Raising minimum wage has been a controversial topic, and it’s likely to be a leading topic in the upcoming presidential elections. As of 2019, the lowest state minimum wage is $7.25, while the highest state minimum wage is Washington at $11.50 an hour. Many believe that minimum wage should be at least $15.
Supporters of a higher minimum wage state that the current minimum wage is not enough to live on, while detractors are concerned that a higher minimum wage would unduly impact small businesses.
But this doesn’t have to be academic. In July 2019, Emeryville, CA raised its city minimum wage from $15 to $16.30. When it did so, it became the state with the highest minimum wage in the United States. So, what happened there? Let’s take a look.
A Matter of Affordability
Most people don’t deny the fact that $7.25 isn’t enough for most people to live on. However, the question is whether businesses can afford to pay increased costs for their labor. In Emeryville, CA, it’s inarguable that a lower minimum wage would put most people in poverty: the median home price is $560,000.
Even so, business owners have been forced to lay off their workers because they are not able to pay the city-mandated minimum wage. More interestingly, the choice has come down to either laying off workers, or increasing the prices in their stores — indicating that a higher minimum wage could lead to higher cost goods and services overall.
Business owners in Emeryville have stated that they feel as though they’re up “against a brick wall,” and that there’s nothing they can do to make their labor more affordable with a high minimum wage. Ultimately, this could mean more small business closures ahead for the city.
Retail Remains Resilient, But Food Services Fail
Studies have shown that retail businesses have remained fairly untouched by the higher minimum wage. Food service businesses, on the other hand, have struggled considerably, with 23% of food businesses planning to leave the city, and many more closing. 52% of workers noticed that their hours were reduced, and 33% of businesses reduced their staff. Thus, the higher minimum wage led to fewer people being employed, and fewer hours being paid out.
This is about what opponents to higher minimum wage have always stated: that small businesses already pay their staff as much as they possibly can. Small businesses tend to be entrenched within communities, and strive to offer as much to their employees as possible. So, higher minimum wages impact the smaller businesses before they impact larger, big box stores and major franchises.
While many restaurants have shut down in Emeryville since the wages began to increase, none of them have yet been replaced, and more restaurants expect to move. Emeryville may become an example to those who object to higher minimum wages, as the implementation appears to have largely failed.
California to Raise Rates to $15 an Hour by 2022
California is expected to raise its minimum wage to $15 an hour by 2022, which may bring many of the above issues statewide. If small business owners (particularly restaurant owners) are already stretched to their limits, they will need to cut staff members, cut hours, or potentially shut down their businesses. Food service and retail products may also become more expensive to compensate.
But, there’s a reason why minimum wage is being increased: because the cost of living in places such as California has become so high, that lower wage workers can’t reasonably afford to live. This is a problem that does merit a solution, as California (like other high cost of living states) will always need restaurant workers, retail workers, and other minimum wage employees. If these minimum wage employees aren’t able to sustain themselves, the industries themselves can die.
As with many issues, there doesn’t seem to be an easy answer in terms of minimum wage. What does seem to be evident is that simply increasing minimum wage doesn’t work to improve the affordability of a location. Widespread business closures tell the story of companies that are already struggling to get by, and that will not be able to survive if they’re forced to pay more to their employees.
Regards,
Ethan Warrick
Editor
Wealth Authority
