Fight for $15 in the age of Trump

A minimum wage test in the Golden State

When Governor Jerry Brown signed off on California’s $15 minimum wage last April he said, “This is about economic justice, it’s about people. It’s not the end of the struggle but it’s a very important step forward.”

For California’s estimated 5.26 million low wage workers — burger fiippers, retail clerks, farmworkers, health aides — it brings a measure of economic justice, though not for everyone, and not right away. And it’s far from the end of the struggle.

According to a just-published study from UC Berkeley’s Institute for Research on Labor and Employment, the 5.26 million beneficiaries of a $15 minimum, which include minimums enacted in several California cities, constitute 38 percent of the state’s workforce; 55 percent of those workers are Latino (most of them born in the USA.) Eighty percent of the state’s restaurant and fast-food workers — who were part of the ‘Fight for $15’ campaign when it launched nationwide four years ago — are getting raises. All told, the states’s low wage workers will see, on average, 25.4 percent increase in annual pay.

“These are much larger numbers than we’ve seen in previous state minimum wage increases,” said Michael Reich, a UC Berkeley economist and lead author of the study. The raises come in increments, slower for those working at small businesses employing less than 25 people, than for those at larger enterprises or living in higher wage, higher cost places like Los Angeles, San Francisco and Silicon Valley, which have their own $15 ordinances in place.

Will $15 qualify as a “living wage”? Not if you’re the sole breadwinner with one child, according to MIT’s ‘Living Wage Calculator,’ which pegs California’s individual must-earn at $26.83 per hour. Significantly more if you’re looking to live in San Francisco, much of Silicon Valley or parts of L.A.

“There are benefits, of course to higher wages, and the extra dollars they cycle through the local economy,” says Micah Weinberg, president of the Bay Area Council Economic Institute, a business and public policy organization. But — pointing to California’s poverty rate, 20.6 percent, the highest in the nation — “they don’t alleviate poverty. They don’t address the high cost of living, which I think is the biggest problem facing California.”

It certainly won’t end the debate over the efficacy of minimum wage increases of any amount — whether wage gains and increased consumer spending outweigh employment losses and business costs. But a $15 minimum — in California’s case, from $9.50 to $15, a 52 percent increase, is a big leap.

It’s not alone. New York started its march to a $15 minimum this year. Legislation and ballot initiatives are in the works in New Jersey, Connecticut and three New England states, including Massachusetts which started paying $11 an hour at the beginning of the year, — the highest statewide minimum wage state in the country at this point. All told, 13 states, cities and counties, in red states and blue, “are launching or continuing campaigns for minimum wage increases of up to $15 over the next two years,” according to the National Employment Law Project, which keeps close tabs on minimum wage developments.

The fact is, nobody knows for sure what the impact of a $15 minimum will be until it begins to play out. “Like all forecasts, our results may differ if other economic conditions change. The results were encouraging, but require further research,” the IRLE study advises. Reich and his colleagues (disclosure: I’m affiliated with IRLE as a journalist-in-residence) have been examining the potential impact of $15 minimum wage laws for the past three years in Los Angeles, San Francisco and San Jose, and in New York State. Follow up studies by Reich and other researchers tracking minimum wage increases elsewhere in recent years, suggest that the skies have not fallen, as some have predicted. A roundup of recent research on minimum wage increases by the Federal Reserve Bank of San Franciso, published in 2015, concluded with “a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages.”

There will be some jobs lost in California, with automation and other factors displacing labor as the wheels of productivity turn. Restaurants are projected to raise prices 5.1 percent in face of a 15.7 percent in wage costs, the IRLE estimates. Employment growth resulting from a $15 minimum will be “very small” — 14,000 net new jobs by 2023 — significantly less than overall statewide projections of employment growth.

For the state’s business community, the study projects a 2.8 percent increase in its wage bill. Why so small? “[B]ecause many businesses already pay their workers more than $15, because many of the workers who are now paid below $15 are already paid above the current minimum wage, and because the pay of low-wage workers makes up a smaller share of total payroll costs.”

Bottom line: “the proposed minimum wage will have its intended effects in improving incomes for low-wage workers. Any effects on employment and overall economic growth are likely to be small. The net impact of the policy will therefore be positive,” the study concludes.

Lessons from Seattle

Until the beginning of this year only one U.S. municipality, Seatac, a city of 28,000 people surrounding the the Seattle-Tacoma airport, has actually been paying its approximately 13,500 workers a $15 minimum wage, since January 2014 ($15.34 for hospitality and transportation workers as of January 1st). It appears to have had little effect on employment, in large part because a large number of employees were already being paid close to the minimum, or even more, prior to the $15 minimum taking effect. One number cruncher estimated 150 job losses “that may reasonably be attributed to the city’s 63 percent increase in its minimum wage, plus or minus 50.”

