For better or worse, it looks like California is getting ready to make history. Elected officials and labor unions there have reportedly hashed out a bargain that would eventually raise its minimum wage to $15 an hour—for a state, a nationwide first. It's “not a done deal,” as one legislator cautioned Saturday. But should the agreement become law, it'll be a major milestone for American workers, as well as a leap into the economic unknown.
Here are 10 observations to mark the occasion:
1. This would be a breathtaking victory for labor activists. While a handful of cities, including San Francisco and Los Angeles, have already enacted their own $15 minimum wage laws, no state has, according to the National Employment Law Project. A couple have come close. Oregon recently passed a three-tiered minimum that, by 2022, would top out at $14.75 in Portland and lower elsewhere. New York lawmakers are haggling over their own major wage deal after a state board gave fast food workers a raise to $15 per hour. But if California embraces a $15 pay floor for all, it would set a new national standard in a state that, on its own, counts as the world's seventh-largest economy.
2. By California's standards, this counts as a cautious compromise. According to the Los Angeles Times, which broke the news Saturday, the deal would gradually raise the state's minimum from $10 today to $15 by 2022, then link it to the cost of living. Labor unions had backed a pair of ballot initiatives that would have increased the minimum even faster, which put pressure on skeptical lawmakers to negotiate a legislative solution that would give businesses more time for adjustment and, frankly, let inflation blunt the hike's impact slightly. Assuming prices rise by about 2 percent per year, $15 in 2022 should be the equivalent of about $13.30 in today's dollars.
3. That's still a very, very big deal. When economists want to judge how generous a country's minimum wage is, they sometimes compare it to the median wage for a full-time worker, which in California was about $20 per hour in 2014 (the last year for which I happen to have data handy). So today, the minimum is worth roughly 50 percent of the median (sorry to be ballparking here). It's hard to make projections, but if you assume nominal wages grow by about 3 percent per year (the average for the past three decades), $15 would be worth about 60 percent of the median by 2022. That's not unheard of globally, but it's above the developed world's norm. In the end, it'd give California one more thing in common with France. (Wine country. A storied film industry. High minimum-to-median wage ratios. It's all of a piece.)
4. It's hard to say what the consequences of that would be. While I doubt that California's economy is going to suddenly crumble as the ghost of Ronald Reagan shakes his head in disbelief, I don't think we should count out the possibility of unintended consequences either. The bulk of the research literature shows that, typically, minimum wage increases haven't been much of a job killer. But as I've pointed out a number of times, the prior research tends to look at smaller hikes that don't tell us much about what a law like the one California is contemplating would do. In part, that's because pushing the minimum to $15 could touch a lot of industries that wouldn't have been affected by previous wage increases. As Adam Ozimek notes, California is home to 600,000 manufacturing workers who earn less than $15 per hour. Los Angeles is one of the country's last remaining apparel manufacturing hubs. Those jobs seem especially at risk now.
Can Europe tell us anything about what might happen in California? It's hard to say. Labor markets are shaped by lots of things besides the minimum wage, and country-to-country comparisons can send mixed signals. The French, for instance, are actually more likely to have a job than Americans during their prime working years. But the country's youth unemployment rate has also long been miserable, which may be a more important sign when it comes to judging the effect of the national pay floor. After all, young people are more likely to be looking for minimum wage work.
5. Not to be a concern troll, but if this does go wrong, the people who suffer are likely to be extremely poor families, particularly single mothers and men without high school degrees. A $15 minimum wage would be a much safer proposition if we had a safety net that offered some semblance of support to the chronically jobless. But the policy changes of the past 20 to 30 years have basically shifted the welfare state from helping the truly destitute to assisting the working poor. If a $15 minimum wage makes it harder for unemployed parents to find work, this will exacerbate that change.
6. On the other hand, I'm pretty sure this will be great for the middle class, who make up a surprisingly large portion of current minimum wage earners.
7. I've seen a few people on Twitter argue that this increase is actually too small to put a dent in California's insane cost-of-living problems. And that's probably true to an extent. In San Francisco, the living wage for one adult and a child is almost $30. But that's the thing: We shouldn't expect minimum wages to solve California's twisted housing market and unaffordable rents. For that, you need better development policy.
In fact, without more building, it's entirely possible that higher wages will just lead to more rental and home-price inflation. Wouldn't that be depressing?
8. Some are inevitably going to call the California bill an “experiment” or "test case.” The question is: a test case for what? Seattle or San Francisco would have been a trial run for a large, rich, metropolitan area. But there aren't really any other states quite like California.
9. On a related note, I fully expect to spend the next six to 10 years hearing incessant economic comparisons between California and Texas, which were already sort of the yin and the yang of the U.S. economy—high-wage, high-regulation vs. low-wage, low-regulation. Cali's push to $15 is only going to accentuate the differences and the feud. (Personally, I would be intrigued to see a state combine California's approach to wages with Texas' lax live-and-let-build attitude toward housing development. Any takers?)
10. Finally, if you were going to pick a state in which to try a $15 minimum, at this point it might as well have been California, since San Francisco and Los Angeles were already heading there. So cross your fingers and hope it works.