Minimum Wage Impacts
California Governor Gavin Newsom claims that Cali’s high minimum wage “grows the economy,” makes “life more affordable,” and helped Cali become the “fourth-largest economy on the planet.”
IN FACT, high minimum wages harm economies and increase prices, which is one of the reasons why Cali has the highest poverty rate in the nation and isn’t actually the world’s fourth-largest economy. Here are the specifics:
- Not counting tips, commissions, and overtime pay, 1.0% of all hourly-paid employees are paid at or below the federal minimum wage of $7.25 per hour.
- On January 1, 2027, California’s minimum wage will increase to $17.40 per hour, which is “higher than any current statewide minimum wage in the nation.”
- While noting there is “considerable uncertainty” about the effects of the minimum wage, a 2019 study by the Congressional Budget Office estimated that doubling the federal minimum wage to $15 per hour would raise the average annual income of families in poverty by about $600.
- An increase of $600 is about 1% of the total income of families in poverty, including the wide array of government benefits they receive.
- An increase of $600 is about half of what households in poverty spend on sweetened drinks, desserts and candy.
- One of the main reasons why the average increase is merely $600 is because only 31% of adults in poverty work or look for work at least 27 weeks per year.
- Hence, CBO estimated that increasing the minimum wage to $15 per hour would give 81% of the resultant wage increases to families who were already above the poverty line.
- Another reason for the minimal income increase is that CBO estimated the law would destroy 1.4 million jobs mainly among “young, less educated people,” because “when the cost of employing low-wage workers goes up,” some employers will replace them with machinery, technology, and higher-wage workers.
- As explained by Ph.D. economists Don Boudreaux and Walter Williams, job losses caused by minimum wage increases saw “off the bottom rungs of the economic ladder” and leave young and less educated workers “unskilled and unemployed for the indefinite future.”
- Beyond job losses among inexperienced workers, CBO estimated that raising the minimum wage to $15 per hour “would increase the cost to employers of producing goods and services,” thus raising consumer prices, leading consumers to purchase fewer goods and services, and reducing “employment of workers at all wage levels.”
- Due mainly to such job losses, CBO found that “raising the minimum wage would slightly reduce real GDP,” the nation’s inflation-adjusted gross domestic product.
- Progressives claim that raising the minimum wage to $15/hour would reduce dependence on welfare and save taxpayers money, but CBO found that it would cause spending on most social programs to rise and increase the “cumulative budget deficit” because it would raise the prices of goods and services purchased by social programs and make more people jobless and more dependent on government.
- CBO also found that increasing the minimum wage to $15 per hour would raise prices, especially “for goods or services whose production required a larger-than-average share of low-wage work, such as food prepared in restaurants.”
- Due in large part to Cali’s high costs of living, it has the highest real poverty rate in the nation, tied with Louisiana at 17.7%.
- Contrary to Newsom’s claim that Cali has leapfrogged Japan to become the 4th largest economy in the world, Japan’s economy is actually 56% larger than Cali’s, but Newsom converts Japanese yen into U.S. dollars using a dishonest method that makes the economies of locations with high prices seem larger than reality.
