On March 28, Gov. Jerry Brown (D-CA) announced a legislative compromise to raise the California minimum wage gradually from $10 per hour in 2016 to $15 per hour by 2022. Right-wing media have attacked the historic wage increase, claiming it will kill jobs and that it “goes against every law of capitalism.” Meanwhile, mainstream media have promoted misinformation about the minimum wage peddled by restaurant industry front groups.
California To Raise Minimum Wage To $15 Per Hour In 2022
California Governor, Lawmakers, Labor Unions Broker Deal For $15 Minimum Wage. On March 28, the Los Angeles Times reported that California Gov. Jerry Brown announced that he had reached a deal with lawmakers and labor leaders to raise the minimum wage from its current rate of $10 per hour in 2016 to $15 per hour by 2022. The deal could avert a November ballot measure, and would give future governors the ability to temporarily block a scheduled wage increase during a recession:
Gov. Jerry Brown on Monday sent the Legislature a proposal to boost the state's minimum wage, defending the idea of $15 hourly pay as one that furthers economic equality and one that he hopes other states will follow.
The governor's plan, crafted through weeks of private negotiations among a small group of lawmakers and labor officials, increases the current $10 statewide minimum wage by 50 cents on Jan. 1 to $10.50 an hour. From there, it would rise to $11 in 2018 and subsequent dollar-a-year increases ending at $15 on Jan. 1, 2022.
The agreement, first reported by The Times on Saturday, would reinforce California's position as having the highest minimum wage of any state. The federal minimum wage is $7.25 per hour and was last increased in 2009. States can exceed the federal minimum but cannot go below it.
Under this proposal, starting in 2024, the wage would go up to reflect increases in the Consumer Price Index, but by no more than 3.5% in a given year.
Even so, Brown did insist on including ways to stop wage increases if the economy falters. The agreement allows for a temporary pause in the first few years of boosted salaries if California's unemployment rate rises or if a deficit is projected in future state budgets. [Los Angeles Times, 3/28/16]
ThinkProgress: California Raising The Minimum Wage To $15 An Hour Would Be “Historic.” On March 27, ThinkProgress reported on initial details of what it called an “historic” deal, noting that raising wages would help workers and could “lead to greater worker efficiency, lower turnover for businesses, and greater GDP and job growth due to the extra money many workers will have in their pockets to spend.” Despite the “historic” wage increase, ThinkProgress concluded that even a $15 minimum wage is “still far below a living wage” for a state like California, “where a minimum wage of $22 makes more sense.” [ThinkProgress, 3/27/16]
Media Parrot Conservative Misinformation About Job Losses To Attack Minimum Wage Increase
On Fox Business, Professional Stock Traders Condemn Proposal, Saying It “Goes Against Every Law Of Capitalism.” On the March 28 edition of Fox Business' Varney & Co., host Stuart Varney and his panel of financial guests attacked the proposed deal in California to raise the minimum wage to $15 an hour. Professional stock trader Keith Fitz-Gerald claimed the proposal was “bad economics” that “goes against every law of capitalism,” and will lead to job losses. Fox Business correspondent Ashley Webster falsely claimed the proposal “puts the smaller businesses out of business,” and commodities trader Scott Shellady claimed worker activists should “be careful what you wish for” with raising the minimum wage, which he warned will lead to greater automation and fewer jobs:
[Fox Business, Varney & Co., 3/28/16]
Forbes Contributor Cherry-Picks From Reports To Claim Raising The Minimum Wage Will Increase Unemployment. On March 28, Forbes contributor Tim Worstall cherry-picked parts of a report to the Los Angeles City Council from University of California, Berkeley, economist Michael Reich on the effects of raising the minimum wage to $15 per hour in Los Angeles to claim the report showed raising wages does more harm than good, “making us all poorer in the aggregate.” Worstall failed to mention the report also found that raising the minimum wage to $15 per hour would lead to higher wages for over 40 percent of workers in Los Angeles. [Forbes, 3/28/16]
Reason: Raising Wages “Would Be Horrible For Many Communities.” A fearmongering post for the conservative site Reason's Hit & Run blog on March 28, entitled “Heaven Help California's Non-Urban Cities Under a $15 Minimum Wage,” claimed that the supposedly “massive increase in the minimum wage” would actually hurt many low-income workers, and illustrates “why so many California residents outside of the big cities want to break away and make their own states”:
If anybody is wondering why so many California residents outside of the big cities want to break away and make their own states, just take note of the news today that California legislators have made a deal with the all-powerful unions to jack up the minimum wage for all industries and all employers across the state to $15 by 2022 and then tie future increases to inflation. Small business in California will have until 2023 to comply.
