On July 1 the state of California raised the minimum wage to $9/hour. It will go to $10 on January 1, 2016.
There are those who say that is a good thing, and those who say it is a bad thing. Full time minimum wage workers will now earn $18,720/year. That means $2080 more spending money and unlike the upper income folks, they are likely to spend it. Since consumer spending accounts for over 70% of the economy we can say that this will be a boost for all of us, not just for the minimum wage worker. Typically, other workers who made above minimum wage will also see some increase upward although not the same percentage.
For the employers, this is an increase in costs that probably can’t be passed on to the customer. There has been tremendous downward pressure on prices. Just as when commodity prices went up a few years ago, this pushes down profitability. When companies aren’t very profitable, they cut investment in new equipment, expansion and hiring.
So is it a net plus, or a net minus? I don’t know. I’m having trouble getting through all the rhetoric that masquerades as analysis. Here’s the good news. I’m finding an unexpected consequence. Many employers who believe themselves to run a tight ship are being forced to be more creative, more productive, or rethink their processes to cut costs.
I know some people will say they will eliminate jobs as a result, but that is not always so. If you become more efficient, you may be able to price more competitively and increase market share. The way we’ve done things around here, may not be the way we will do them next month. The United States is known for its innovation. Here’s a great opportunity (or a kick in the butt) to rethink and recreate our companies. Let’s seize the opportunity.
Origami by Won Park
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