Democratic lawmakers in Sacramento, emboldened by their new supermajority status, might be tempted to use their added power to push an aggressive legislative agenda. In previous legislative sessions, they’ve unsuccessfully tried to raise the state’s minimum wage, currently $8 an hour. And it looks like they’ll give it a go again this year.
California is already one of 19 states where the minimum wage is higher than the federal minimum wage of $7.25 per hour. With the state’s unemployment rate at 9.8 percent and Los Angeles County’s at 10.2 percent, raising California’s minimum wage would be another ill-advised, job-killing law imposed upon businesses while a very slow economic recovery is taking place.
The minimum wage is a feel-good policy that sounds like a no-brainer to a lot of politicians. But in reality the laws have serious negative consequences on the economy as they end up hitting workers, businesses and, ultimately, consumers in their pocketbooks.
The recent implementation of a living-wage ordinance on larger hotels in Long Beach serves as a case in point. In November’s election, voters in Long Beach overwhelmingly passed Measure N. The measure, pushed by labor unions such as Unite Here and the Los Angeles County Federation of Labor, AFL-CIO, requires hotels with 100 or more rooms to pay their employees at least $13 an hour and guarantee annual raises.
In response to the measure’s passage, some hotels were unable, or unwilling, to shoulder the extra financial burden. So instead of paying their employees higher wages, they announced they’d lay off workers and reduce their number of available rooms so they would not have to comply with the new rules. The 174-room Best Western Golden Sails and the 143-room Hotel Current said they each plan dramatically to reduce their number of available rooms to 99 to avoid the ordinance.
In December, just before the rules went into effect, the Best Western Golden Sails also reportedly posted a notice that “all employees will be considered terminated after their last shift of duty on or before Dec. 15.” The Long Beach Press-Telegram reported that “some” of the employees would be rehired but about 75 people were expected to permanently lose their jobs.
“We warned from the beginning it would kill jobs, not create jobs,” said Randy Gordon, president of the Long Beach Area Chamber of Commerce. “More hotels will follow suit.”
When a minimum wage law is imposed, or increased, business owners have a choice to make. They can reduce costs, usually by laying off employees or cutting employees’ hours, or they can try to increase revenues by hiking prices and hoping customers will pay the higher prices.
Living-wage increases, like Long Beach’s, are ultimately destructive to people’s job prospects. Otherwise, why stop at raising the minimum wage at $13 an hour? If arbitrarily raising the minimum wage to $13 an hour could magically create prosperity, why wouldn’t the state raise it to $100 an hour? The fact that a $13-an-hour minimum wage law would not destroy as many jobs and businesses as a $100-an-hour minimum wage law would is hardly reason to support it.
Gov. Jerry Brown and Democrats might be offering a very rosy picture of the state’s economy and finances these days, but California’s economy is still lagging. In addition to high unemployment, the state continues to have among the very highest income, sales and gasoline taxes in the nation along with the worst business climate and credit rating.
For local and state businesses teetering on the edge of survival, the increased costs of a minimum wage increase could be the last straw. The good intentions of those who propose raising the minimum wage cannot outweigh its unintended consequences and economic reality. Try as they might, politicians can change the laws with regard to the minimum wage, but they cannot repeal the laws of supply and demand.
Adam Summers is a policy analyst at Reason Foundation, a libertarian think tank in Los Angeles.
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