California's $15 minimum wage sets stage for grand experiment

California workers are about to get a big raise.

On Monday, Gov. Jerry Brown announced a deal with state lawmakers and public unions that would make the minimum wage $15 an hour by 2022, up from $10. That comes as other states, such as Alabama, North Carolina, and Idaho, are tying their minimum wage to the federal minimum, which has been $7.25 an hour since 2009.

The parallel movements are indicative of the nation’s struggle with wage policy, as lawmakers strive to address the issue at the state level in the face of stalled efforts in Congress, economists say. The resulting patchwork of regulations, some say, could in the long term contribute to growing income inequality by leaving minimum-wage workers in some states earning less than half of those in others.

Others argue that letting states approach the wage issue in different ways could be critical to coming up with creative – and reasonable – solutions in the long run.

“If there’s no movement at the federal level [to address wage concerns], you’re going to see a lot at the state level,” says Gabe Horwitz, vice president for the economic program at Third Way, a centrist think tank based in Washington. “Some will be innovative and good, some probably a little ill-designed, but there will be a little bit of everything. And then there will be a period where we can really analyze what works and what doesn’t.”

Raise the minimum wage

California is among those at the forefront of the undertaking. If passed, the new law would give it the highest statewide minimum wage in the country – and could mark a turning point for the nationwide movement to boost the wage floor, labor analysts say. The campaign, headlined by the “Fight for $15” effort, has galvanized a financially strained middle class to support low-wage workers in fast food and retail.

Already cities such as Seattle, Los Angeles, and San Francisco have passed $15-an-hour raises, and the governor of New York is pushing for a $15 statewide minimum wage by July 2021. Republican-led Alaska and South Dakota also elected to increase their state minimum wage, though by more modest standards.

Partly driving the push for a higher wage floor is the argument that raising wages would help “undo all the wage inequality that has happened in the last 45 years,” says David Cooper, a senior economic analyst at the Economic Policy Institute (EPI), a liberal research group based in Washington. Indeed, he notes, factors such as inflation and rising costs of living means that “in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today,” as the Pew Research Center reports.

“If California does this and its economy continues to thrive, then it could potentially shift the norms around minimum wage policy,” Mr. Cooper says.

Hold it steady

Other states are experimenting in the opposite direction, asserting state control over local governments to prevent municipalities from raising wages.

In February, Alabama passed a measure that blocked an effort by Birmingham, the state’s largest city, to set a wage floor of $10.10 an hour. Idaho last week voted into law a bill banning “political subdivisions” from raising minimum pay for workers. Also last week, North Carolina overruled a local antidiscrimination ordinance, at the same time passing a measure that preempted any local minimum wage hikes.

In all, 19 states – most of them conservative – have enacted laws that ban local minimum wage increases, according to the National Employment Law Project, a liberal advocacy group in New York. Such efforts tend to stem from business-friendly state legislatures, who argue that a higher wage would discourage firms from hiring more workers and could cost the region dearly needed jobs.

“For the kind of businesses that are more likely to pay minimum wage, those that are labor intensive – such as manufacturing, retail, food service, and so on – low-wage minimum wage is a plus,” says Chris Tilly, director of the Institute for Research on Labor and Employment at the University of California, Los Angeles.

“You can gain some economic advantage by keeping your wages low,” he adds, though “that’s sort of a self-defeating strategy because in the long run the goal is to increase standards of living for workers, you hope.”

A hybrid approach

Still others are turning to more unusual approaches to the wage issue. In March, Oregon Gov. Kate Brown signed a bill for a tiered wage hike in different regions of the state. Under the new statute, the hourly minimum will rise from $9.75 to $12.50 in rural areas, $13.50 in some cities and towns, and $14.75 in Portland.

Mr. Horwitz at Third Way, which suggested a similar plan but on a national scale, applauds Oregon’s approach, saying it mostly closely accounts for regional differences while still acknowledging broader concerns about a living wage for workers.  

“It’s about really looking at purchasing power, because San Francisco is not like McAllen, Texas,” Horwitz says. 

It’s hard to predict what kind of consequences this interstate quilt of regulations might have on employees and economies, says Cooper at EPI. But, he notes, one potential impact is that workers in low-wage states will have significantly less buying power than those in high-wage ones.

“We’re getting to a point where folks in [lower-wage] states are going to be struggling to afford things compared to folks in higher-wage states,” he says.

Still, there’s some value in letting states craft their own wage policies, some say, even if it will take time to see which approaches work best for whom.

“I think there’s something very positive about states being able to experiment and go beyond what the country has, to see on a smaller scale how something works,” says Professor Tilly at UCLA. “On some level, you could view the states as laboratories of democracy, and hope that the country as a whole draws some lessons.”

“It will be interesting to see which states follow and which approaches they take,” Horwitz at Third Way adds. “A lot of people are really looking to see what happens.… [W]here we go next year will depend who is in the White House.”