California’s new minimum wage is not quite unprecedented

 California just announced that it will raise the minimum wage to $15 per hour by 2022. It will go up from $10 now to $10.50 in 2017, increase by another 50¢ in 2018, followed by one-dollar increments until it hits $15. After that, it will be fixed to inflation.

Assuming that inflation runs at 2% per year between now and 2022 (using the IMF projection), the new minimum wage will be only 8% above its 1968 peak in 2015 dollars, using the California CPI:

To be fair, the minimum wage was only briefly in that range, so it is quite possible that it will have bad effects on California’s economy. But it is not as unprecedented as it looks if you remember that American inflation in not likely to drop to zero over the next six years.

Comments

[Dave K.]

If there are bad effects I'd expect them to be concentrated in rural areas and poorer parts of the Central Valley more specifically.

Coastal California with its resilient economy and high cost of living will probably absorb the increased labor costs more easily.

[Noel Maurer]

That's almost certainly correct, Dave:

http://fivethirtyeight.com/features/californias-15-minimum-wage-makes-a-lot-less-sense-outside-of-silicon-valley/

What would be interesting (but take some work) would be to see what's happened to the wage distribution in different parts of California.

For the state as a whole, I'm almost certain that real median wages are higher than 1968 levels in most places; I'm also almost certain that a $13 minimum wage (in 2015 dollars) is less binding that it would have been in 1968.

But it wouldn't surprise me if the state outside the Bay Area and L.A. is significantly poorer than it was in 1968.

[Will Baird]

Some are saying the new minimum wage will spur on the Robopocalypse (faster):

http://www.computerworld.com/article/3048791/it-industry/californias-15-an-hour-minimum-wage-may-spur-automation.html

[Dave K.]

In a period of persistently high profits but relatively weak demand, labor replacing technology is a natural response to a drastic increase in labor costs.

I think this will apply in retail and restaurant chains more aggressively due to their scale.