By Kerry Jackson, Pacific Research Institute
2023 might be the year that California businesses, especially small ones outside of the larger cities, wish they could skip. On top of a likely economic downturn, they have also been hit with higher employee costs, as another increase in the minimum wage arrived on Jan. 1.
The state minimum wage is now $15.50 per hour for all employers, up from $14 an hour for businesses with 25 or fewer employees and $15 an hour for the rest.
Of course the real minimum wage is zero, which is what many workers could find themselves earning in 2023, and beyond, since the effort to raise the hourly wage floor to $18 won’t die. Minimum-wage hikes are never without their victims.
Minimum-wage supporters seem to think that businesses have unlimited resources to pay employees. It shouldn’t have to be said out loud, or written down as a reminder, but that is not the case. Companies, especially the small ones, whose payrolls will increase by almost 11%, have decisions to make about the escalating cost of doing business that has been imposed on them. They can boost their prices, which might not make up the difference and could even lead to dangerous revenue losses. Higher prices also make basic goods, such as groceries, less affordable, especially for the poor, who spend a larger portion of their income on food than the middle and upper classes.
Sure, some companies could live with lower profits. But pinching profits discourages business ambitions, innovation and growth. Another option is to cut staff and/or delay planned expansions that would have created new jobs. An even worse option is bankruptcy. Yet some businesses will have no other recourse. For them, a minimum-wage hike is an existential threat.
Think of a small business with 20 full-time employees now making $14 an hour. The company’s weekly payroll is $11,200. After Jan. 1, that payroll is suddenly $12,400. That weekly $1,200 gap over the course of a year is significant – $62,400, more than the combined yearly wages of two employees earning the current minimum wage. The choice that company and many like it will have to make is painful.
Minimum wage supporters downplay the harm to businesses and focus on the workers they believe are not being paid enough for their labor and will therefore benefit from government intervention. The evidence, however, “from a large number of academic studies,” says economist and former deputy assistant secretary of Labor Mark Wilson, “suggests that minimum wage increases don’t reduce poverty levels.”
“While the aim is to help workers, decades of economic research show that minimum wages usually end up harming workers and the broader economy,” Wilson says. “Minimum wages particularly stifle job opportunities for low-skill workers, youth, and minorities, which are the groups that policymakers are often trying to help with these policies.”
What happens far too often is that job seekers who have little or no work experience, haven’t been to college, maybe didn’t finish high school, have trouble communicating, yet want to become productive citizens are shut out of jobs they could perform. Yes, the pay would be low in the beginning. The labor market, however, is still generally a meritocracy, and their good work would be rewarded with pay raises and promotions.
Also lost in the rhetoric: Most minimum-wage workers aren’t indigent adults trying to feed their hungry families. Almost half (44%) of those making the federal minimum wage are 25 or younger, according to Bureau of Labor Statistics data. Those who have never been married are twice as likely to earn the federal minimum as those who are married. It’s also been long known that most of the young minimum-wage workers are from households where the income is at least twice the poverty level.
In other words, as David John Marotta, president of Marotta Wealth Management, notes, most “minimum wage workers typically live with their parents, and many have middle class lifestyles.”
All of the information referenced above – and much more – is available to policymakers. The laws of economics, the data kept by government agencies, and the most basic math are not secrets known only to a select few.
Yet can anyone recall a minimum wage being repealed? They are instead relentlessly raised with apparently zero concern for the damage that will result. The same can be said, though, for almost every piece of legislation passed and every regulation approved in California going back more than two decades.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.