The Impact of Raising the Minimum Wage in California, Essays (university) of Marketing

Download The Impact of Raising the Minimum Wage in California and more Essays (university) Marketing in PDF only on Docsity! Week 2 Discussion Post Essay by Artin Nazarian: The governor of California, Jerry Brown, is planning on raising the minimum wage to 15 dollars by 2022. This is a 50% increase that would be more than double the federal rate of $7.25/hour. The plan is to phase in the higher minimum wage through a series of increases over five years, and thus giving California our most diverse economy, the highest minimum wage. The governor believes it is a “matter of economic justice. It makes sense and will help our entire state to be much better for its citizens.” (WSJ #1) Experts have said the move is unparalleled in the United States as California’s $10.00/hour minimum wage is already one of the highest in any state (only Washington D.C. had more in 2016 - $11.50). There are more than “five million low paid California workers, or 38% of California’s workforce, will receive pay increases of about $4,000 each – according to a UC Berkeley economist named Michael Reich.” (WSJ #1) Reich believes “the minimum wage can be increased to the $15.00/hour without a negative effect on unemployment.” (WSJ #1) And he projects the wage increase will be paid for primarily through modest price increases on consumers. Other economists such as Douglas Holtz-Eakin, a former Congressional Budget office (CBO) director according to a 2014 study, believe it will result in job losses. Holtz-Eakin found that a federal increase to $10.10 which is just 10 cents more an hour, would eliminate 500,000 jobs. (WSJ #1) It appears that increasing the minimum wage would “hurt the hiring of the least experienced, least skilled, and lowest wage workers according to a former CBO director. He continues that this “means it hits more harmfully in the lower wage rural areas, as well as in the retail, restaurant and bar sectors.” (WSJ #1) This contradicts a news conference conducted by Governor Jerry Brown in 2016 that the wage increase was necessary so the state’s poorest workers, so they aren’t left behind. The governor’s plan would allow the governor to block some of the initial increases in the event of a recession and the plan would give small businesses with 25 or fewer employees an extra year to comply. Raising the base pay to $15.00/hour for full time workers have been largely contained to “localities such as Seattle, San Francisco and Los Angeles.” (WSJ #1) Seattle become one of the first jurisdictions in the nation to embrace the $15.00/hour minimum wage to be phased in over several years. Seattle increased its minimum wage in April 2015 to $11.00/hour (it was previously at $9.47/hour) and then increased it to $13.00/hour for many of those businesses in January 2016. UC Berkeley performed a study “focused on the restaurant industry because of the high proportion of the restaurant workers being paid minimum wage.” (NY Times #3) UC Berkeley found that for every 10% that the minimum wage rose, the wages in the industry rose nearly 1% and that there were no noticeable effects on employment.” (NY Times #3) Another study done by University of Washington released soon after the UC Berkeley study suggested the “minimum wage has had a far more negative effect on employment.” (NY Times #3) The University of Washington study released in June 2017 discussed what happened after Seattle decided to increase its minimum wage, comparing it to other larger cities in Washington. The data used by the University of Washington study were on hours and earnings for workers affected by the increase. They determined the effects of minimum wage workers in all industries rather than just the restaurant industry. They saw a negative change in hours worked which they believed to be a more complete picture on the effect of minimum wage increases than “simply doing an employee head count that many studies previously used.” (NY Times #3) In the case of Ethan Stowell Restaurants referenced in a New York Times article by Noam Scheiber, the owner and chief executive said the chain had not reduced its hiring, but it had raised some menu prices and added a 20% service fee. (NY Times #3) It was determined that “employment losses associated with Seattle’s mandated wage increases are in fact large enough to have resulted in net reductions in payroll expenses and total employee earnings – in the city’s low-wage job market.” (Sac Bee #2) This is directly attributed to lesser work hours and employing lesser workers. The result may be both positive and negative as improving minimum wages will, indeed, nudge employers to find ways to reduce their labor forces and thus as the University of Washington study found, decrease the total earnings by employees. (Sac Bee #2) But those who can hold onto their jobs may see their incomes rise and their retirements become more secure, but these are not the low-wage, low-income workers that Governor Jerry Brown is fighting for. According to the University of Washington study, “traditional competitive models of the labor market suggest that an increase in a binding minimum wage will cause reductions in employment.” (Sac Bee #2) Employers can use a cost/benefit scenario to determine if the worker is worth the higher minimum wage or as McDonalds as done in some states, including California, to replace them with a digital kiosk. If this is indeed the outcome, the losers of this bill will not be the employers or their employees but the low-wage, low-income candidates who do not get hired because their potential jobs have been eliminated by automation or increased product prices. (Sac Bee #2) A business model adopted by McDonalds as recently as 2018 in Pismo Beach, CA is replacing workers with a digital kiosk that allows customers to order your food using a touchscreen rather than communicate with a human worker at the counter. When these larger scale companies are confronted with rising labor costs due to the lift in California’s minimum wage and shortage of workers, as a counter punch, these employers throughout the state are trying to replace human labor with machines. (Sac Bee #2) However, McDonalds, a global corporation is not the only one who looks to cut labor costs. Amazon has also shown to lean towards machinery as opposed to “human” workers. Their “highly automated warehouses that have seemingly sprung up overnight throughout the state are testaments to that desire.” Amazon has increased its efforts in developing machinery to tackle even the most complicated of tasks such as “handl[ing] even the most delicate crops such as strawberries.” (Sac Bee #2) This defense mechanism from these goliaths show that they would endorse further resolutions to save in labor costs that would necessarily not benefit its employees. “There will be workers with high technical skills, and or high levels of education that will still command high pay and have no shortage of opportunities in California.” (Sac Bee #2) But this leaves less to be desired of potential applicants who do not have as advanced technical skills or higher levels of education, “there is turbulence in the lower realms of the state’s job market, such as fast food and agriculture that would be affected,” according to a Sacramento Bee article by Dan Walters. If the purpose of the bill passed by Governor Jerry Brown is meant to help the low-wage, low-income workers, it falls short. There is great debate among economists over the mandates to increase the minimum wage having positive lasting effects that help low-income, low-skill workers or hurt them by eliminating jobs or even limiting work hours. Governor Jerry Brown spoke to this in the case of farm workers, authorizing an eight-hour work day. But would a lesser work- day show helpful impact on the low-wage workers? I believe that reducing work hours for these employees will have a negative impact on their actual wages as they would not have the necessary work-hours to show any optimistic growth. I believe increasing the minimum wage and reducing work hours are counterproductive as the wages earned may be the same or less depending if they allow for overtime wages. This affects the employers overall as they see a raise in payroll taxes and increase the price of their products to little or no change for the employees. Also the hiring process for employees with lower skills and education would not benefit as employers would rather pay more for employees