California and New York’s bold $15 minimum wage proposals are exactly what we need

The plans to raise the minimum wage to $15 in California and New York are ambitious and welcome at a time when the eroding value of the federal minimum wage means more and more working families can afford less and less. California’s minimum wage would reach $15 in 2023 for all employees and in 2022 for those in firms with more than twenty-five employees. New York’s plan would raise the minimum wage to $15 by 2018 in New York City and by 2022 in the City’s suburbs and on Long Island. The minimum wage upstate would rise to at least $12.50, with the possibility of then going higher. These increases are significantly larger in scope than what has been typical of recent federal and state minimum wage hikes. Furthermore, both proposals would raise the wage floor to levels relative to the wages of typical workers that have not been the norm for at least three decades.

The fact that these proposals are outside the bounds of recent experience does not automatically make them ill-conceived. Moving beyond the timidity of most recent minimum wage hikes is exactly what is needed if we are to undo decades of falling wages and deteriorating living standards for the lowest-paid third of America’s workforce.

The Berkeley Labor Center estimates that 5.6 million workers—or the entire bottom third of the California workforce—would benefit from the California increase (excluding those already helped by various city initiatives). EPI’s analysis estimates that 3.2 million workers, or 37 percent of the New York workforce, would benefited from a statewide increase to $15, although the number affected by the current proposal would be less, given the smaller wage hike in the upstate region.

Adjusted for inflation, New York’s current $9.00 minimum wage is six percent below the national minimum wage in 1968, its peak year in inflation-adjusted terms. California’s current $10.00 minimum is just four percent above the 1968 value. Using the CBO’s projections for inflation, going to $15 by 2023 is equivalent to $12.80 in 2015 dollars, a twenty-eight percent boost from 1968. There are two things worth noting about this increase in purchasing power. First, prices are higher in New York and California relative to the national average (15.3 and 12.3 percent, respectively), so comparing them to national price changes overstates the purchasing power of the minimum wage for people in these states. Second, productivity has more than doubled in the nearly five decades since 1968. These proposals would set a wage floor that reflected just one quarter of the improvement in our economy’s ability to generate income because of this productivity growth since the Johnson administration.

One key measure we use to evaluate the appropriateness of a wage floor is where the minimum wage sits relative to the median hourly wage of full time workers. These increases will take the minimum wage in each state beyond where it has been nationally, to roughly 60 percent of the median hourly wage. They do not, however, take us into unknown territory at the state level. In 1980, there were ten states that had minimum wages as high, relative to the median, as what California and New York are proposing. Similarly, among the G-7 advanced nations, France already pays a minimum wage that is at the proposed California and New York level, the United Kingdom is implementing such a proposal, and Australia’s minimum wage reached that level in the 1990s.

The reason this proposal is bold has less to do with the value of the minimum wage relative to overall productivity than with the decades-long relative stagnation of the median wage. If median wages had grown over the past four decades, an increase to $15 would seem modest given the growth we have had in productivity. Simply put, a bold effort is needed to make up for the lost decades in which the minimum wage was simply eroded by inflation or was increased only modestly.

There should be no doubt that low-wage workers and their families as a whole will see their living standards boosted significantly, as total wages earned will substantially improve—even if work hours decline there will be a much larger pool of wages earned by low wage workers. That is why the possibility of any hours shrinkage should not be the sole gauge of whether a minimum wage increase is appropriate or not.

The recent literature on the minimum wage analyzed more modest increases and finds little, if any, employment loss. These studies, however, do not provide precise guidance to bolder increases, leaving clear uncertainty about employment outcomes—though it’s reasonable to presume there will not be a substantial decline. Our view is that ‘employment loss’ is an Econ 101 shorthand for potential shrinkage of total work hours and it is misleading if it implies that any hours shrinkage all takes the form of disemployed workers never able to find work again. We do not know how much work hours will shrink—in the event that they do— nor how any possible hours shrinkage will be distributed across workers in a low-wage labor market characterized by high turnover and repeated shifts between work and nonemployment. Such a reduction could manifest as reduced weekly hours, longer spells of unemployment, disemployment, or less multiple job holding. Not all of these outcomes are inherently bad – fewer total annual work hours is advantageous so long as higher hourly pay rates generate greater annual wages, as we expect will happen at higher minimum wages. We do not think the uncertainty around these effects should cloud that raising the minimum wage to $15 in 2023 will significantly boost the overall income going to low-wage workers and their families.

The California and New York targets will allow individuals and households to come close to meeting a living standard that is ‘modest but adequate.’ The Economic Policy Institute’s measure of a ‘modest but adequate’ family budget shows a single adult living in California and working full time would need to earn $14.22 an hour in Fresno (in today’s dollars) and $19.89 in San Jose to meet basic living expenses. In the New York metro area and on Long Island, a full-time childless worker needs $20.92 and $19.50, respectively, to meet this standard. Under the planned higher minimum wages and with various social supports (EITC and others), even the lowest-paid workers could attain a decent standard of living. That is a goal worthy of bold policy making like a higher minimum wage, which is essential to making sure that working people get a fair return on their work and enjoy shared prosperity. It’s about time.