Minimum Wage Hike Would Hurt California Economy

Long Beach is now suffering the unintended consequences of minimum wage laws

Democratic lawmakers in Sacramento, emboldened by their new supermajority status, may be tempted to use their added power to push an aggressive legislative agenda. In previous legislative sessions they’ve tried, and failed, to raise the state’s minimum wage, currently $8 an hour. And it looks like they’ll give it a go again.

California is already one of 19 states where the minimum wage is higher than the federal minimum wage, which is $7.25 an hour. With the state’s unemployment rate at 9.8 percent-much higher than the already high 7.8 percent national unemployment rate-and a very slow economic recovery taking place, raising the minimum wage would be another ill-advised, job-killing law imposed upon the state’s businesses.

It’s a feel-good policy that sounds like a no-brainer to many in Sacramento, but, in reality, minimum wage laws have serious negative consequences on the economy as they end up hitting workers, businesses, and, ultimately, consumers in their pocketbooks.

The recent implementation of a living wage ordinance on larger hotels in Long Beach serves as a case in point. 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.

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.

“We warned from the beginning it would kill jobs, not create jobs,” Randy Gordon, president of the Long Beach Area Chamber of Commerce, said. “More hotels will follow suit.”

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.

Gov. Jerry Brown and Democrats are offering a pretty rosy picture of the state’s economy and finances these days. Yet, California’s economy is still lagging. In addition to 9.8 percent unemployment, the state continues to have among the very highest income, sales, and gas taxes in the nation along with the worst business climate and credit rating.

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.

Adam Summers is a senior policy analyst at Reason Foundation. This column originally appeared in the Orange County Register.