California employers must pay at least $15 an hour by 2023. Adjusted for inflation, that works out to $13.39 an hour in today’s dollars — higher than any other country’s real minimum wage, even France’s. And it will soon cover one-third of Californian employees. The Golden State has taken its minimum wage into uncharted territory.
This hike will not affect the entire state equally. The living costs of San Francisco and California’s coastal cities are well above average, so employers in those cities already pay higher wages to attract a workforce. Consequently, the real minimum wage will “only” run between $11 and $12 an hour in places such as Silicon Valley.
Inland California has living costs closer to — or below — the U.S. average. It also has lower wages. Adjusted for living costs, the real minimum wage in inland California will be around $14 an hour, or higher.
Supporters of raising the minimum wage argue it boosts the economy by giving consumers more spending power. They dismiss fears that employers will cut jobs. Instead they contend higher minimum wages enable consumers to spend more, creating a “positive feedback loop” of economic growth and job creation. California will soon put this theory to the test.
If the minimum wage produces the prosperity its proponents claim, California employment should grow robustly over the next seven years. The growth should be particularly strong in inland California. Fresno and Imperial County should boom as their resident’s spending power surges.
Few economists expect this to happen. Little research exists on minimum-wage hikes this large. But economists have extensively studied what happens when wages rise for other reasons (without productivity rising too). Those studies consistently find companies hire fewer workers. They imply $15 an hour will eliminate 900,000 jobs in California, with the greatest losses in inland and rural California.
These job losses have already begun. American Apparel recently responded to the Los Angeles County $15 mandate by scaling back operations and laying off 500 workers. If these job losses multiply, those who advocate hiking the minimum wage should reconsider their approach.