The real cost of increasing minimum wage

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The real cost of increasing minimum wage

Ron Aich

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In the new year, student workers across the Bay Area received significant raises as several cities such as San Jose, Oakland and South San Francisco increased the minimum wage. In fact, most cities in the Bay now have a $15 minimum wage. For these workers, a raise seems like the perfect New Years’ present, since many were already struggling to find higher-paying jobs in the competitive job market. However, raising the minimum wage will have unintended consequences that will make it harder for full-time workers to receive higher-paying jobs. Many will come away with less money and a lower quality of life.

At first, this seems counterintuitive — why would workers receive less money when their wages increase? The answer lies in the reduction of business hours that comes when businesses cannot afford wage raises. Workers spend less time on the clock, which lowers their overall pay. In Seattle, for example, workers lost hours after a minimum wage increase and came away with less money as a result; this primarily affected the poorest workers who worked multiple jobs just to live in the Seattle area.

Another unprecedented effect of Seattle’s minimum wage experiment was the number of jobs eliminated due to the wage increase. Because employers would need to pay workers more, they were more likely to hire someone more experienced for a minimum wage job. In the Bay Area’s already cutthroat job market, raising the minimum wage may make these positions even harder to obtain. Increasingly qualified people will begin to apply for these jobs, driving out less experienced workers who needed the wage increase the most.

These results defeat the purpose of a minimum wage job. These positions are meant as a starting point for workers to move up the corporate ladder. Instead, the poorest and least experienced workers for whom minimum wage was raised will be systematically excluded from the job market. A similar effect may damage the Bay Area job market, especially in cities where the minimum wage has been increased significantly. In cities such as Oakland, for example, low-income residents will be frozen out of jobs as wealthier, more qualified individuals take their places. 

With all this said, cities can’t do much to reverse the effects of the new wage increases at the moment. After this year, however, cities can revote to lower the minimum wage again, which should reset the status quo. Some Bay Area cities, such as Sonoma, have already cut back on their goals for future wages; rather than setting the minimum wage to $15 immediately, they are gradually increasing wages in order to give small businesses time to adjust to the new legislation. Sonoma should serve as a model for other Bay Area cities on how to slowly introduce a higher standard of living for its minimum wage workers.

Instead of hiring fewer workers or reducing working hours, some businesses have resorted to making products and services more expensive. This is usually the case in more affluent suburbs, such as Sunnyvale and Menlo Park, where residents can afford to spend extra cash to keep their favorite businesses afloat. This strategy, however, will not work in poorer neighborhoods like Oakland. Small businesses in these locations cannot afford to hike prices, or they risk losing their customer base. Inability to raise revenue in the face of growing costs may cause the deaths of many influential smaller businesses. 

For a city as culturally diverse as Oakland or San Jose, the loss of these stores would be catastrophic. These cities would lose businesses that helped create the town’s unique atmosphere and lose their distinct culture in the process. This would encourage large corporations to encroach upon a city and would accelerate the gentrification of these neighborhoods. 

Even though increasing the minimum wage negatively impacts the poor, small businesses and consumers, city legislators still insist on raising the minimum wage to at least $15. This is a result of California’s stated goal to raise its minimum wage of $12 to $15 by the end of 2023. Such a short timeline leaves little to no room for city council members, small businesses or consumers to prepare for the repercussions that come with increasing the minimum wage. While raising the minimum wage is necessary to combat inflation and rising housing costs, the sudden, drastic measures that several Bay Area cities have taken will endanger workers’ livelihoods in the future.