The California Legislature recently passed the “Fair Wage Act of 2016”. The act, which has been signed into law by the Governor, Jerry Brown, puts the state on track to hit a $15 per hour minimum wage by 2021. Currently, the minimum wage in the state is set at $10 per hour. The law has brought a lot of attention to the state, since it is a very aggressive growth model. Besides the obvious, is their more to this legislative move than what meets the eye?
An underlying current that has been noted is the possibility that law makers have come to a conclusion that upward mobility in the economy is declining and therefore legislative action is being taken to intervene where the market is not being active. Whether or not we agree/disagree with the fact that upward mobility in the economy is increasing or decreasing, it is apparent that this legislative move is going to push a lot of ‘low-wage’ workers higher in terms of gross pay. The flip side of this equation is the hard fact that a business is not going to continue to employ people that do not bring in the value they are paid. By aggressively boosting the minimum wage over the next 5 years, California is going to force many employers to turn to other means.
Other means equates to greater automation. Whether we are talking fast food automation, greater use of agricultural harvesting machines or virtual assistants provided via software, employers are going to be pushed to find ways that might have a higher up-front cost, but lower lifetime cost. It’s a troubling thought to consider. The question that you arrive at is, “Where do all of these workers go?” Whether they are laid off or the new jobs never materialize because the minimum wage prices them out, we will never really know the full story.
In the age where government dependence is increasing on the part of more elderly Americans, the economy needs more workers contributing to ‘the system’. If the situation as described above happens as a response to rapid growth in the minimum wage, then we will find ourselves faced with a smaller workforce shouldering a larger burden from both elderly benefit recipients and those that have been priced out of work via the $15 an hour minimum wage.
Legislation that directly impacts business does not happen in a vacuum. Public and private organizations will react to the change accordingly. If the worker’s value exists, then the worker will benefit from the wage increase. If the value is lacking, then something will have to give. Whether is it a layoff, fewer hours or the closure of a business, some variable will need to be changed in reaction to the increase in the wage variable.
In my best estimation, I believe the extreme diversity that California presents will cause itself harm in this instance. A $15 an hour minimum wage in the San Fransisco Bay Area might be reasonable. Once you move into the Central Valley or into areas of Northern California a $15 hour minimum will be absurd and we’ll all pay from a grossly misaligned market limit on wages.