More Money More Problems

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More than 18,000 workers in California stand to lose their jobs if state legislators succeed in raising the minimum wage a recent report states.

California lawmakers have drafted legislation that intends to raise the state's minimum wage $0.50 in 2005 and an additional $0.50 in 2006 to $7.75 per hour. The impetus for the wage increase is to help bring lower-skilled workers out of poverty. However, if Governor Schwarzenegger does not veto the legislation and it is passed into law, the opposite will happen, according to a report released last month by Dr. David Macpherson, an economist at Florida State University, and the Employment Policies Institute (EPI). The wage increase, the report maintains, will place such a large financial burden on California businesses that they will be forced to eliminate employees, resulting in $220 million in lost income, effectively hurting those people the minimum wage increase was designed to help.

Of the 18,600 individuals in danger of losing their jobs, the report maintains that 45 percent are living in families earning less than $25,000 a year. A majority of these employees are uneducated and do not have a high school diploma, which naturally limits their employment options. Additionally, the report warns that some minority groups stand to suffer an overwhelming portion of the harm. Hispanics, for example, make up only 31 percent of the total California labor force, but they account for 58 percent of the projected job loss from the proposed wage increase. Incidentally, the report reveals the increase will not benefit those people that need the money the most. Only 20 percent of the potential beneficiaries from the $1.00 increase are actually single earners with children, according to Craig Garthwaite, EPI research director. The remaining 80 percent, he says, are teenagers living with their working parents, adults living alone or married couples drawing on dual-earner incomes.

There is a more effective way to lower poverty levels, Garthwaite offers. He points to a federal earned income tax credit as a solution, which can provide supplemental income from the government based on income and family size. "It's a very efficient way of making sure people don't go below the poverty level and you don't destroy jobs," Garthwaite says. Some states, such as Colorado, Illinois, Kansas, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oklahoma, Vermont and Wisconsin, have already been able to minimize poverty levels with an earned income tax credit.

"With the minimum wage increase you're trying to address income and there's not a good connection between wages and income. When we first passed minimum wage legislation it was effective; the majority of families were single earners in the 1930s. As late as 1950, a low-wage earner headed 77 percent of the households in poverty. Now with families with more than one wage earner you have a situation where only 30 of percent of families in poverty are headed by a low-wage worker. The reason people are in poverty has little to with their wage and more to do with size of family and number of hours they work," Garthwaite says. "And those are things that minimum wage isn't going to change."

Without intervention from the actor-turned-governor, his legacy as the Terminator will likely live on.

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