In a recent op-ed, Sacramento Children’s Home Chief Executive Office Roy Alexander outlined the struggles that his state subsidized non-profit is facing as a result of California’s new requirement for a $15 an hour minimum wage by 2022. It is the same struggle that hundreds of thousands of small businesses in California are facing as they endure skyrocketing labor costs to comply with the new law.
The situation facing Sacramento Children’s Home is just one of the many unintended consequences of raising the minimum wage by 50 percent. Mr Alexander admits that he does not have the funds to pay his current employees, but still claims that he supports the wage hike. Instead of recognizing inherent problem with arbitrarily raising the minimum wage to $15 as opposed to working within the free market, Alexander believes that his organization should be entitled to more taxpayer funds to meet the requirement.
This is an absurd position that ignores that plight of thousands of private businesses across California that do not have the ability to ask for increased government handouts.
Thanks to the state legislature’s passage of a $15 minimum wage, over six million California workers employed by small businesses are at risk of having their hours cut back from full to part time, or their jobs eliminated altogether. Economists have shown time and again that setting a mandated price floor through minimum wage policies wind up increasing poverty and lowering employment. While an increase in the minimum wage does help a select few, it particularly hurts the employment prospects of young, low-skilled workers who rely on minimum wage jobs the most.
The Congressional Budget Office (CBO) has acknowledged that increasing the minimum wage contributes to a significant loss of jobs – and their data included a minimum wage far less than $15. The free-market think tank the American Action Forum (AAF) anticipates that when the full $15 wage goes into effect in 2022, California will lose at least 700,000 jobs. For our already struggling state economy, this will be calamitous.
While wealthy areas like San Francisco might be able to more easily absorb the minimum wage increase, as Alexander noted, certainly low-income communities and organizations that work within them will not. Governor Jerry Brown used to understand these facts and warned previously that a $15 minimum wage would “put a lot of people out of work,” but in a foolish about-face, has reversed himself by signing California’s increase into law, citing it as a “matter of economic justice.”
It won’t be economic justice, however, when businesses lay off workers and increase costs because they can’t afford to pay their employees. Or when the government social safety net has to step in and costs go up for taxpayers.
California’s minimum wage increase was an irresponsible policy decision, the effects of which will continue to hurt nonprofits and small businesses alike, so long as it stands. Mr. Alexander’s op-ed proves what free market labor advocates have been saying all along.
California’s decision to raise the minimum wage to $15 an hour hurts the very people the policy is intended to help. And unfortunately, the Sacramento Children’s Home is just one of many organizations that will be adversely impacted by this foolish law.
Stephen DeMaura is president of American Potential.