Article Summary
The Governor of California Mr. Jerry Brown has announced plans to increase the minimum wage in California to $15 an hour. The present minimum is $10 an hour. The increase will be phased out in a five years period by 2022 . The decision came after the recent labor union movements demanding higher wages for the low paid workers. The new minimum wage would make California a state with the highest minimum wage as against the Fed minimum wage rate of $7.25 an hour. The move will lead to wage increase for five million low paid workers in California.
It has been pointed out on the part of the government that the increased wages would help the rural poor population to raise their standard of living. There are a number of arguments against increase in minimum wage. First, it leads to reduction in employment or even reduction in working hours for the present workers. The low paid unskilled or low skilled laborers tend to lose jobs when minimum wage is raised. In this way it will increase the woes of low skilled workers who would lose job. Secondly, with job reduction, the pressure on the government funds will increase. Thirdly, as pointed out by some economists, the low paid workers constitute a majority of high school students and also workers who have no dependents . Thus the wage increase will not help the economically weaker section of the society as the government has pointed out. Fourthly, the wage increase will tend to increase the prices especially in the restaurant sector which is highly labor intensive. This will affect common people.
In the figure below we depict the last argument that we have put forward in our discussion that minimum wage increase will lead to price rise. The wage increase is a rise in the input cost for the firms. So the supply curve will shift to the left from S0 to S1 leading to a rise in price from P0 to P1.
P1 S0
P0
D
Q1 Q0 Q
Works Cited
Lazo, Alejabdro and Eric Morath. "California Plan Marks Major Test of $15 pay Floor." The Wall Street Journal 28 March 2016: 4. English.
