Armed with the leftist mantra of “equality and social justice,” liberals are attempting to mandate social economic justice by increasing the minimum wage to $15 per hour. Their argument imparts a warm and fuzzy feeling to those who do not reflect, but as predicted, it is now bearing its rotten fruits in California.
California introduced the $15 minimum wage initiative referred to as the “Fair Wage Act of 2016” designed to raise the minimum wage gradually until 2022. This was aimed at achieving a minimum wage that reflected 69 percent of the median income of $21 per hour.
The California Senate passed the measure by a margin of 23 to 15 while the vote was 43 to 26 in the Assembly. Governor Jerry Brown signed it into law on April 4. After signing the new law, Brown publicly stated that the new $15 minimum wage was “good politics” but “questionable policy.” This questionable policy is supported by President Obama and if federally mandated, the U.S. could see at least a $15 minimum wage imposed upon the entire country.
Did Brown already know the negative consequences the new wage would have on low-wage earners and the economy? If so, why would he sign a flawed bill into law? Certainly California cannot afford to lose more of its tax base in the midst of substantial corporate flight.
Liberals use the social justice and equality card attempting to convince the public that companies make huge profits only enjoyed by owners, CEOs and stockholders. Similar to the mantra about the 99 percent, they fail to mention how the poor benefit from the good developments of the rich, not least of which is increased tax revenue. Simply put, when the wealth gap widens, the lifestyle gap shrinks. Unlike a communist or socialist system, wealth achieved in a free market system commonly turns once obscure luxuries into commodities enjoyed by all.
Many American businesses operate on very thin profit margins and cannot absorb increased labor costs without passing it on to the consumer, fabricating some form of innovation, going out of business or outsourcing. None of these are good for low-wage earners. However, businesses do not have to outsource their work to low-wage countries. Many restaurants faced with mandated minimum wage hikes are replacing human cooks and servers with machines and iPads.
One such example of how increasing low skilled wages leads to increased automation can be seen in McDonalds’ European operation. McDonald’s was forced to automate in order to cut expenses because of high labor costs caused by similar social reforms. To combat these one-sided laws, they installed automated ordering and cashier machines in over 7,000 locations.1
The obvious and immediate consequence is the laying off of the least productive employees and those with minimum experience and marketable skills. These people in particular will find it most difficult to find work.
According to the American Federation of State, County and Municipal Employees Local 3299 spokesman Todd Stenhouse, financially troubled UC Berkley just announced it would lay off 500 employees on the heels of the $15 minimum wage hike. Those cut will be from cleaning departments, health clinics and food services.
The Fair Minimum Wage Act implemented in Puerto Rico, American Samoa and the Northern Mariana Islands in 2007 provides a stinging example of how unjust federally mandated minimum wages cause long-term damage. The sad truth is that large federally mandatory minimum-wage hikes left these economies in shambles.
After the third of ten federally mandated minimum wage increases of $.50 per hour was imposed upon American Samoa, the per capita GDP plummeted nearly 10 percent and employment dropped 30 percent. A drop of 58 percent was recorded in the tuna-canning industry alone within two years, while the Northern Mariana Islands suffered a real per capita GDP drop by a stunning 23 percent and unemployment rose to 35 percent. Simply put, businesses cannot sustain unrealistic government imposed minimum wages. Those who had little were left with less thanks to unrealistic government mandates.
In a statement before Congress, Governor Togiola T.A. Tulafono of American Samoa testified that the mandatory minimum wage increases created “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities. American Samoa’s economic base would then essentially be based solely on federal-government expenditures in the territory.”2
Mandatory minimum wage increases equivalent to 75 percent of the median wage in Puerto Rico had predictably catastrophic effects on their economy. Puerto Rico’s GDP per capita declined by nearly 7 percent between 2007 and 2013 and a large portion of the working population fled to the U.S. mainland for employment leaving behind the elderly and those who did not want to work, thus making it all the more difficult to operate a successful business.
An example of another industry recently affected by minimum wage hikes in California is apparel making, the “rag trade.” In the early twentieth century, Los Angeles was the rag trade capital of the U.S. supporting nearly 90,000 workers in 4,000 apparel-making locations. This activity constituted more than double the rag trade in the entire New York region.
Notwithstanding the devastating effects of Asian imports in recent decades, American Apparel in Los Angeles still provides 10 percent of all apparel manufacturing jobs in Los Angeles alone.
However, it has now just laid off 500 workers following the signing of the minimum wage bill. According to American Apparel Chief Executive Paula Schneider, the “manufacturing of more complicated pieces, such as jeans, could soon be outsourced to a third-party company.”
Though American Apparel did not directly tie these layoffs to the increase of the minimum wage, it did follow immediately after the bill became law. Lloyd Greif, Chief Executive of Los Angeles investment banking firm Greif & Co. commented that, “They’re headed out of Dodge.” He added, “They are going to outsource all garments. It’s only a matter of time.”3.
The solution to bringing people out of low-income employment is to strengthen families, provide jobs, and education, not to reward low-skilled labor with a disproportional wage. Doing so only results in a catastrophe for low-wage earners and the economy.
Unfortunately, disproportional minimum wages will create the same economic disaster found in socialistic countries. California’s minimum wage hike is but one more example of how unjust “social justice” kills jobs and the economy.