Sen. Leno’s “Income Inequality” Lost Cause

California’s minimum wage is set to rise to $10 an hour on January 1st of next year. But for Senator Mark Leno (D-San

CA Senator Mark Leno, D-San Francisco

CA State Senator Mark Leno, D-San Francisco

Francisco), this already-dramatic wage hike isn’t nearly dramatic enough.

Citing an “income inequality crisis,” Sen. Leno has called for a minimum wage increase to $11 an hour in 2016, followed by another jump to $13 an hour in 2017. Unfortunately for the senator, the evidence suggests a hike in the base wage will do very little to solve this crisis — and might even make it worse.

San Francisco, which Sen. Leno represents, has one of the highest minimum wages in the country — and one of the country’s most dramatic gaps between the rich and the poor. (One analysis last year compared the city’s inequality level to that in a developing nation.) City voters in November resolved to fix this problem by approving a proposal to raise the city’s minimum wage even higher, to $15 an hour, by 2018.

Thus far, the looming $15 minimum wage only seems to be worsening the city’s inequality crisis. Several small business owners have been forced to close their doors as a consequence of the coming cost hike, hindering their own entrepreneurial dreams and those of the people they employed. This trade-off isn’t unique to San Francisco. If you’re an employee working at a business with small profit margins, your employer will be faced with one of two difficult choices when the minimum wage goes up: Either raise prices, or cut labor costs by reducing staffing levels or employees’ hours.

If the wage goes up and the terms of your employment don’t change, you may be better off; if you lose job and your co-workers do, too, then you’re most certainly worse off. That means Sen. Leno’s plan for a statewide $13 minimum wage will create winners and losers in the entry-level workforce. Unfortunately, a team of economists writing in the Journal of Human Resources discovered that the “losers” from a wage hike — employees who are pulled below the poverty line, or at least closer to it, as a consequence — outnumber the “winners.”

Put differently: Instead of redistributing income from the top 1 percent, Sen. Leno may unintentionally redistribute it among the bottom.

The Senator’s office has pointed skeptics to comforting studies from a team of ideological researchers at the University of California-Berkeley, suggesting that the negative impact of a higher minimum wage in California—both on the city level, and statewide–would be minimal or nonexistent. But the Berkeley team’s estimates are looking less and less credible in the face of real-world evidence.

In San Francisco, for instance, one bookstore reported that the $15 minimum wage would cause a fatal 18 percent increase in operating costs—90 times greater than what UC Berkeley projected for city retailers. And in Oakland, where the minimum wage is rising to $12.25, restaurants are reporting price hikes of up to 20 percent—far greater than the 2.5 percent that the Berkeley team predicted.

These real-world examples are no doubt unsatisfying to the most dedicated ideologues, and it’s unsurprising that one of the Berkeley researchers insinuated employers might not be telling the truth. But spin like this only goes so far, especially in the face of real flesh-and-blood employees who no longer have jobs.

If Sen. Leno is serious about reducing income inequality and increasing opportunity, he owes it to the California residents who need those opportunities to examine the best way to help them. That starts by acknowledging that we should judge public policy by its outcomes rather than its intentions.

Michael Saltsman is research director at the Employment Policies Institute

Comments

  1. You don’t need to be an economist to realize this is a bad idea, All you need is some basic math skills. If you have 10 employees and you give them all a 5 dollar an hour raise that equals $50 an hour that comes to $2000 a week. That comes to an average of $8666 per month. If your profit is just $10000 you have just lost most of your profit down to $1300. To put it another way you have just lost 87% of your profit and the only way you can recover any of that is to lay off some of your employees.

  2. How many people does Leno have on a payroll?

    I’m sure the increase is nothing to him since he is paid a base salary $90,526/year and per diem of $141.86/day….that would be $17.73 an hour just for being at work!
    It’s the California legislature that needs compensation reform. First eliminate per diem for 9 months out of the year, second reduce their time in Sacramento to 90 days – June, July and August – then go home to their own district. The PEOPLE they are suppose to be serving, NOT THE LOBBYISTS!!!

  3. If $11, and eventually, $15 an hour will benefit the working poor, wouldn’t $20 an hour benefit them more? And why stop there? If you raise the minimum to $100 an hour you could wipe out all poverty everywhere instantly! This should be obvious even to a socialist.

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