Politics & Policy

When States Hike the Minimum Wage, Women Lose Jobs

Workers and customers at a Dunkin’ Donuts store in Santa Monica, Calif., in 2014. (Reuters photo: Mario Anzuoni)
Lawmakers should focus instead on equipping workers with the skills to qualify for high-paying employment.

California promotes its image as a place for adventure, stardom, and innovation. That image is growing dimmer as opportunity and entrepreneurship are stifled by workplace policies that leave vulnerable workers and women worse off.

On January 1, the statewide minimum wage will float up to a new high, $11 an hour, but paycheck gains may be short-lived for women and low-income workers whose jobs are likely to be eliminated, according to new analysis. Other states looking to follow California’s lead should take note.

Tourism commercials paint an enviable picture of life and work in California. Kim Kardashian lounges poolside, and Betty White putts around on a golf course. Work isn’t hard, either; Californians study soap-opera scripts, hold board meetings at skate parks, taste wine, and sing songs by the campfire on the beach.

However, not every Californian is living a relaxing and lavish lifestyle. The state’s poverty rate for women, 14.1 percent, is the 21st highest in the nation, and 35 percent of female-headed households in the state live in poverty. The challenge is that many women tend to work in low-skilled and low-wage jobs compared men.

California lawmakers, in an effort to help many women and other low-wage workers, thought they struck gold by raising the minimum wage, but it may be fool’s gold.

On January 1, 2018, the state’s minimum wage will increase from $10.50 to $11.00 an hour for companies with over 25 employees and from $10 to $10.50 for those with 25 or fewer. The minimum wage will rise each year until 2022, when large companies will be forced to pay $15 an hour. By 2023, all companies will face the $15 minimum wage. Some cities and municipalities plan to implement rate hikes that are even higher — $13.25 in Los Angeles, Malibu, and Santa Monica — than what the law stipulates for them to be next year.

These minimum-wage increases may appear to be a shortcut to bigger paychecks, but for many they are a straight path to pink slips. The Employment Policies Institute projects that raising the minimum wage to $15 in 2022 will lead to the loss of 398,228 jobs, because employers cannot absorb this increased cost of labor.

Job losses will likely be concentrated in two industries with the largest shares of low-wage workers: agriculture, forestry, and fishing, and accommodation and food services. Workers in these industries will say goodbye to nearly 11 percent and 10 percent, respectively, of job opportunities.

Lawmakers should focus on equipping workers with the skills to fill those open positions and to remain relevant in the future.

The effect of the increased minimum wage will be especially pronounced in accommodations and food services, which will shed 123,000 low-wage jobs. Retail-trade workers will also be laid off in masse, losing 77,000 jobs. These are industries that heavily employ women.

Minimum-wage increases are not a path to prosperity. California lawmakers congratulated themselves when they passed this breathtaking wage hike, saying that full-time workers shouldn’t live in poverty. Everyone agrees that work should be rewarding, and no one wants his fellow Americans to live in poverty.

But there are fundamental disagreements about how to alleviate poverty. The point of any economic policy should be to encourage upward mobility through greater economic freedom and opportunity. Low-wage, entry-level jobs offer women (and men) the chance to gain basic skills and experience that they can use as a springboard to higher-skilled, better-paying jobs.

If workers can’t move beyond minimum-wage jobs, the problem may lie with a generally poor economy or a mismatch between jobs and workers available. The latter seems to be the case in California, where the state’s unemployment level has dropped to below 5 percent. The state ranks in the top five for both growth and innovation. At the same time, 1.4 million positions remain open in this region of the country.

This may indicate a “skills gap,” or a mismatch between the skills that workers have and those that are needed. Lawmakers should focus on equipping workers with the skills to fill those open positions and to remain relevant in the future.

Having the right skill set is critical to success in the job market, all the more so because minimum-wage increases accelerate the automation of jobs. Low-skilled jobs — those of waiters and retail staff, for example — are easy to automate. Economists at the National Bureau of Economics studied employment trends and found that raising the minimum wage increases the likelihood that low-skilled workers in jobs that could be automated will be unemployed. This doesn’t just put women out of work. It will also make many reliable low-skilled jobs obsolete in the future.

New industries and employment will spring up, but it’s imperative that we prepare workers for a future where they can adapt and take advantage of these new opportunities.

California used to be the place for Americans to realize their dreams, but it will eventually become a graveyard for opportunity if workers aren’t prepared for coming changes to the work force. States can avoid that fate by rejecting short-sighted policies such as a $15 minimum wage and investing in the (re)training of workers. They should focus on closing skills gaps through improved education policy and on spurring their economies by cutting taxes for businesses, workers, and residents. Pro-growth policies that emphasize those aims will generate new opportunities for workers and bring real, sustainable wage growth without the counterproductive consequences of government-imposed minimum-wage hikes.


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