California’s $15 Minimum Wage Makes A Lot Less Sense Outside Of Silicon Valley

This is In Real Terms, a column analyzing the week in economic news. Comments? Criticisms? Ideas for future columns? Email me or drop a note in the comments.

Give credit to the “Fight for $15” movement to raise the minimum wage. When the union-backed campaign got started a few years ago, the minimum wage was low on the political agenda, and $15 an hour seemed laughable. Today, several cities, including Los Angeles and Seattle, have adopted $15 an hour ordinances (they will phase in over the next few years), and more look likely to do so. A headline like “California reaches deal on $15 minimum wage” now seems almost routine.

But make no mistake: California’s decision is a big deal. To date, nearly all the places that have adopted $15 minimum wages are big coastal cities where costs of living are high and most workers already earn well above $15 an hour. California’s proposed wage hike, which the state legislature approved Thursday and Gov. Jerry Brown is expected to sign next week, is different. It would apply to the whole state, including poorer cities like Fresno and sparsely populated rural areas in the northern and eastern parts of the state. (California’s current minimum wage of $10 an hour is already tied with Massachusetts for the highest of any state.)

Many economists, though by no means all, think $15 an hour is a reasonable wage floor in places like San Francisco, where the typical worker makes more than $26 an hour. But as The New York Times wrote this week, even many liberal economists worry that $15 could be too high in less affluent parts of the state, where businesses could struggle to offset higher labor costs by raising prices, and where far more workers and employers would be affected.

New data on the earnings of individual occupations, released Wednesday by the Bureau of Labor Statistics, shows just how much bigger the impact of the planned hike would be in some communities than in others. In San Francisco, most of the jobs that pay less than $15 an hour (or at least those that likely will in 2022, when the $15 wage is expected to take effect) are typical low-wage work: fast food cooks, dishwashers, manicurists, cashiers. But in Fresno, the list is much longer, and includes jobs that are often considered working- or even lower-middle-class: preschool teachers, nursing assistants, bank tellers.

It’s possible to quantify this by sorting jobs into categories: Occupations where at least 25 percent of workers earn less than the proposed minimum wage would be “significantly affected” by the hike. Occupations where half or more of workers earn less would be “highly affected.”¹ Assuming wages rise 2 percent per year across the board — a rough estimate, but faster than they have risen in recent years either nationally or in California — then in 2022, about 40 percent of California workers will be in “significantly affected” occupations and 30 percent will be in “highly affected” ones. (Both figures are fairly typical of the U.S. overall.) But as the table below shows, there is huge regional variation. In San Francisco and San Jose, only about 10 to 15 percent of workers are in highly affected occupations. In the San Joaquin Valley area of Visalia-Porterville, that figure is close to 50 percent.

Supporters of the California plan argue that even in somewhere like Fresno, it’s hard to get by on less than $15 an hour. That’s no doubt true. But as I wrote last year when LA raised its wage, $15 goes a lot further in some places than in others. The Bureau of Economic Analysis estimates that overall prices are more than 20 percent higher in the Bay Area than in Fresno; rents are almost double.

What does all this mean for workers and businesses? Nobody knows. Economists disagree about whether the minimum wage costs jobs, but most research has found that the negative effects, if they exist, are generally small. But that research has almost all been based on wages that are much lower — often the equivalent of around $9 or $10 in today’s dollars. The early evidence from Seattle and Los Angeles’ recent wage hikes has been fairly encouraging, but the data is still preliminary and, in any case, won’t reveal anything about the effect on lower-cost areas.

For economists, then, California’s hike is exciting, a valuable test of the effects of a big wage hike. But for the workers and businesses that will be the guinea pigs, it could be a nerve-wracking experiment. The higher wage could bring up standards of living, inject more money into the economy and turn out to be a win-win for workers and businesses. Or it could lead to lost jobs and higher prices, ultimately hurting the very workers it was designed to help. Or perhaps both. There will almost certainly be both winners and losers, but no one knows how many of each, or whether the benefits will prove worth the cost.

Missing middle

U.S. job growth has been consistently strong in recent years — we get the latest numbers later this morning — but one common refrain is that these aren’t “good jobs.” That isn’t quite right, as the latest wage data from the BLS shows.

It’s true that the U.S. is creating a lot of jobs in fast food, retail and other low-paying sectors. Jobs in the lowest-paying 20 percent of occupations grew by 2.3 percent last year and by 10.6 percent since 2010.² But high-paying occupations are growing even faster, up 2.7 percent from 2014 to 2015 and 12.5 percent since 2010. Where jobs are lagging is in the middle, as the chart below shows. This U-shaped job growth has been a persistent pattern in the recovery, and it doesn’t seem to be changing as the job market improves. That suggests it may be the result of longer-term shifts in the U.S. economy, such as automation, outsourcing or the decline of unions.

Gotta get a gig

The rise of Uber, Airbnb, TaskRabbit and other app-based services has led to lots (and lots, and lots) of hand-wringing about the end of the traditional job. New research suggests the “gig economy” is real — but it has almost nothing to do with Uber.

The research, from economists Alan Krueger of Princeton and Lawrence Katz of Harvard, finds that there has been a big increase since 2005 in the share of Americans working outside the traditional employer-employee relationship. Nearly 16 percent of U.S. workers are in some form of alternative employment arrangement such as temporary, on-call or contract work, up from 10 percent in 2005. But as The Wall Street Journal wrote this week, very little of that increase is due to people finding work through online apps. Instead, the shift is largely due to old-economy employers in manufacturing, education, health and public administration contracting out a growing share of their work. That shift is even taking place in Silicon Valley where, as Lydia DePillis wrote this week, many non-technical jobs get outsourced to contractors.

Number of the week

In 2014, 14 million people lived in extremely poor neighborhoods in the U.S., more than twice as many as in 2000. That’s according to a new report from Elizabeth Kneebone and Natalie Holmes of the Brookings Institution, who find that the number of people living in “concentrated poverty” — neighborhoods where at least 40 percent of residents live below the federal poverty line — has grown by 5.2 million since the recession began more than eight years ago. Poor blacks and Hispanics are significantly more likely than poor whites to live in these extremely poor neighborhoods and, continuing a trend of recent decades, poverty is increasingly shifting to the suburbs.

More from me

I wrote (OK, ranted) about how the media focuses too much on elite colleges, and how that skews education policy.

I’ll have my usual coverage of the monthly jobs report later this morning.

Elsewhere

Young, college-educated adults are increasingly moving to urban centers. Everyone else, not so much. Jed Kolko looks at the continued suburbanization of the U.S. population.

Alana Semuels asks why U.S. cities are still building highways to reduce traffic congestion despite decades of evidence that it doesn’t work.

Scott Winship says raising taxes on the rich won’t pay for Democratic presidential candidates’ big spending plans. (But Jordan Weissman disagrees.)

The U.S. women’s national soccer team’s fight for equal pay has lessons for the broader economy, writes Jim Tankersley.