I never write about politics or economics, because I’m not an expert in these things, but California is about to pass a huge increase in the minimum wage (over time), and that’s something I have an opinion about. Talking about this is a little scary, particularly in California, where my opinion won’t be popular, but my opinion is for a different reason than you think. Lots of noise has been made about how this will hurt small businesses, and more noise has been made about the need for a living wage, and there is truth on both sides, but that’s not what I care about here. I think the wage rise is unfair and demoralizing to the very people it is supposed to help.
In college, I worked a couple of minimum wage jobs. Well, they started at minimum wage, but quickly I took on new responsibilities or showed my value and got raises, which made me very happy. Now if the minimum wage was raised so the new hire makes as much as I do, well then I’d be unhappy. And there’s no way I’d be able to “catch up” to the wage curve the new hire is on.
The effect of these rapid increases over time is that they will compress the salaries of many workers to the minimum wage. Employers are going to have to make everyone earn at least the minimum wage, but if I was earning a dollar more than minimum, I’d guess that that dollar gap wouldn’t be kept after the minimum is raised, because of the newly increased expenses. Hopefully, if the employer is nice and wants to reward achievement, I’d still be a little above minimum, but there’s no guarantee of that. So the new people catch up to previous high achievers each time the minimum wage increases.
You can argue that nothing was taken from the high achievers, and, in fact, they will be caught up in the wave of increasing wages, but I think it would be demoralizing to the high achievers, and they’re the future of the business, so it’s a bad idea to demoralize them. While I was at Northrop Grumman, we had some boom times in the economy where engineers became expensive. We were hiring in new engineers at salaries that weren’t far below the salary that I was earning even after getting good raises every year. This was depressing, because the engineers in my cohort were on a much lower wage curve than these new engineers that started so much higher than we did (even accounting for inflation). The only way to change the curve is to leave and get higher pay at another job, which isn’t what any company would want. So I know how it feels to have new hires fresh out of school earning nearly as much, and it is demoralizing. I can guess this will happen near the minimum wage level as well.
I don’t have a solution to propose. The increase is a done deal and will be signed into law today. But we shouldn’t be surprised if it doesn’t help as much as people think it will, and I think some of that will be the effect I described above.
