Why California’s New Minimum Wage Is A Bad Idea

On Saturday June 13, Los Angeles mayor Eric Garcetti signed into law an ordinance raising the minimum wage in Los Angeles to $15 an hour by 2020, following the success of similar legislation in San Francisco and Seattle. Few people seriously dispute the principle that those who choose to work (as opposed to simply collecting benefits) should be rewarded by earning wages that afford them a minimally decent life. However, an increase to $15 an hour over just a few years is a radical move that will irreversibly hurt small and medium-size businesses and result in perverse incentives for low-income Americans.

Though the Supreme Court initially rejected the minimum wage as unconstitutional in 1935, the first federal minimum wage was enacted following the Great Depression in 1938, as part of the larger Fair Labor Standards Act, which made significant progress in stopping worker abuse. These laws made sense at the time, when many American workers tolerated abusive and often dangerous workplace conditions for a substinence wage – unlike today’s workers who have easier jobs, are far better protected, and better compensated. The minimum wage was not intended to make unskilled labor lucrative, but to create a temporary stepping stone to more fulfilling work for low-income workers. By raising the minimum wage so radically, local bureaucrats are effectively dissuading many low-income workers from making financial or educational decisions that will be more beneficial in the long-term.

Assuming 40 hours of work per week and 50 weeks of work per year, a $15 hourly wage equates to a $30,000 annual salary, twice the federal poverty level guidelines for two-person families. Now, though this does not sound like much, this would be an entry-level salary for a job that will require no skills or certifications. However, this salary is similar to or higher than the mean salary for a variety of occupations that require at least some post-secondary education or certification, from hair stylists to medical assistants and pharmacy technicians. A $15 minimum wage would discourage lower-income workers from pursuing two-year or vocational degrees that would prepare them for occupations that are more socially valuable and have better long-term career prospects. A $30,000 annual salary is aligned with the starting salary for first-year elementary school teachers in many states, even though teachers are required to have college diplomas and state certifications. Should society really place the same value on a cashier’s work as on a teacher’s work?

Another implication of a higher minimum wage is that many workers who were previously earning around $15 an hour – many of whom began at a lower minimum wage and spent years working their way up the pay ladder – will no longer feel properly compensated by their salaries if they are making the same amount of money as a new worker with no real skills.

Companies will be forced to raise their wages across the board – not just for those making minimum wage. It is this impact of a $15 minimum wage that most troubles local business owners like Robert Kronfli, who co-owns three restaurants and a food products company with his brother. Kronfli expressed his disappointment with the new minimum wage, “What about the percentage of the labor force we have already been paying above minimum wage? The team member who has already worked his way up to $15/hour will demand a raise to $20-$25/hour when he sees his entry level, inexperienced co -worker raised to $15.”

While some larger companies may be able to absorb these across-the-board pay hikes, small and medium-sized businesses like Bobby’s – those that make up the backbone of southern California’s economy – will suffer the most. Inevitably, these businesses will have to cover their increased labor costs by either cutting jobs, raising prices, or shutting down.

Those who predict that the minimum wage increase would inhibit the competitiveness of L.A.-area businesses are receiving affirmation from an unlikely source – L.A.’s labor unions. In a galling act of political hypocrisy, the same unions that relentlessly lobbied city council for a city-wide hike are now asking that companies who have collective bargaining agreements with their unionized workforces be exempt from the minimum wage hike. This move reveals the real intentions behind enthusiastic union support of the wage hike – to incentivize larger business to unionize their workforces and to make non-union labor comparatively expensive.

Apparently unions think that $15 an hour is the bare minimum for a “living” wage – except when it applies to their members. This, of course, begs the question – if union members can decide to work for less than $15 an hour, why shouldn’t anyone else?



Patrick Elyas, Egypt/USA

About

Patrick Elyas is a JD/MBA candidate in the Class of 2018 at the Wharton School and University of Pennsylvania Law School. Patrick, an Egyptian-American from Los Angeles, graduated from the Huntsman Program in International Studies and Business at the Wharton School of the University of Pennsylvania in 2012. His senior thesis, "No Longer Dhimmis: How European Intervention in the 19th and Early 20th Centuries Empowered Copts in Egypt" was published in the College Undergraduate Research Electronic Journal. Patrick went on to spend two years working as a management consultant for McKinsey & Company in its Dubai office and one year in a secondment role as Chief of Staff of a U.S.-based education reform organization. Patrick has a deep interest in American and Egyptian politics and private sector development in the Middle East and Africa.


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