Making California’s New Minimum Wage Work
A welcome minimum-wage increase to $4.25 next July still denies workers a decent living standard. Steady employment will produce gross income of $735 a month. With half for apartment rental, little remains for food, clothing, transportation, health care and other necessities.
A $1.60 minimum wage in 1968 had buying power of $5.25 in today’s dollars. Two years ago the state Industrial Welfare Commission estimated that $5.01 was necessary to keep up with that year’s cost of living.
The current increase follows a declining supply and an increasing demand for minimum-wage labor. That is why the reaction from California’s business community to this increase will be relatively muted compared to what it would have been only six months ago. California’s unemployment rate of 5.3% in November was the lowest since 1969, according to state labor statistics. The “baby bust”--lowered fertility rates for women born after World War II--has created a shortage of young workers to fill minimum-wage occupations. New immigration legislation has tightened the labor supply while U.S. manufacturing has added more than 100,000 new jobs in the last two months with a growth in exports of 10% this year.
With a still-abundant immigrant population, California doesn’t yet have labor scarcities like New England, where fast-food outlets pay $6 an hour to attract young workers. The minimum-wage increase will raise some rates a little faster than employers wanted to go; in other cases the new minimum will ratify increases implemented earlier.
Modest minimum-wage increases have little effect on hospitality and retail employment. A dishwasher’s job cannot be shipped to Singapore if Los Angeles wage rates increase. But problems of labor-intensive manufacturers in the garment, shoe, furniture, electronics and other light-assembly industries are different. If California is to compete with Mexico, South Korea, Brazil and Sri Lanka for labor-intensive manufacturing, we also need policies to enhance the productivity of low-wage industries. For example:
--Key social services like health insurance and day care need reform to make California a “world-class” competitor. If mandatory health insurance were financed like Social Security, with a percentage tax of all wage rates, labor-intensive employers would be less disproportionately burdened. Likewise, publicly financed day care, if progressively financed, could support the stability of employment in low-wage manufacturing. Such plans, by assuring health and day care for all workers, would reduce pressure for future minimum-wage increases.
--We need government experts to give technical support to thousands of newly formed light-manufacturing firms. Since 1914, federal and state governments have provided technical support to enhance farm productivity. Experts gave advice about crop rotation, irrigation, fertilization and other new technology to small farmers. In the garment industry large manufacturers, paying wages above the minimum, employ their own engineers who design work flow. Thousands of small companies now contributing to Southern California’s prosperity need, but can’t afford, the same kind of advice. “County agents” for light industry could provide technical assistance to generate improved productivity, offsetting the cost of higher minimum wages.
--California’s industrial-enterprise-zone program, which coordinates low-interest loans, sales-tax credits and job-training subsidies for businesses in depressed areas, should now move to create and protect labor-intensive industries in all neighborhoods. Third World nations lure our industry with subsidized improvements and tax concessions. California can protect our labor-intensive industry with similar devices, offering tax concessions proportional to the number of jobs created or preserved.
--State promotion of California’s foreign exports needs more support. The burgeoning population of small, low-wage manufacturers in Southern California cannot afford large sales forces, much less an overseas one. Potential exists for increased sales of California products. A worldwide sales force for California’s production could also help offset the cost of increased minimum wages.
We must find find a less cumbersome way to adjust the minimum wage than lengthy hearings and lobbying. Indexing the minimum wage to inflation, or to a permanent level of 50% of the average manufacturing wage, would be a solution. And a permanent industrial policy of job creation and protection could pay for it.
Unlike import quotas, policies that create and preserve jobs are not protectionist; they are legitimate forms of international competition, and we are foolish not to avail ourselves of them. Such progressive policies are conventional tools among our international competitors; they are also the tools that will let us continue increasing the minimum wage and benefits while assuring the health of California’s growing labor-intensive manufacturing industries.