Noam Scheiber took note last summer in The New York Times of the challenges of trying to estimate whether communities would be able to handle such a massive increase in the minimum wage. It's clear that the politicos responsible for this deal are not thinking beyond their own borders. A statewide massive increase in the minimum wage would be horrible for many communities, even if large cities like Los Angeles and San Francisco could absorb the consequences. [Reason, Hit & Run, 3/28/16]
Associated Press Only Quotes Economists Opposed To Minimum Wage Increases. On March 29, the Associated Press (AP) interviewed workers, business owners, and economists about the ramifications of California raising the minimum wage. The AP featured testimonials from workers struggling to get by at their current salaries, but also quoted from just two economists -- David Neumark and Jeffrey Clemens -- who both shared negative views of raising the minimum wage. Neumark called the legislation “reckless,” while Clemens wondered “what fraction [of low-wage workers] will lose their jobs” as a result of the increase. The AP did not cite any economist or research demonstrating positive side effects of increasing the minimum wage and failed to note that research suggests no link between minimum wage increases and job losses. [Associated Press, 3/29/16; Media Matters, 3/28/16]
Wall Street Journal Hypes Claim That Wage Increase Will Cost California 700,000 Jobs. A March 29 editorial in The Wall Street Journal claimed that California “would eliminate nearly 700,000 jobs” if the state raised the minimum wage to $15 an hour, exacerbating economic inequality for low-income workers. The Journal, which referred to the proposal as the “California Inequality Act,” based their job loss claims on research from Clemens and a “free-market” think tank, both opposed to minimum wage increases:
The Governor this week struck a deal with Democratic lawmakers and union leaders to raise the minimum wage every year for six years until the state reaches $15 an hour. California's current $10 is among the highest in the nation, and well above the federal $7.25, but the labor activists organizing the national “Fight for $15” campaign contend that workers “deserve a raise.”
One problem: Many will be unemployed. About four million workers in the Golden State earn between $10 and $15 an hour, according to estimates by University of California-San Diego economist Jeffrey Clemens, and many companies will handle the added cost by hiring fewer workers. The American Action Forum, a free-market think tank, reports that California's 50% increase would eliminate nearly 700,000 jobs--which means higher unemployment for the poor and least skilled in particular.
If California progressives want to eliminate low-wage labor in the state, perhaps they should finish the job and raise the wage to $30 or $40, and watch entire swaths of the economy flee to Nevada or Texas. But even at $15 an hour, Governor Brown will have widened the California divide between the well-off coastal progressives who run the state and the folks farther inland forced to live with the consequences. [The Wall Street Journal, 3/29/16; Media Matters, 11/9/15]
Media Promote Anti-Minimum Wage Talking Points From The Employment Policies Institute, An Industry Front Group. Numerous conservative and mainstream media outlets at the local and national level sought out comment on California's decision to gradually raise its minimum wage from the Employment Policies Institute -- a notorious minimum wage opponent and restaurant industry-funded front group. The outlets quoted from a statement by research director Michael Saltsman bemoaning what he called “dramatic wage mandates” and warning that California will come to regret the wage increase. Reuters added an additional statement from Saltsman, which labeled the minimum wage increase as “irresponsible.” [CBSLA.com, 3/28/16; CNNMoney, 3/28/16; Reuters, 3/28/16; San Jose Mercury News, 3/28/16; USA Today, 3/29/16; Vice News, 3/28/16; The Wall Street Journal, 3/28/16; Washington Free Beacon, 3/29/16]
Small Businesses Support Raising Wages, And Most Low-Wage Workers Work For Large Corporations
Small Business Majority: 60 Percent Of Small Businesses Support Raising The Minimum Wage Nationwide. On July 29, the Small Business Majority, a national small business advocacy organization, released the results of a poll of small business owners gauging support for raising the federal minimum wage. They found 60 percent of small business owners supported raising the minimum wage to at least $12 per hour, and half of respondents already paid workers at least $12 per hour. Additionally, the poll found that one-fifth of small business owners already pay workers a minimum of $15 per hour or more. [Small Business Majority, 7/29/15]
NELP: Companies With 100 Or More Employees Employ 66 Percent Of All Low-Wage Workers. In July 2012, the National Employment Law Project (NELP) published a report on the make-up of low-wage employers, which found that 66 percent of low-wage workers are employed by large, profitable corporations. NELP also found that these 50 largest low-wage employers paid an average of $9.4 million annually to their chief executives and spent tens of billions of dollars annually on shareholders (emphasis original):
The central finding of this report is that the majority of America's lowest-paid workers are employed by large corporations, not small businesses, and that most of the largest low-wage employers have recovered from the recession and are in a strong financial position.
