their revenues by hiking prices and hoping customers will pay the higher prices.

[. . .]

Politicians in Sacramento should think long and hard about the fragile economy before pushing a minimum wage increase. For local and state businesses teetering on the edge of survival, the increased costs could be the last straw.

The good intentions of those who propose raising the minimum wage cannot outweigh its unintended consequences and economic reality. Try as they might, politicians can change the laws with regard to the minimum wage, but they cannot repeal the laws of supply and demand.

If the minimum wage was truly a wise and compassionate policy, then why stop at $9.25 an hour, as AB 10 proposes, or $13 an hour, as Long Beach mandated for large hotels? If arbitrarily raising the minimum wage to $13 an hour could magically create prosperity, why not raise it to $100 an hour? Wouldn't we all be rich if the minimum wage was raised to $100 an hour? The answer is obvious: business owners simply could not afford to pay $100 an hour, people would lose their jobs, stores would go out of business in droves, and commerce would grind to a halt. The fact that a minimum wage of $9.25 an hour or $13 an hour will not destroy quite as many jobs and businesses as a $100 an hour minimum wage is hardly reason to support it.

If simply passing laws could create wealth and eradicate poverty, politicians would be the most popular and celebrated people on the planet and people would avoid being poor without even having to work their way up the economic ladder. But take a good look around and ask yourself: Is this the way the world really works?

See the full op-ed article here.

Adam Summers is Senior Policy Analyst


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