California Gov. Jerry Brown has pushed his state into uncharted territory, signing a bill last week to hike the state's minimum wage from $8 an hour to $10 an hour over the next three years. California thus becomes the first state to target a $10 minimum, edging ahead of 10 states that have their minimum wage indexed to inflation.
The highest minimum wage at the moment is Washington state, at $9.19 an hour, followed by Oregon at $8.95 an hour. The current federal minimum, established in 2009, is $7.25.
"We have created a system where we pay workers less but need them to spend more," said the bill's sponsor, state assemblyman Luis Alejo, in a statement. "That causes middle-class families to fall down the economic ladder. It's the reason our middle class is shrinking and the reason we are facing the largest gap between upper- and lower-income Californians in at least 30 years."
Strong public support
The move comes in the midst of a nationwide protest movement aimed largely at fast food institutions, including strikes in 60 cities in August. It also comes against a backdrop of strong public support.
The law's supporters hope it will boost income on the lower rungs, which will both attack poverty and stimulate the economy as low-income workers consume more goods. Opponents of the wage hike argue it will reduce employment opportunities for entry-level workers.
A recent Gallup poll found that 71 percent of Americans favored increasing the federal minimum to $9 an hour, including strong majorities in nearly every demographic. Republicans were almost evenly divided, while 91 percent of Democrats and 68 percent of independents favored the hike.
Opposition to raising the minimum wage is a "philosophical view that isn't shared by most people," said Gary Burtless, a senior fellow at the Brookings Institution.
Opposition also came from small businesses that employ low-wage workers, including the restaurant industry.
“The state mandating a 25 percent pay increase over an 18-month period is a back breaker for many in our industry,” California Restaurant Association president Jot Condie said in a statement. “Contrast that to the state negotiating with its largest union a 4.5 percent increase over three years that the governor called ‘a fair proposal.’ The private sector is no different. Given the economics in our industry, where restaurants operate at very thin profit margins, a 25 percent increase in labor costs will result in fewer job opportunities for Californians looking to get back on their feet.”
Small business fears are exaggerated and perhaps in error, argues Burtless, pointing to a study comparing employment in restaurants along the Delaware river between New Jersey and Pennsylvania, shortly after New Jersey jacked its minimum wage from $0.80 to $5.05 in 1992.
The researchers found that what little effect there was actually played out in favor of New Jersey businesses with the higher minimum wage, Burtless noted. "A simple explanation is that by paying the young people who work in fast food a higher wage, there is a little less turnover and so employers have fewer vacancies on average.
"The New Jersey fast food industry went out and argued, 'This is going to be a disaster for us,'" Burtless said, "but in fact (the state's) employment stayed higher that it did right across the Delaware River."
"One in six fast-food workers is a single parent supporting children," said Michael Saltsman, a research fellow at the Employment Policies Institute, arguing that minimum-wage increases are poorly targeted as a means to help the poor.
According to Saltsman, 60 percent of those living in poverty would see no benefit from a minimum-wage increase, and the majority of those working at minimum wage do not live in poor households. About 50 percent of minimum wage workers are between 16 and 24, Saltsman said, and many of those are not supporting families.
"This is not the most effective way to get benefits to the people you are trying to help," Saltsman said, arguing that an expanded earned income tax credit would be better policy.
“This is a common argument against the minimum wage,” said Tsedeye Gebreselassie, a staff attorney is the National Employment Law Project. "You need both," she said. "You need a strong wage floor to pay these workers, and you need a strong EITC that incentivizes work. It's not an either or."