Raising the hourly minimum wage to $15 could cost California 400,000 jobs according to a study by two leading economists.

Just over half of those jobs will be in two industries: retail trade and accommodation and food service, according to Miami University of Ohio economic professor William Even and David Macpherson from Trinity University of Texas.

Their study, California Dreamin' of Higher Wages, projects a 10.7% job loss in accommodation and food service—or roughly 123,000 positions—and a 9.5% loss in retail trade, or about 77,000 jobs.

The 400,000 figure does not include job losses in rural areas, which were not part of the analysis.

California's minimum wage will reach $15 in 2022. Connecticut lawmakers are also considering hiking the state's $10.10 hourly minimum wage to $15 over the next four years.

The federal minimum wage is $7.25.

Small Business Impact

"I'm worried about the little businesses up and down Main Street," Rep. John Hampton (D-Simsbury), said recently about proposed Connecticut legislation.

Connecticut lawmakers are considering three bills—SB 2, HB 5004, and HB 7191—to hike the hourly minimum to $15 by 2022.

CBIA opposes these measures as Connecticut is already one of the costliest states to do business.

I'm worried about the little businesses up and down Main Street.
— State Rep. John Hampton (D-Simsbury)
"The high cost of doing business in this state has contributed to our slow recovery from the recession," said CBIA's Eric Gjede.

He noted that high business costs were driving many Connecticut companies to invest in labor-saving devices or consider automating more of their production operations than initially planned.

"Legislation that mandates above-market wages forces businesses to automate or make other cuts—including employees, hours, or benefits," Gjede said.

Unintended Consequences

Minimum wage increases are intended to provide a living wage to lesser-skilled workers who might otherwise not be able to earn one.

But the California study found that past minimum wage increases have hurt the very people they were intended to help.

"Specifically, the study found that each 10% increase in the minimum wage has led to a nearly 5% reduction in employment in industries with a higher percentage of lower-paid employees," the study reported.

"Across all industries, the findings imply that each 10% increase in California's minimum wage has reduced employment for affected employees by 2%."

The authors studied the state's minimum wage increases over two-plus decades through 2016.

'Under Siege'

With Connecticut lawmakers considering a minimum wage hike, paid family and medical leave, and highway tolls, the 240 companies that comprise the Connecticut Food Association feel "under siege," association president, Wayne Pesce, said recently.

The association accounts for over 30,000 jobs in Connecticut, many of them in small, family-owned businesses.

If lawmakers approve a $15 minimum wage, Gjede is hoping they'll spread it across several more years to lessen the impact on small businesses and expand the state's training wage so employers can train unskilled workers, especially teenagers.

Each 10% increase in California's minimum wage has reduced employment for affected employees by 2%.
The California study's authors noted that "real firms outside an economic model could respond to higher minimum wages in ways that cause somewhat divergent effects" as compared to what their study projects.

"What is not in dispute, based on this study," they said, "is that California's rising minimum wage has depressed employment opportunities in the most heavily impact industries.

"The conclusions should give pause to states or localities interested in emulating California's wage experiment."


For more information, contact CBIA's Eric Gjede (860.480.1784) | @egjede