Last month, California Legislature approved a statewide plan that will increase the minimum wage to $15 per hour by the year 2022. While many support the plan and believe it is necessary in order for the state to move towards economic equality, some business owners as well as economists fear that it will cause mass layoffs, reports the LA Times.
One major concern is that California cities range greatly in the average cost of living as well as median income. Cities like San Francisco and San Jose that have greatly benefitted from the tech boom and have fairly high median incomes, will likely not feel the effect of the minimum wage increase so profoundly. However, for cities like Fresno, Chico and Bakersfield, a minimum wage of $15 would put the bottom of the wage scale much closer to what the average worker is expected to make.
CA Gov. Jerry Brown has acknowledged that the minimum wage increase will be difficult for many employers, but at a news conference about the propose legislation in March he told reporters, "If you took the wages down and cut them in half, it would make it easier for certain businesses. But you can't function that way, because we're a community. It's a matter of economic justice and it makes sense."
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However, many people continue to argue that raising the minimum wage will force companies to replace entry level employees with automated kiosks and computers. Ed Rensi, former president and CEO of McDonald's USA, wrote an Op-Ed piece for Forbes in which he strongly advocates that this plan will mean fewer jobs at fast-food chains like McDonald's. He wrote, "I can assure you that a $15 minimum wage won't spell the end of the brand. However it will mean wiping out thousands of entry-level opportunities for people without many other options."
Economics professor Michael Reich of University of California, Berkeley, argues that the negative effects won't be as dramatic as some people think. In the models he's studied, a $15 minimum wage increase essentially had a neutral effect on the economy, even if it was 60% of the median wage. That's because even though some business may have to layoff employees and inflate their prices to keep up with the wage increase, the ability of workers to purchase more would lift the economy in another area, keeping it healthy.
Some say that raising the minimum wage for the country's most populous state is reckless, and the experiments should've been kept local for a while longer, but California won't be the only test-case in years to come. Chicago and Seattle both recently enacted minimum wage increases and New York plans to increase their minimum wage to $15 as well by the year 2021.
Top Photo: A woman stands outside the building where California Governor Jerry Brown signed a bill hiking California's minimum wage to $15.