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Horton Matt
Matt Horton
Associate Director, California Center
California
Matt Horton is an associate director of the Milken Institute California Center. In that capacity, he interacts with government officials, business leaders and other key stakeholders to provide outreach and support for California research and policy efforts while developing programming and coordinating Forums, briefings and stakeholder meetings. He also monitors policy developments...
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Rebecca Simon lores
Rebecca Simon
Policy Analyst, California Center
California and Media and Technology
Rebecca Simon is a policy analyst at the Milken Institute California Center. She focuses on community and economic development through infrastructure and human capital investment. Prior to joining the Institute, Simon worked in San Francisco for a nonprofit legal advocacy organization, where she collaborated with local leaders on matters related...
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Quality Over Quantity: A Discussion of California’s Minimum Wage Increase

By: Matt Horton and Rebecca Simon
April 28, 2016
   
   

Although places like Los Angeles and the Bay Area have seen growth in high-wage jobs, low-wage and low-skill jobs still make up significant proportions of their labor forces. In 2014, hospitality and food service were the fastest-growing industries in the state with more 70,000 new employees.[1] As small businesses and nonprofits potentially look to offset increased wage costs through downsizing their workforces, particularly in suburban and rural areas, more workers will be forced into metro centers to compete for the shrinking supply of low-skill work. Considering California’s current housing crisis, the minimum wage labor force may be forced to grapple with stark economic tradeoffs, among them accepting the hardships and higher costs of long commutes or leaving the state entirely.

Based on median rental rates and under the current $10-per-hour standard, minimum-wage workers living in San Francisco and San Jose who are employed 40 hours per week could, in theory, pay more than 80 percent of their income for housing (see chart below). Under the recent change to a $15 per hour minimum, which will take effect in 2022, employees would still have to dedicate more than half their wages toward the current median rent in San Francisco and San Jose (about 59 percent in both cases), and just under half in Los Angeles (45.9 percent). Fresno and Bakersfield are more reasonable (31.3 percent and 37.9 percent), but still high under the current minimum wage.

Potential wage hikes may ease the pain of rising housing costs, but that could be made moot without the substantial home building the state needs but has been unable to address. In addition, the data assumes that employees work and are paid for a full 40-hour week, which is often not the case, especially given the variance in worker hours logged due to Affordable Care Act mandates. For most workers, this simply does not add up to a living wage, pushing workers to supplement their household incomes by seeking second or third jobs in the informal economy, deploying additional household earners (often working-age children) or sharing small living quarters.

median rent

Source: U.S. Census ACS 2010-2014 5-Year Estimates

It’s clear that boosting the minimum wage will not make the burden of rising costs vanish for millions of people in the state. Policymakers should embrace a more nuanced approach to addressing long-term growth prospects and worsening income inequality, one that doesn’t rely wholly on that device. First, additional emphasis should be placed on infrastructure investments and zoning changes that expand housing options while improving mobility. Leaders can link strategic investments in housing and transportation that cultivate the state’s human capital, rather than relying on the low-wage labor market to self-correct.

Second, state investment in vocational training and higher education that fosters 21st century skills would alleviate the dependence on low-wage jobs. There are approximately 1 million high-wage, high-growth occupations in Los Angeles County alone that do not require a bachelor degree or higher, meaning middle-skill, technical jobs that pay significantly more than minimum wage.[2] In 2014, only 9 percent of adults 25 or older in California reported having an associate’s degree, and more than 55 percent had less than that. Those with only a high school degree made up close to 30 percent of that statistic,[3] and still, between 2011 and 2012, the population of career technical high school teachers declined 20 percent.[4] Preparing individuals for middle-skill jobs would decrease the necessity for and reliance on minimum wage jobs. In addition, employers could start demanding stronger skills to accompany the new wage, putting low-income, low-skill workers at a further disadvantage. Thus, the need for additional workforce development programs will be paramount.

Do state leaders intend to tie the prospects for long-term economic growth to minimum wage and low-skill jobs? Because a major component of the state economy rests on innovation, California should be at the forefront of community development as well, with policies that free working people from dependence on low-skill jobs due to an entrenched lack of opportunity. Especially when forecasts suggest that demand for middle-skill labor could create around 1 million new jobs over the next decade.[5] Of course, there will always be the need for a low-skill workforce, but state and local leaders should first consider why opportunity barriers lead to mid- to late-career employees earning, literally, the bare minimum.

At this point, since California is one of the first states to implement a wage increase on so large a scale, economists can only speculate about the long-term impacts. On one hand, the increase could reduce turnover and give workers more spending power. On the other, it could lead small businesses, especially in suburban and rural areas, to cut their labor forces. However, the political and economic realities linking California’s workforce development with necessary infrastructure improvements are hard to ignore. Are we willing to settle for the success of “Fight for 15,” or are we going to demand policy solutions that address the deeper causes of the state’s economic woes?



1. California Business Roundtable, California Center for Jobs and the Economy:   http://www.centerforjobs.org/california-fast-facts/#employment_by_industry

2. Economic Modeling Specialists International (EMSI) via JPMorgan Chase & Co. New Skills at Work Los Angeles Skills Gap Report. https://www.jpmorganchase.com/corporate/Corporate-Responsibility/los-angeles-skills-gap-report.htm

3. California Business Roundtable, California Center for Jobs and the Economy:  http://www.centerforjobs.org/california-fast-facts/

4. Frey, Susan, New report fuels fears of decline of regional occupational programs: http://edsource.org/2014/new-report-fuels-fears-of-decline-of-regional-occupational-programs/56617

5. California Community Colleges Chancellors office, Doing What Matters for Jobs and the Economy: http://doingwhatmatters.cccco.edu/portals/6/docs/California%20Trends_15-25.pdf