By moving toward a plan to raise the statewide minimum wage to $15 an hour by 2022, the state could raise living standards for millions of workers. But it could also increase unemployment among some of the very same economically marginal workers the wage increase is intended to help.
Many economists, even some on the left, worry that a potential loss of jobs in a number of cities where wages are comparatively low could largely offset, and perhaps even more than offset, the boon of higher incomes at the bottom of the wage scale.
“Just as the benefits of this policy are likely to be greater because it covers a greater share of the work force than for past minimum wage increases, the risk of these costs is also higher,” said Ben Zipperer, an expert on the minimum wage at the liberal Washington Center for Equitable Growth. “It’s very unclear how that’s going to stack up.”
San Francisco and San Jose, both high-wage cities that have benefited from the tech boom, are likely to weather the increase without so much as a ripple. The negative consequences of the minimum wage increase in Los Angeles and San Diego — large cities where wages are lower — are likely to be more pronounced, though they could remain modest on balance.
But in lower-wage, inland cities like Bakersfield and Fresno, the effects could play out in much less predictable ways. That’s because the rise of the minimum wage to $15 over the next six years would push the wage floor much closer to the expected pay for a worker in the middle of the wage scale, affecting a much higher proportion of employees and employers there than in high-wage cities.
“This is a big experiment,” said Arindrajit Dube, an economics professor at the University of Massachusetts at Amherst whose work has shown that modest minimum wage increases typically have limited effects on employment. “In areas like Fresno, a majority of workers are likely to be directly or indirectly affected.”
Gov. Jerry Brown, announcing details of the proposed legislation at a news conference on Monday, acknowledged the potential hardships of giving California the highest minimum wage of any state in the country.
“If you took the wages down and cut them in half, it would make it easier for certain businesses,” he said. “But you can’t function that way, because we’re a community.”
Mr. Brown, who worked out the deal with top legislators and labor leaders, said the risks were worth it. “It’s a matter of economic justice,” he said, “and it makes sense.”
The legislation would delay by one year the schedule of wage increases for businesses with 25 workers or fewer, and would allow the governor to pause an increase for one year if the economy weakened or the state’s budget deteriorated.
Craig Scharton, the owner of a farm-to-table restaurant called Peeve’s Public House in downtown Fresno, said he was still smarting from a recent increase in the minimum wage from $9 to $10 an hour. He said the increase had forced him to close on Mondays and Tuesdays and played a role in reducing his staffing to a dozen today from 18 two and a half years ago.
Mr. Scharton was at a loss to explain how he would absorb the new increase. “We’re trying our best to revitalize downtown,” he said. “This just kind of kicks our legs out from under us.”
In moving to raise the statewide minimum wage to $15 by 2022, California is going well beyond previous efforts to raise the wage floor in recent decades. Because typical wages vary widely from high-cost San Francisco and San Jose to cities like Fresno and Merced, where the median wage is much lower, many economists are concerned that the measure may lead to job loss in places where the minimum wage will be relatively close to what the typical worker is expected to earn.
The Fresno example illustrates the challenge of raising the minimum wage to the same level across cities that, in economic terms, have little in common beyond the same state government. Cities with high real estate prices are typically better able to withstand minimum wage increases than cities with low prices, because wages represent a smaller fraction of a business’s overall cost in those cities and therefore have a smaller effect on the bottom line.
But in Fresno, real estate is cheap and wages are by far the biggest cost for the typical service sector business. Mr. Scharton estimates that labor is about 40 percent of his costs, versus about 6 percent for real estate.
Likewise, businesses in cities with large tourist industries often find it easier to pass along higher costs to customers, as tourists tend to be less price-sensitive than locals. But Fresno, unlike Los Angeles or San Francisco, is not a tourist hub.
“I don’t think we have anything over $14 for an entree,” he said. “We can’t do $32 an entree like some high-end fancy New York restaurant.”
The adverse effects from a sharp increase in the minimum wage may not be as severe as some opponents fear, however. Michael Reich, an economics professor at the University of California, Berkeley — whose work policy makers in Los Angeles and New York State have relied on to analyze their recent efforts to raise the minimum wage — said that, in his models, the overall economic effect of a $15 minimum wage was roughly neutral, even when it amounted to 60 percent of the median wage.
The reason, he said, is that the negative economic consequences of a higher wage — namely, lower employment, partly because of greater automation, and declining sales because of price increases — were offset by greater purchasing power on the part of workers, which would lift economic activity in an area.
As for low-cost cities where the impact could be even larger, Mr. Reich said low-wage workers in places like Fresno were not so differently paid from low-wage workers in higher-cost cities — despite the fact that typical wages in those cities are far apart.
“Even if the average wage differential between Fresno and the rest of the state is about 25 percent,” Mr. Reich said, “just within retail and restaurants you find that the wage differential is more like 5 percent.”
Moreover, the benefits of the higher wage may be more than purely economic.
Dave Regan is president of SEIU-United Healthcare Workers West, which represents more than 85,000 hospital workers in California and deployed more than 2,500 members to collect hundreds of thousands of signatures to qualify a minimum wage ballot initiative. He said that even if there were potential economic downsides, the effect of empowering workers to influence their own fates could be transformative politically.
“There’s so much cynicism, anger,” Mr. Regan said. “To have the governor and legislature responding in a positive and constructive way to our members is really important. It shows, ‘Wow, what we do really does matter.’”
Cities in other states, like Seattle and Chicago, recently enacted significant wage increases, and Gov. Andrew M. Cuomo of New York is pressing a plan to increase the minimum wage to $15 in New York City by 2019 and statewide by 2021.
Skeptics argue that the California policy is reckless, given that there were already a variety of localized experiments underway that would have given insight into the effects of a substantial minimum wage increase before thrusting the country’s most populous state into unknown territory.
“We just passed minimum wage laws in some cities: San Francisco is a high-wage one, Los Angeles is not such a high-wage one,” said David Neumark, an economics professor at the University of California, Irvine, who has done work suggesting that even relatively moderate minimum wage increases can lead to a more than trivial rise in unemployment. “Given that there’s some risk of adverse effects, possibly bad effects, let’s do a little study and see what happens.”