The place to watch in real time is the city of Seattle, population 687,000 which entered the promised land on January 1, as companies with more than 500 employees started paying $15 an hour. During the three year phase-in period, beginning at $9 an hour, the upside outweighed the downside, although much of it “having little or nothing to do with the minimum wage itself,” according to a University of Washington study, and more to do with a booming economy lifting all — well, almost all — boats.

In fact, “a theme emerging from our surveys and conversations with employers suggests that competitive pressure is leading many small businesses [mandated to be paying the $15 minimum beginning next year] to operate on the faster phase-in schedule,” Jacob Vigdor, a professor of public policy and governance who led the study, told me. On the other hand:

“…the most consistent story is one of high living costs squeezing out the working class. It’s workers that are leaving, not jobs per se. Employers are telling us there is a shortage of qualified workers, consistent with the pre-existing wage increases. But ‘qualified’ is increasingly coming to mean experienced.”

With a $15 minimum in place, “much depends on whether the tech economy continues to boom,” Vigdor added. “If it does, housing prices will remain high, meaning that even at higher wages Seattle’s less-skilled workers will struggle to make ends meet. If Seattle’s bubble bursts, the cost of living will ease, but job prospects will also worsen.”

Down in the Valley

How about places in California which don’t have a bubble to burst in the first place? Like rural Fresno County, population 975,000, in the heart of the agricultural Central Valley, with a poverty rate of 25.2 percent, a mean hourly wage lower than the United States across almost all occupations, and a 9.9 percent unemployment rate (close to double that if you add in workers who have given up looking or can only get part-time jobs but aren’t publicized in the monthly reports)

“A key concern is whether Fresno and similar areas will experience more negative effects from a $15 minimum wage than will the state as a whole,” says the IRLE study, which is why it devotes a separate section to Fresno County. Fifty percent of the county’s 200,000 person workforce are getting raises, the majority of them Latino, averaging an extra $4,100 in annual earnings by 2023. Close to three-quarters of California’s agricultural workers statewide, and 82 percent of Fresno’s will receive pay increases once the state’s minimum wage reaches $15, adding an average of $4,100 in annual earnings by 2023.

The knock-on effects include “modestly higher prices,” especially of agriculture products, and “a close to zero but positive effect [less than 1,000 new jobs created] on employment,” says the study.

Better than expected, surely? “The results for Fresno are counter-intuitive. That’s why the study is important,” said Reich. The study explains: “Despite its poorer status, Fresno successfully absorbed increases in the state minimum wage to $10 in recent years. While some new technologies for further mechanization in agriculture undoubtedly may come along, the increase in the price of labor to $15 is not likely to substantially accelerate mechanization by itself.” It should also be noted that while Fresno County’s unemployment rate is high by any measure, it is currently the lowest since 2007. And the population has increased.

“In these respects, the Fresno economy’s response is not likely to differ substantially from that of the state,” the study says. With the proviso that economic conditions could change, and further research is required. “This is moving things into a completely new tier, into a tier we haven’t seen before, particularly in some of these inland areas,” Jeffrey Michael, director of the University of the Pacific’s Center for Business and Policy Research, told the Sacramento Bee.

Shape of things to come

The same week California started down the road to a $15 minimum, Gov. Brown’s budget spokesman, H.D. Palmer told the media “a number of significant fiscal pressures that are looming.” The following week, Gov. Brown announced the state was looking at a $1.6 billion budget deficit — tax revenues are reportedly lower than projected — and proposed $3.2 billion in spending cuts. Under a rider the ever-cautious Brown inserted into the $15 minimum ordinance, phased-in raises can be “temporarily suspended by the Governor based on certain determinations” — i.e, if the economy shows signs of heading south.

A more immediate concern for low wage workers is what the Trump administration could do to California, which received $93.6 billion in federal dollars in 2015 to help fund education, health care and other social services. Half the money goes to Medi-Cal, California’s version of Medicaid, courtesy of Obamacare, which low-wage workers in particular depend on and which the Trump administration is looking to dismantle. Fifty percent of Fresno County’s residents are on Medi-Cal. As California girds for battle with the Trump administration, this challenging of a scenario may not quite have been the one Gov. Brown anticipated when he said a $15 minimum is not the end of the struggle.

“It’s about creating a little, tiny balance in a system that everyday becomes more unbalanced,” he said at the time. California, the sixth largest economy in the world, and the highest growth rate of any U.S. state is already unbalanced enough — the highest poverty rate in the country, an enormous wealth gap, a serious shortage of housing, among other burdens. And now it has a federal government diametrically opposed ideologically to the Golden State to contend with.

“Ultimately, there’s only so much a $15 minimum wage can do for California,” said Weinberg. “Point is it isn’t a slam dunk, something about which we need to be reflective.”

Says Reich: “Trump-era policy will have effects, but not because the California minimum wage increased.”