Minimum Wage: In Support of Struggling Businesses

Sacramento’s economy cannot support a Los Angeles-sized solution

Back Commentary Jul 6, 2015 By Joshua Wood

This piece is part of a 2-part series. The first part, “Minimum Wage: In Support of the Working Poor,” can be found here.

Calls for a minimum wage increase are growing louder, and these proposals are neither minor nor manageable for the city of Sacramento. Sacramento’s city-specific hike proposals range from $13.50 to as much as $15 per hour. These are reckless concepts that show little consideration for the adverse impact such an increase would have on Sacramento’s competitiveness. Building a wall around the city of Sacramento with a minimum wage 50 percent higher than in West Sacramento and Arden Arcade is bad policy, especially after the unprecedented investments we’ve made to jumpstart our economic renaissance downtown.  

It seems the only policy basis for implementing such drastic increases to Sacramento’s minimum wage is that larger cities, including San Francisco and Los Angeles, have already approved similar schemes. But Sacramento’s economy cannot support a Los Angeles-sized solution. Any pay proposal should use data to identify an increase appropriate for Sacramento’s market constraints. And we must be open to the possibility that a pay increase of any size may not be sustainable.  

Take our poll: Minimum Wage — Does More Make Sense? 

While the downtown renaissance has provided a positive catalytic effect, the differences between Sacramento and metropolises like San Francisco and L.A. should be noted. Los Angeles’ $800 billion GDP dwarfs Sacramento’s $100 billion. Even Seattle, a metro area with a GDP of over $280 billion, is seeing ill effects of higher wages as employers downsize or relocate. As our local economy begins to pick up once again, adopting an inappropriately increased wage stifles our growth potential and competitiveness. It’s simply a matter of apples and oranges — whether it be $13.50 or the $15, Sacramento is nowhere near close to being able to absorb the economic shortfall that comes with such a drastic increase in minimum wage.

Like many poorly crafted policy solutions, these proposals come with the most noble of intentions. I think both sides of the debate can agree it’s important to lift working families out of poverty. But a drastic wage hike is unsustainable for a mid-size city in the Central Valley. Most importantly, working families and youth will be disproportionately affected when companies react to the wage hike by increasing automation, hiring less, cutting hours and benefits, or simply moving a few miles down the road to avoid the increase.

An oversized wage hike won’t benefit working families. According to studies, 95 percent of minimum wage earners are unmarried and without children. And 48 percent of minimum wage earners are aged 16 to 24. This means an increase in the minimum wage will not, for the most part, help poor working families.

Sadly, it is our unskilled youth who will suffer as companies adjust to the wage hike. Increasing the wage beyond what the economy can support will lead to a bleak future for today’s youth entering the workforce. Applicants just starting their careers, and therefore lacking entry-level skills, will have fewer employment options.

Such a drastic increase in minimum wage will potentially hurt poor working families as well. According to a study by Thomas Macurdy, an economics professor at Stanford University, many of the 5 percent of minimum wage workers who are married and supporting children rely on health care benefits from their employers. These benefits are based on the number of hours worked, generally at a full-time, 40-hour week. To offset an increase in wages, an employer may cut hours and benefits,  undermining an employee’s overall minimum wage for the sake of a higher minimum pay.

Increasing an employee’s income is not a simple matter of losing a little revenue for businesses. Everything counts in large amounts, and an increased amount of spending on labor will result in loss for both employer and employee. The city of Sacramento should take it’s time and conduct an unbiased study in order to arrive at an appropriate proposal to help working families: This means employing a financially reasonable and well-balanced approach.

We must recognize that an increase in wage would not create more money, rather it will change the flow of how it is dispersed and used. We must be careful to not stifle our continued progress toward becoming a world class city.

Comments

Christian (not verified)July 15, 2015 - 1:54am

I'd just like to comment on the fact that Comstock has provided an open forum, which allows differing opinions to voice their point of view. I've noticed that a lot of websites are flabbergasted when they provide a single-sided point of view, crush dissent, and are surprised to notice that an opposing opinion is bursting at the seams to respond. I have no interest in arguing for my opinion, whether it be the abolishment of minimum wage laws or the increase. I'm just here to voice my gratitude, not only for the venue for differing opinions, but the expertly written editorial in this month's issue that pushed us to break from our molds.

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