The recent minimum wage increase in California could make its labor market like Europe’s: restrictive and difficult for the young and poor to advance.
“By 2023, the minimum wage across California will be $15 an hour. Adjusted for inflation, this will be higher than any statewide minimum wage in U.S. history,” James Sherk wrote in a Heritage Foundation issue brief. “It will also be higher than the national minimum wage of any country in the world. The real increase will be even greater in inland and rural areas that have lower costs of living. When fully implemented, this law will cover one-third of all employees in California.”
For workers on the margin who want to develop their skills and experience, but can’t dramatically boost profit for their employer, the increase is an effective prohibition to work.
The cumulative effect of the boost, according to Sherk, is the loss of 900,000 full-time-equivalent jobs. Higher prices, worker firings, and a shift toward labor-saving machines or processes could result.
“This increase has no historical precedent,” Sherk wrote.
It doesn’t bode well for young workers.
Young workers under 25 years old disproportionately earn the minimum wage. For many who couldn’t afford or complete a college degree, low-wage jobs act as a stepping stone. They work for a few years, develop skills, then find a better job.
With California’s minimum wage increase, however, that could stunt worker entry.
The increase lacks a precedent, but a similar result can be seen in Europe. Youth unemployment is around 10 percent in the United States — the average in the European Union is 19 percent. In Spain, it’s as high as 45 percent. Italy struggles with 40 percent youth unemployment, and France is at 25 percent.
The tighter European labor market discourages hirings and firings. The United States has a more flexible labor market, which provides less job security, but better labor mobility. The minimum wage threatens that flexibility in the name of a stronger floor for the working poor. The drastic increases, however, have rarely been seen. Such a sudden artificial increase in labor costs could disturb enough businesses that more employees get a pink slip instead of a pay boost.
