If you increase minimum wage then you’re out of business.
On March 31, 2016, the state Senate passed a bill that will increase California’s minimum wage to $15 an hour by 2022, which Gov. Jerry Brown signed Monday. Even though the $5 increase from the current California minimum wage of $10 will occur over time, it is still a very large leap.
While the increase can be an advantage to some workers, there is evidence that shows that this won’t be the case for all. The downsides behind minimum wage increase include a rise in inflation, further unemployment among teens and adults, and disproportionate regional impacts.
While some minimum wage workers believe that increasing pay is the answer to their problems, that is not correct. The minimum wage was last increased two years ago. Prior to that, it was increased in 2008. There will always be a constant need to increase minimum wage if the real problem isn’t found and addressed. The fluctuating inflation is the problem that the government should target and work to solve.
Although the minimum wage increase will benefit some workers, it can also have negative effects on the economy. When the minimum wage increases, businesses tend to raise the prices of the goods and services they provide. Additionally, not all businesses will have the resources to continue functioning and will be forced to lay people off or shut down completely.
In fact, in the Los Angeles Times, Sen. Ted Gaines called it a “death sentence” for struggling businesses due to the unprecedented cost increase on businesses.
The impact the increased costs of businesses have on them is shown in a study made by the Federal Reserve Bank of San Francisco. They found that higher minimum wages have reduced employment opportunities for teenagers by about 18,600 jobs, and the minimum wages in place now have decreased the nation’s jobs by more than 100,000.
And it’s just adults that feel the benefits. Teen unemployment is three times the national unemployment rate because when the minimum wage gets boosted, employers frequently cut down on hiring teens who typically fill lower-priority positions. Teen workers come straight out of high school and more often than not lack the skill set desired by minimum wage employers. They will be competing with adults for the same jobs.
Unemployment is only one of the fears minimum wage workers must deal with. With the increase in costs of goods and services, the cost of living will increase, too.
Finally, the $15 minimum wage will have different effects in various regions of California. For example, the most expensive city to live in in California is San Francisco, where a couple’s income would need to reach approximately $145,350 in order for them to live a moderately affluent lifestyle. For places likes San Francisco and Los Angeles, the new minimum wage will help the working class families. However, in areas where the employment is already low and prices are high, this can cause a negative shift in the economy. Small businesses will further raise prices and lay off employees in order to make up for the $5 leap in minimum wage.
Eventually, the costs of living will succumb to inflation or catch up to the increase in pay and go back to how it started. It is a cycle. Increase pay and businesses will then increase prices. The state should focus on finding a more permanent solution than increasing the minimum wage by focusing on mitigating inflation and rising costs of products and services. If legislators keep doing what they are doing, then sooner or later everyone will be in the same position they were in before the increase: No money, same problems.