Quick and Dramatic Consequences of Minimum Wage Hike

Minimum wage fight for 15Confronted with an impending hike to $15 in the California minimum wage, businesses, labor advocates and political analysts have all begun to shift strategies and tactics. Given current trends, the combined impact could be a smaller, more unionized workforce — that doesn’t always see the benefits wage activists have promised.

The consequences will be quick and could be dramatic. “Most state raises over the past decade, when there have been any, ranged from 1 percent to 3 percent annually. The law Gov. Jerry Brown signed will increase bottom-rung pay roughly 10 percent per year starting in January,” as the Sacramento Bee reported.

Manufacturing flight

One immediate result of the hikes has already appeared in Southern California, where the garment industry faces an especially rough road. Sung Won Sohn, former director of apparel company Forever 21 and economist at Cal State Channel Islands, told the Los Angeles Times a veritable “exodus has begun,” with manufacturers already tempted to shift garment production overseas to retreat from the Golden State still further. “The garment industry is gradually shrinking and that trend will likely continue.”

“In the 1990s, as borders opened up, foreign competitors began snatching up business from Southland garment factories. Eventually, many big brands opted to leave the region in favor of cheaper locales. Guess Jeans, which epitomized a sexy California look, moved production to Mexico and South America. Just a few years ago, premium denim maker Hudson Jeans began shifting manufacturing to Mexico. Jeff Mirvis, owner of MGT Industries in Los Angeles, said outsourcing was necessary to keep up with low-cost rivals.”

The problem, particularly acute for business owners who can’t automate jobs as readily as, say, fast food restauranteurs, was encapsulated by Gov. Jerry Brown himself, who signed the $15 wage into law despite clear reservations about its economic wisdom. “Economically, minimum wages may not make sense,” he said, defending the law on moral and sociopolitical grounds. A high minimum wage, Brown claimed, “binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.”

Incentives in tension

According to critics of the change, the tension involved in using poor economic choices to encourage good moral ones has driven labor unions themselves toward a predictable, if hypocritical, shift in their own policy objectives. Many of the same unions that agitated for a higher wage “have been quietly — and often successfully — lobbying cities to let employers who hire union workers pay them less than the mandated minimum,” as Quartz observed. “Unions say it gives them the flexibility to negotiate packages for their workers that supplant wages with health insurance and other benefits.

“Critics say that it’s a shrewd move by unions to drive up membership dues and ensure that their workers are the cheapest in town. The exemption gives cost-conscious employers little choice but to hire union, and workers who want jobs little choice but to join their local.”

At the same time, however, workers who have been rallied to the $15 cause have been swiftly pressed into service for pro-unionization demonstrations. “The demand from the original strikes in 2012 was $15 and a union,” said Mary Kay Henry, international president of the SEIU, according to the Times. “Underpaid workers in California are now on a path to $15, but we think the way we can make these jobs good jobs […] is through a union.”

In an added twist, some economists defending the wage hikes have raised the question of whether subsequent job losses are a price worth paying. Gov. Brown, in fact, has referred favorably to that view. “We understand that this can be difficult,” he said, as the Washington Post recalled. “But the fact is that there’s a principle called the living family wage, which is a doctrine that has been around for a long time, since probably before the 1900s, which is that you can’t expect someone to work if the wages for that work can’t support a family.”

Comments

  1. With the fall of the Berlin Wall and collapse of the Soviet Union, the Clinton Administration cashed the Peace Dividend and aerospace left California as the DoD cut back their purchases, forcing a tremendous number of small shops that supplied the biggies (Boeing, Douglass, Northrup, Lockhead, etc) to close their doors or leave to follow the majors.
    Then, we “decontrolled” energy, and caused electricity disruptions throughout the state, making more businesses examine whether CA was a good place to run a business.
    Finally, the RE bubble burst, and those that could find a buyer fled, and some just picked up and left walking away from upside-down mortgages.
    Now, with major manufacturing a thing of the past, the target of the governments attention is the retail/service sectors that will see its labor costs driven up to an unaffordable level. It is only a matter of time until Los Angeles becomes a Spanish-speaking version of Detroit, without easy access to a functioning economy “across the river”.

  2. I don’t believe it can be said any clearer than askeptic just did.

  3. Who ever said that the “living family wage” has anything to do with the “minimum wage”? What moron believes that hamburger flipping is a lifetime job? Minimum wage jobs are the first rung of hopefully a very tall ladder where you learn how to survive in the workforce. It is primarily for high school and college students to earn some money to help pay for their school books and the like.

  4. I’m glad I’m getting to the “end” and won’t be around to see the coastal version of Detroit. I was going to say Tijuana but I think they will be in better shape,

  5. david7134 says

    Think of this, the minimum wage is the index for wage contracts. Increasing the minimum wage increases the cost of labor across the board. Now, the direct result is inflation, just like we saw in the 70’s. Who gets harmed, those people that can’t change there wage or compensation, namely seniors. They can’t afford what they could before. So, someone always gets hurt when government does stupid things.

  6. askeptic did say it well. Gosh I wish I could earn $15 per hour drawing SS. Heck, I don’t even get COLA’s as the government says there is NO INFLATION. Unions are leading these poor uneducated idiots down a primrose path. I just hope the morons understand that they are pricing themselves out of a job.

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