Reporting

February 22, 2013 by Matthew Grant Anson

Economists predict what Obama’s minimum wage proposal would mean for California


Food service has long been a major minimum wage employer. (Photo Credit: SportSuburban)

In the 70-plus years the minimum wage has existed in the United States, it's gone from a Depression-era protector of workers to a scalding hot potato. Currently sitting at $7.25, the level it's been at since mid-2009, the figure has refused to budge as federal lawmakers tussle over economic ideology and partisanship.

Enter President Barack Obama, who turned his State of the Union address into a platform to break the impasse by pushing a proposal for a nine dollar nationwide minimum wage.

While the proposal is just that -- and easier said than done -- it does beg the question of what a nine-dollar minimum wage would mean to California, whose current minimum wage is at eight dollars an hour and has a fragile economy just beginning to right itself.

Economists choose their words carefully on the issue, to say the least. Studies land all over the place when it comes to the effect of the minimum wage on the economy at large, leaving experts with a minefield of information to sift through when making an analysis.

"The minimum wage increase will not have a huge impact on the overall economy," Stephen Levy, Director and Senior Economist of the Center for Continuing Study of the California Economy said. "There are probably some jobs that would not be filled at a higher minimum wage. There really are conflicting studies on that."

Levy says a minimum wage increase would be the least of California's worries.

"For California, the minimum wage increase is a less important economic issue than, say, the sequester or immigration reform or funding for investments in R&D," Levy said. "To make it a big deal about the economy would be a mistake."

David Hewitt, Assistant Professor of Economics at Whittier College, finds fault in the Obama proposal because it's a one-size-fits-all solution to a regionally dependent issue.

"It makes sense in California that it should be higher than in some place like Kansas," he said. "A federal minimum wage that's nine dollars an hour for all states is probably not right. It should be enough that an adult can at least support themselves above the poverty line."

Christopher Thornberg, founding partner at Beacon Economics, points at the extreme proponents and opponents of raising the minimum wage as the driving forces behind any of its discussion.

"You hear lots of, I think, really aggressive points of view on both sides of the fence, and they're both highly exaggerating the situation," Thornberg said. "On one side of the fence, you have those in favor of raising it that claim it's such a wonderful thing. You even have some clowns at Berkeley that have their so-called papers, where some way or another raising the minimum wage will increase employment, which begs the question if it's that easy, why don't we raise it to $1000 an hour? It's preposterous how they twist it out of proportion."

"On the other side of the fence, those against it scream it will destroy small businesses and make unemployment rates go sky high. I don't think it's going to destroy businesses by any stretch of the imagination. If going from eight to nine dollars an hour bankrupts you, you have other problems," Thornberg said.

Thornberg, when sifting through the quagmire of studies on the impact of raising the minimum wage, comes from the unique position of actually having his own research.

"We did some work for San Jose when they were debating having an increase there," he said. "Ultimately the forces that were fighting against it hired us, and we sat down and did a report, and showed in general that these things have a very modest negative impact."

However, Thornberg says this modest impact on employment is essentially negligible, most likely to affect teenage workers. Also, the economist says an extra dollar or two has a big impact on how motivated and hardworking an employee is.

"For the people I know who work with low wage employees in part-time situations like this, for them, it boils down to the fact that workers don't show up half the time," said Thornberg. "They're not engaged at all. They're working at the bottom of the skill scale. It's a miserable job having to manage folks like that, and if you've got someone actually doing their job, you're going to pay the extra buck."

Amir Shirazi, a gas station owner in San Jose, knows all about paying the extra buck. Shirazi pays his staff 10-12 dollars an hour, above what other gas stations pay their employees because he feels he's compensated in quality of work. For this reason, he's in favor of raising the minimum wage.

"In my opinion, paying someone a dollar more or two dollars more is worth it because this way you can lower your staff by having more efficient employees," he said. "They stay longer, too. They stay with me 15-plus years. I have a gas station by my house and I always see them changing employees. The time you spend training someone, you lose money."

Plus, Shirazi says, an increase to nine dollars isn't that dramatic. "Another dollar extra…what's that, 40 bucks a week? Raise your prices a little bit."

That extra dollar can mean a lot, however, for those working at or near minimum wage. Justin Dennis, a college student living in outside Los Angeles and former Starbucks barista, says that extra dollar can go a long way.

"I mean, I supported myself entirely on a minimum wage job, and surviving off of that extra dollar an hour, while it seems tiny, is actually substantial to someone with such a low wage in general," he said. "A lot of my coworkers were older than myself and had families. One girl got married while there, one had a child, one already had two children and a wife…I honestly have no idea how they supported themselves on a Starbucks wage."

Harrison Herndon, a college student from Glendale that does manual labor for minimum wage agrees on the effect of that one dollar.

"That one dollar accumulates to a couple hundred probably over a year, and that can be the difference in some crucial decisions," he said. "Having gone to community college during these budget deficits, I know the difference a few dollars make. The price of units have nearly doubled since I started going in 2009 from 26 to 46 dollars a unit, and those extra dollars in minimum wage add up. It can mean the difference between someone getting a college education or working a minimum wage job for the rest of their lives."

While a nationwide increase to nine dollars could only be the result of a nasty Congressional bloodbath, a decidedly easier route, should California wish to take it, would be to just raise its state minimum wage. The positive impact this would have on workers’ bank accounts is perhaps beyond debate, but what it would mean for business owners and the economy will depend on who and which studies the state puts its faith in.

Categories: Workforce

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