$15 Minimum Wage for California: Maybe Okay for the Coast, but a Disaster for the Central Valley

The November 2016 ballot is likely to contain an initiative that would raise the statewide minimum wage to $15 by 2021. At the beginning of this year, the state’s minimum wage rose from $9 to $10. If Measure 15-0032 passes, it will rise an additional dollar each year between 2017 and 2021; after that, it would be adjusted annually for inflation.

The initiative, promoted by the Service Employees International Union (SEIU), is part of a campaign around the country to elevate pay for low income workers and combat income inequality. While this issue has been traditionally popular on the left, some conservatives have also jumped on the bandwagon.

The traditional conservative/libertarian attack on minimum wage laws – that they destroy jobs – has also come under pressure. San Francisco and many Bay Area cities have implemented higher minimum wages, yet the region’s unemployment rate is well below national and statewide levels. Seattle is in the process of raising its minimum wage to $15, and yet its unemployment rate also remains low, although there is some concern that restaurant jobs are drying up in that city.

Free market advocates may have to admit that higher minimum wages won’t crater every economy at all times.  In high cost areas like San Francisco, the economy can withstand generous minimum wages especially during a boom. But aggressive minimum wage increases may have different effects when applied elsewhere.

Table 1, extracted from Bureau of Labor Statistics data, shows just how much hourly wages vary widely across California. For each metropolitan area, the table shows the 10th percentile, 25th percentile and median wage. The median wage is that paid to the worker whose compensation is higher than 50% of other workers in the area.  Likewise, the 25th percentile wage is earned by the worker who is paid more than 25% of area workers.

Area10th Percentile25th PercentileMedian
El Centro8.619.2413.79
Riverside-San Bernardino-Ontario8.9510.7216.36
Yuba City8.9410.7816.38
San Luis Obispo-Paso Robles9.0311.0216.94
Santa Cruz-Watsonville9.1211.4517.81
Santa Barbara-Santa Maria-Goleta9.0111.1517.86
Oxnard-Thousand Oaks-Ventura9.1411.4117.95
Los Angeles-Long Beach-Glendale9.0611.4218.32
Santa Rosa-Petaluma9.4212.3318.65
Santa Ana-Anaheim-Irvine9.1611.5818.65
San Diego-Carlsbad-San Marcos9.2111.7818.77
San Francisco-San Mateo-Redwood City10.8014.8025.27
San Jose-Sunnyvale-Santa Clara10.4315.0927.61

The table shows 2014 medians ranging from a high of $27.61 in San Jose and neighboring Silicon Valley cities to just $13.60 in Visalia-Porterville in the Central Valley. In fact, there are three Central Valley metropolitan areas with median wages below $15. The implication is that if the new minimum wage was imposed immediately, more than half the workers in these areas would have to receive a raise or lose their jobs. In relatively weak economies like those in the Central Valley, the latter option seems more likely.  This is especially the case in El Centro, where unemployment remains around 20%.

To be fair to the authors of the proposed ballot measure, their plan is to phase in the minimum wage increase, rather than implement in one fell swoop. If the initiative passes, the minimum would reach $15 in 2021 – seven years later than the latest available BLS figures shown in Table 1. Over the last year, average wages rose by about 2.5%. If this trend continues the cumulative increase between 2014 and 2021, would be 19%. Table 2 bumps up the 2014 wages by 19% to give an impression of what wage levels might look like in the absence of a minimum wage hike.

Area10th Percentile25th PercentileMedian
El Centro10.4211.6017.87
Riverside-San Bernardino-Ontario10.6412.9420.04
Yuba City10.7513.1120.16
San Luis Obispo-Paso Robles10.8513.6321.19
Santa Cruz-Watsonville10.8813.5821.36
Santa Barbara-Santa Maria-Goleta10.5112.7721.50
Oxnard-Thousand Oaks-Ventura10.7813.5921.80
Los Angeles-Long Beach-Glendale11.2114.6722.19
Santa Rosa-Petaluma10.9614.0222.34
Santa Ana-Anaheim-Irvine10.9214.4723.32
San Diego-Carlsbad-San Marcos11.3416.1726.70
San Francisco-San Mateo-Redwood City0.000.000.00
San Jose-Sunnyvale-Santa Clara0.000.000.00

With the 19% increase, all metropolitan areas have medians above $15. But in most areas, at least 25% of workers would still be making below $15 per hour, and, in all areas at least 10% would be below the proposed minimum. Because BLS, just gives us three points on the distribution curve, we can’t precisely project the impact on different areas, but it stands to reason that Visalia-Porterville with a projected median wage of $16.18 would be much more severely impacted than San Jose-Sunnyvale-Santa Clara at $32.86.

The fact that higher minimum wages don’t seem to cause unemployment spikes in affluent coastal redoubts, doesn’t prove that they are an appropriate solution statewide. More likely, the opposite is true. The $15 minimum wage could destroy tens of thousands of jobs in the Central Valley, worsening income inequality – just the opposite of what the SEIU and its progressive allies hope to achieve.

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