Economy & Business

The Minimum Wage Makes No Sense — Let’s Do It Anyway!

Celebrating California’s minimum-wage law in Los Angeles. (Frederic J. Brown/AFP/Getty)
New York’s minimum-wage law is bad economics. California’s is worse.

‘Economically, minimum wages may not make sense,” said California governor Jerry Brown on Monday. He then signed a bill mandating a 50 percent increase in California’s minimum wage from $10 an hour to $15 over six years.

The same day, as if these things were coordinated as part of a national messaging strategy, New York governor Andrew Cuomo signed into law the Empire State’s own minimum-wage hike, escalating from $9 an hour to $15 by 2018, but allowing for differences across regions of the state. Hillary Clinton joined Governor Cuomo on the stage in Manhattan, while Senator Bernie Sanders complained from a distance about Clinton’s being late to the minimum-wage party.

Lost amid the rhetoric about $15 an hour being a boon for the working poor is this: The entire effort to raise the minimum wage is being pushed by organized labor, mostly government-employee unions. Virtually every vote in favor of $15 an hour in California was accompanied by copious campaign contributions from unions, totaling about $10 million. The Service Employees International Union (SEIU) even delivered large campaign contributions to five key Democrats (who may have been having second thoughts) on the day of the vote.

The odd part is that very few of their members make minimum wage. In 2015, only 510 California state employees did, mostly interns, students, and part-time conservation-corps workers. So why were these unions so eager to press for a huge hike in the minimum wage? Some numbers from California hint at why.

RELATED: California’s Latest Move to Sabotage Its Low-Wage Workers

Almost 60 percent of California’s government workers are represented by unions. Many of these workers are paid according to labor agreements that are tied in some fashion to the minimum wage. This led the California Department of Finance to estimate in an internal memo that the total payroll cost to California state government would be $235 million in fiscal 2022–23, the budget year the minimum wage reaches $15. That might seem manageable — but this estimate doesn’t account for government unions’ intentions. The president of New York’s AFL-CIO, in a moment of candor during the jubilation surrounding Cuomo’s signing of the bill, said, “When we raise the floor in wages, we raise the ceiling. . . . The next time your union goes in to negotiate, they’re going to ask for 19 and 20 and 21 dollars and up!”

For instance, the pay of new public-school teachers in California is tied to double the minimum wage. Increase the minimum wage by 50 percent, and entry-level teachers will see their pay boosted from $40,000 per year to $60,000. This will trigger demands from more senior teachers for a raise as well. By the time the increase works its way through contract negotiations, the wage bill for the state’s 295,000 teachers could hit $10 billion, a 12 percent increase in overall costs.

RELATED: Will California Take a Chance on $15?

California typically ranks near the top among states in class size — and those classrooms are about to get even more crowded. Faced with limited resources, the state’s most likely response will be layoffs. And, in a bit of irony, due to California’s union rules, the last teachers hired are the first to be let go.

Tallying up the potential for larger state- and local-government expenditures, a 50 percent increase in the minimum wage could hit California taxpayers for somewhere in the range of $25 billion in added payroll costs, assuming the state retains all of its 1.75 million full-time-equivalent workers. Considering government unions’ $10 million in political donations, this works out to a return on investment of up to 250,000 percent.

#share#Beyond the confines of organized government labor, cloistered from economic reality, the $15 minimum wage will hit small business hard — especially in California’s inland areas, away from the coastal elites, where about a third of the state lives with a cost of living only slightly above that of the national average. California and New York have America’s second- and third-highest cost of living, respectively, behind Hawaii. Rent, goods, and services cost on average about 35 percent more in California and New York than in the rest of the U.S., but this statistic is driven by the high-cost metropolitan areas of Los Angeles, San Francisco, San Diego, and New York. Costs in San Francisco are as much as 74 percent greater than those in Bakersfield. So a $15 minimum wage, cost-adjusted to the national average, would equate to $8.15 in the former and $14.15 in the latter. The problem for business is this: Does legislative fiat make the same labor 74 percent more valuable in Bakersfield than in San Francisco?

The nation is about to find out.

RELATED: Minimum-Wage Laws: Ruinous ‘Compassion’

Speaking to a boisterous crowd of union members, Governor Brown said the $15 minimum wage “is about economic justice, it’s about people, it’s about creating a little, tiny balance in a system that every day becomes more unbalanced.” But, as with most government actions, there will be unintended consequences — the government drive for “balance” will, as Friedrich Hayek warned, lead to more imbalance, which will invariably lead to cries for greater government intervention.

California state senator Kevin De León (one of the bill’s two authors, with whom I served a decade ago in the California State Assembly) said, “Our [bill] is more progressive [than New York’s]. . . . We don’t look towards New York for any leadership; I think the rest of the country looks toward California for leadership on this issue.”

The die is cast.

— Chuck DeVore is vice president of national initiatives at the Texas Public Policy Foundation. He served in the California State Assembly from 2004 to 2010.

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