California, New York hop on the $15 minimum wage bandwagon

The two states will raise their rates gradually amid questions about the economic impact of the increases.

Theories about whether raising the minimum wage to $15 will be tested on a mass scale now that California and New York have enacted increases.

The approval by two of the most populous of the United States puts them at the forefront of a national movement to boost wages for lower-earning workers. And the minimum wage has become a focal point for longstanding divisions over the role of government in the marketplace, this year spilling over into the presidential campaign.

The raises won’t happen right away. Bowing to concerns about the impact of a hike on business and government budgets, both states opted to stagger the increases over several years. The minimum wage will increase gradually in each state, reaching $15 in California in 2022 and in New York City in 2018, with other areas of that state to follow.

Critics cite potential economic impact

The increases are highly controversial, with critics saying the hikes will hurt the economy, especially small businesses, while backers say it is a matter of economic justice to provide a fair minimum wage and cite research showing benefits to the economy.

Opponents cite research they say shows that raising the cost of labor will mean fewer jobs while doing little to reduce poverty levels.

One study by David Neumark, an economist at the University of California, Irvine, found that nationally, there are up to 200,000 fewer jobs than there would have been otherwise because of current minimum wages.

In another study for the Federal Reserve Bank, Neumark concluded that only 18 percent of the total increase in wages would go to workers from families living below the poverty level. In that study, Neumark looked at what would happen if wages were increased to $10.10 per hour. The economist found that about one third of the increase would go to families in the top half of income distribution.

Neumark said that this is because in more than half of all poor families, no one has a job, while other workers have low incomes because they work few hours or they are secondary to family income, such as teenagers.

Supply-demand thinking discounted

A counter argument comes from Paul Krugman, a professor of economics at City University of New York and a 2008 winner of the Nobel Prize in economics. Krugman argues that traditional thinking about supply and demand of labor is out of date.

He said a study by economists David Card and Alan Krueger turned on its head the thinking that raising the minimum wage would limit job creation. They studied New Jersey, which increased its minimum wage, with neighboring Pennsylvania, which did not, and found the increase had a positive effect on New Jersey’s economy.

Krugman said that’s because better wages create a ripple effect that the supply-demand paradigm doesn’t consider, including better morale, lower turnover and increased productivity.

Large retailer raises minimum pay

The second largest retailer in the U.S., the discount chain, Costco, subscribes to this theory. This year, Costco will increase the minimum wage of its lowest paid workers from $11.50-$12 per hour to $13-$13.50.

Costco, with 117,000 employees, said it was responding to a tightening labor market as unemployment declines.

In an election year, the top Democratic candidates have advocated raising the federal minimum wage – Hillary Clinton called for a $12 minimum and Bernie Sanders for a minimum of $15.

Wage movement takes off

That’s far cry from the $9 minimum Democrats were debating just a few years ago and a clear sign that that state and local increases are fueling momentum. Since 2013, 18 states and 40 cities and counties have implemented wage increases.

Paul Sonn, general counsel and program director at the National Employment Law Project, traces the shift to a 2012 strike by fast food workers in New York City, launching a movement called Fight for 15.

“They created a mass movement for raising wages,” Sonn said. “It really is a dramatic change in the environment that now the movement is for a $15 wage,” Sonn said. “It’s a totally different environment from what we had before.”