California lawmakers have passed a bill to increase the minimum wage to $15 per hour over the next five years. The bill was passed on a straight party-line vote with all Republicans opposed. The governor will sign the bill next week.
As the quote above suggests, the increase in the minimum wage was the right thing to do for the state's poorest paid workers. But what is less understood is the economic benefit of raising the minimum wage. That economic benefit is based on the "multiplier effect."
When I owned an environmental clean-up business in the early 90's, I saw the multiplier effect in reverse. The aerospace industry in Southern California had just collapsed when the Lockheed factory in Burbank was lured to Marietta, Georgia, by Republican Newt Gingrich. This abruptly stopped the flow of dollars from aerospace workers to local businesses such as supermarkets, drug stores, and gas stations. These businesses were forced to curtail their operations slowing the flow of money to other businesses including mine. The net effect was that small businesses were decimated and the housing market collapsed, this despite the fact that the other pillars of the economy were intact including Hollywood, agriculture, trade, and government. I had experienced a real-life example of what happens when the daisy chain of dollars is interrupted by an important part of the economy.
So let's look at the effect of raising the minimum wage. The lowest paid workers in our economy will be given substantial annual raises for each of the next five years. Because they are struggling to survive in the expensive California economy, they will spend every one of their extra dollars on the basic necessities of life including rent, food, gas, public transit, and so on. This money will then flow to other businesses and workers who will also spend their increased money. For every extra dollar paid out in minimum wage two or three more dollars will be generated in the economy as a whole.
Of course, the Republicans can be counted on to proclaim that this increase in minimum wage will be a "job killer." But they have lost their moral authority to make such a claim. In red state after red state Republicans are cutting basic services to ordinary people and instead providing extra money to the wealthy elite through tax cuts and subsidies. Unlike the poorest paid workers, the wealthy can be expected to take their extra money and simply hide it from the economy in banks or to squirrel it away in off-shore accounts. They might even create jobs through business expansion, but this has been shown to be a crap shoot at best.
There is no doubt that the increase in minimum wage will be an economic boon to California. All the nay-sayers will be proven wrong, but there will be no accounting of their usual mistakes. Instead they will continue to promote falsehoods at the behest of their wealthy sponsors, further dragging down those states that follow their prescribed paths to ruin. If there is any doubt of this, simply google the economic statistics for the states of Wisconsin and Kansas.
Lifting the minimum wage is the fair thing to do. it is also the smart thing to do.