- The majority (66 percent) of low-wage workers are not employed by small businesses, but rather by large corporations with over 100 employees;
- The 50 largest employers of low-wage workers have largely recovered from the recession and most are in strong financial positions: 92 percent were profitable last year; 78 percent have been profitable for the last three years; 75 percent have higher revenues now than before the recession; 73 percent have higher cash holdings; and 63 percent have higher operating margins (a measure of profitability) - all after adjusting for inflation;
- Top executive compensation averaged $9.4 million last year at these firms, and they have returned $174.8 billion to shareholders in dividends or share buybacks over the past five years. [National Employment Law Project, July 2012]
Economic Research Shows Positive Or Neutral Job Market Impact Of Raising The Minimum Wage
Michael Reich: Raising Minimum Wage To $15 Lifts Pay For At Least 40 Percent Of Workers. In a March 2015 report on the effects of raising wages to $15 an hour in Los Angeles, economist Michael Reich and a team of researchers from the University of California, Berkeley, found that over 40 percent of workers in Los Angeles would receive a direct or indirect pay increase if the city's minimum wage were set at $15 per hour. The report was cited by Forbes as proof that increasing the minimum wage to $15 would destroy thousands of low-wage jobs, but its actual finding was that the overall “employment changes” would be “quite small when compared to projected job growth of 2.5 percent a year in the city”:
- The proposed policy would result in significant benefits to workers and their families. By 2017, we estimate that 542,000 workers in Los Angeles, or 37.8 percent of the covered workforce, will receive a wage increase from the proposed law. These estimates include a ripple effect in which some workers who earn above the new minimum wage also receive an increase. Average annual earnings will increase by 20.4 percent, or $3,200 (in 2014 dollars).
- By 2019, we estimate that 609,000, or 41.3 percent of the covered workforce, will receive a wage increase from the proposed law. Average annual earnings will increase by 30.2 percent, or $4,800 (in 2014 dollars).
- The large majority of affected workers will be adults with a median age of 33 (only 3 percent are teens).
- The costs of the proposed minimum wage law will be concentrated in Los Angeles City, but the full benefits will be realized throughout Los Angeles County, because more than half of the affected workers live, and therefore spend most of their increased earnings, outside the city.
- Los Angeles City: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net reduction in GDP of $135 million by 2017 and $315 million by 2019, or 0.1 percent compared to a scenario with no city minimum wage increase. These effects on the level of economic activity correspond to a cumulative net reduction in employment in Los Angeles City of 1,552 jobs by 2017 and 3,472 jobs by 2019, or 0.1 and 0.2 percent of all employment, respectively. These employment changes are quite small when compared to projected job growth of 2.5 percent a year in the city.
- Los Angeles County: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net increase in employment of 3,666 jobs by 2017 and 5,262 jobs by 2019 at the county level.
[University of California, Berkeley, Institute For Research On Labor And Employment, March 2015]
Cornell University Study Debunks The Myth That Minimum Wage Increases Hurt Job Market For Low-Wage Workers. In the December 2015 edition of the Cornell Hospitality Report, researchers at Cornell University found that over the past 20 years, raising the regular and tipped minimum wage for workers in the restaurant and hospitality industries has “not had large or reliable effects” on the number of people working in those industries. The researchers also found that increased wages could have positive side effects such as reduced employee turnover, and recommended that opponents embrace “reasonable increases in the minimum wage”:
Although minimum wage increases almost certainly necessitate changes in restaurant prices or operations, those changes do not appear to dramatically affect overall demand or industry size. Furthermore, there is strong evidence that increases in the minimum wage reduce turnover, and good reason to believe that it may increase employee productivity as well. While prospective large increases in minimum wage mandates may have more noticeable effects, the evidence suggests that the restaurant industry should accept reasonable, modest increases in the minimum wage.
There is strong evidence that increases in the minimum wage reduce turnover, as mentioned previously. While no study has tested our belief that increasing the minimum wage will increase employee happiness and productivity as well, our reasoning is theoretically sound and consistent with more general research on compensation effects. Moreover, the research reviewed and reported here suggests that the industry has little to lose by acting on this belief. Thus, we contend that the restaurant industry should support rather than oppose reasonable increases in the minimum wage. [Cornell Hospitality Report, December 2015]
CEPR: Increasing The Minimum Wage Has “No Discernable Effect” On Employment. In an exhaustive February 2013 report reviewing dozens of studies gauging the relationship between increased minimum wages and employment, the Center for Economic and Policy Research (CEPR) concluded that local, state, and federal minimum wage increases had a negligible effect on job creation:
Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. [Center for Economic and Policy Research, February 2013]
CEPR: Hiring Response To Minimum Wage Hikes “More Likely To Be Positive Than Negative.” In a March 2011 report, CEPR concluded that minimum wage increases are “more likely” to result in job creation than job loss. According to CEPR's analysis, employment effects tended to “cluster near zero,” with no major employment losses or gains tied to wage increases:
Our estimated employment responses generally cluster near zero, and are more likely to be positive than negative. Few of our point estimates are precise enough to rule out either positive or negative employment effects, but statistically significant positive employment responses outnumber statistically significant negative elasticities. [Center for Economic and Policy Research March 2011]