The Effects of the Proposed California Minimum Wage Increase

Content

“Living wage” laws have been enacted in more than fifty states and cities. These laws force employers to pay wages above the federal minimum wage based on some definition of the needs of a hypothetical family, usually a family of four. In an attempt to increase the income of low-wage workers, living wage supporters have proposed state minimum wage levels greater than the federal minimum wage of $5.15.

This paper examines in a variety of dimensions the effects of one such proposal. In California, the minimum wage is proposed to rise from $5.75 to $6.25 in January 2001 and to $6.75 in January 2002. The study reaches several conclusions regarding this proposed minimum wage increase. First, the workers who would be affected by this proposed increase tend to be much younger and less educated than the average California worker. Second, less than one-quarter of the affected workers are the sole earner for a family supporting one or more children. Third, the impact on family income would be modest. The average increase in the annual income of minimum wage workers would be only $1,002. This would increase the average family income of these workers by a very modest 3.0%. Fourth, the minimum wage increase is projected to cause 32,124 workers to lose their jobs, with more than one-third of the job losses coming in retail trade. Job loss would cause an annual income loss to low-wage workers of $331 million. Fifth, the cost to employers would be substantial. The wage increase (net of job loss) is estimated to raise their labor costs by more than $1 billion per year.

Summary and Conclusions
This paper examines in a variety of dimensions the effects of the proposed rise in the California minimum wage to $6.75 in January 2002. The study reaches several conclusions regarding this proposed minimum wage increase. First, the workers affected by this increase tend to be much younger and less educated than the average California worker. Nearly one-half of the impacted workers don’t have a high school diploma and more than two-fifths are under the age of 25. Second, less than one-quarter of the affected workers are the sole earner for a family supporting one or more children. Third, the impact on family income would be minimal. The average increase in the annual income of minimum wage workers would be only $1,002. This would increase the average family income of a minimum wage worker by a very modest 3.0%. Fourth, the minimum wage increase is projected to cause 32,124 workers to lose their jobs with more than one-third of the job losses in the retail trade industry. This would cause an annual income loss to affected employees who lose their jobs of $331 million. Fifth, the cost to employers would be quite substantial. It would raise their labor costs by more than $1 billion per year.