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Economics: California Dreaming PDF Print E-mail
Written by Rebecca Adler   
Wednesday, 21 February 2007
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Is raising the minimum wage the right answer to the pain of poverty?

In the early years of capitalism, industries enjoyed the government's laissez-faire attitude as profits soared. It all came to a crashing halt during the Great Depression, after which the government increased regulations in an effort to provide some sort of equality between employers and employees.

A national minimum wage was introduced in 1938 to bring the lowest wage earners out of poverty. Throughout the years, and as recently as last month in California, the minimum wage has steadily increased. But the gap between the haves and the have-nots continues.

Inflation is often cited as the minimum wage diluter, and to some extent it is. But the problem is deeper than inflation, according to a 2004 report by David Neumark of the Public Policy Institute of California, a nonpartisan research group.

Neumark says a mandated wage floor does not work for two reasons, the first being that it is essentially a tax on low-skilled labor. It discourages the use of low-skilled labor and results in job
losses to help pay the increases for other workers, he writes.

Secondly, he says wage floors ineffectively target low-income workers because many low-wage workers are actually from high-income families.

Neumark's research has left him "skeptical" of minimum wage, saying that additional policies may be needed to help the most disadvantaged workers.

But Assemblyman Jim Silva (R-Huntington Beach) has a different solution.

Silva represents an area of California with one of the highest living expenses, where a living wage is estimated at $10 per hour, more than $2 above the state wage. But increasing the local wage to that level would have one of two outcomes — it would either cause businesses to leave Orange County or would cause the cost of living to further increase, says Silva, vice chairman of the Assembly Committee on Jobs,  Economic Development and the Economy.

"When people from Northern California visit Orange County they expect their fast food prices to be the same as at home," Silva says. "If those restaurants want to stay in business they have to either raise prices, lose employees or move elsewhere." And he says it would be the same for any company.

Instead of fighting poverty with more taxes on businesses, the longtime educator recommends promoting career education. He says education is the key to reducing the income gap in California because better education leads to better jobs. Minimum wage, in theory, is meant to be an entry-level wage, allowing the lowest skilled workers to find employment then work their way up in a corporation, Silva says.

The problem is that many workers don't have access to vocational training to receive the job skills necessary to move up, he says.

But he feels strongly that minimum wage is not the answer.

"Any time the government steps in and puts more regulations and more taxes on business it puts California
businesses at a disadvantage," he says, "Especially if they have to compete with other states."





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