Minimum wage in California essay


Minimumwage in California

Minimumwage in California

Economistshave raised concerns over the impacts of raising minimum wage inCalifornia on the labor market and unemployment rates. In the lastone decade, the levels of unemployment have increased significantlyin the United States. Therefore, any policy that has direct orindirect impacts on the labor market is subjected to intensescrutiny. Surprisingly, there is no consensus among economists onwhether the rate of unemployment is increased or decreased by anincrease in minimum wage. While some economists have argued that ahigher minimum wage increases the cost of business and discourageinvestment, resulting in a higher unemployment rate, other economistshave argued that a higher minimum wage increases the disposableincome and consumption in the economy which creates more businessactivities and employment opportunities (Jerold, 2008).

Theincrease in minimum wage in California will have a direct impact onthe buying power of the masses due to increased disposable income.This will have positive impacts on the labor markets since morebusiness opportunities will be created, resulting in increasedemployment opportunities. Economists have stated that the buyingpower in the United States is closely associated with changes inminimum age. Dollar inflation-adjusted statistics indicates that thebuying power reached its peak in 1968 which resulted in an all-timelow unemployment rate. A similar reduction in the rates ofunemployment was observed in 1996 and 1997 as a result of an increasein minimum wages (Jerold, 2008). In addition to the effects ofincreased disposable income, economists have argued that an increasein minimum wage does not have significant effects on employmentprospects. This argument has been based on the fact that minimum wagehas an impact on the low-wage workers only. Thus, the increased costof employment as a result higher minimum wage has a relatively smallimpact on the cost of operations of major employers. The adjustmentsby the employers as a result of higher wages among low earners, forexample, increased productivity, reduced employees turnovers andreduced disparity in wages, overrun the cost shock. Additionally, theincreased disposable income has an indirect impact on the demand forconsumer goods which results in increased sales. Increase sales andprofit will attract more invest. Therefore, in the long run, higherminimum wage in California will stimulate economic growth and thusreduce unemployment (Finn, 2011).

Despitethis, some economists have been opposed to increasing minimum wagedue to its negative impacts on the labor market. Economists have usedseveral theories to illustrate the negative effects of an increase inminimum wage on the California labor markets. They have argued thatthe increase in minimum wage will result in loss of low skilled jobs.Economists against an increase in minimum age have argued that itreduces employment opportunities since employers are likely toreplace low-skill employees with other inputs such as automatedsystems. A higher wage bill will force the prices of commodities inthe market to increase, which reduces consumption and demand and thusnegatively affect the economy (Finn, 2011). However, this theory isapplicable if the economy has a single type of low-skilled labor. TheCalifornia labor market is complex and complicated with asignificantly higher number of skilled manpower. Thus, a higherminimum wage will positively impact on employment rates among skilledworkers (Jerold, 2008).


Finn,C. (2011). TheMinimum Wage and Labor Market Outcomes.Cambridge: MA, MIT Press.

JeroldL. W. (2008). MinimumWage Policy in Great Britain and the United States.New York: Algora.