California Creates Another Setback of Unskilled Workers -- And Possibly A Setback for Immigrant Integation

It appears that California is going to increase its state minimum wage to $15 in steps over the next five or six years.  This is yet another body blow for unskilled workers in the state.  As I wrote a while back, it is already overly difficult to build a business based on unskilled labor in that state, and increasing the price people have to pay for that labor by 50% is only going to make things worse.  It is possible low-skill workers in large wealthy cities like San Francisco will be OK, as service businesses are still going to want to be there to access all that wealth, and will just raise their prices even higher to account for the higher wages.   For laborers in rural areas that are already suffering from high unemployment, the prospects are not very bright.

As most readers know, we run a service business operating campgrounds across the country, including a number in California.  Over the last  years, due to past regulation and minimum wage increases, and in anticipation of further goofiness of this sort, we exited about 2/3 of our business in California.

Our problem going forward is that in rural locations, sometimes without even electricity or cell phone service on site, we have simply exhausted all the productivity measures I can think of.  There appears to be a minimum amount of labor required to clean a bathroom and do landscaping.  Which leaves us the options of exiting more businesses or raising prices.  Most of our customers in California are blue collar rural folks whose lot is only going to be worse as a result of these minimum wage increases, and so I am not sure how far they will be able to bear the price increases we will need to cover our higher costs.   Likely we will keep raising prices until customers can bear no more, and then exit.

By the way, the 5-6 year implementation time is a frank admission by the authors of the law, not matter what they say in pubic to the contrary, that they know there will be substantial negative employment effects from the minimum wage increase.   They are hoping that by spreading it out over several years, those negative effects will lost in the noise of economic fluctuations.  The Leftist playbook is to do something like this that trashes the earnings of the most vulnerable low-skilled workers, and then later point to the income inequality of those low-skilled workers as a failure of free markets.

On a related note, one of the more interesting things I have read lately is this comparison of successful integration of Muslim immigrants in the US vs. poor integration in Europe.  Alex Tabarrok raises the hypothesis that high minimum wages and labor market rigidity in Europe may be an important factor in reducing immigrant integration.  He quotes from the OECD:

Belgian labour market settings are generally unfavourable to the employment outcomes of low-skilled workers. Reduced employment rates stem from high labour costs, which deter demand for low-productivity workers…Furthermore, labour market segmentation and rigidity weigh on the wages and progression prospects of outsiders. With immigrants over-represented among low-wage, vulnerable workers, labour market settings likely hurt the foreign-born disproportionately.

…Minimum wages can create a barrier to employment of low-skilled immigrants, especially for youth. As a proportion of the median wage, the Belgian statutory minimum wage is on the high side in international comparison and sectoral agreements generally provide for even higher minima. This helps to prevent in-work poverty…but risks pricing low-skilled workers out of the labour market (Neumark and Wascher, 2006). Groups with further real or perceived productivity handicaps, such as youth or immigrants, will be among the most affected.

In 2012, the overall unemployment rate in Belgium was 7.6% (15-64 age group), rising to 19.8% for those in the labour force aged under 25, and, among these, reaching 29.3% and 27.9% for immigrants and their native-born offspring, respectively.

Wow, I guess it is sure lucky California does not have a very large immigrant population.  Oh, wait....

  • Mr. Generic

    So, as much as Trump talks about building a wall to keep out Mexican Immigrants, Gov. Jerry Brown has signed something that will actually keep them out? That would be ironic.

    I do wonder how much this will hurt illegal immigrants though. They are already working under the table. The people that hire them will have a greater incentive to do it now. It'll be interesting to see how this plays out, though it is going to be painful to watch.

  • sean2829

    Puerto Rico has a high minimum wage (the same as the rest of the US) that was imposed on it by Congress. http://www.wsj.com/articles/puerto-ricos-wages-are-no-benefit-to-its-economy-1435787367 It's not working out so well.

  • Joe - the socialist candidate

    "unemployment rates for the unskilled is too high

    Lets double the cost of hiring the unskilled "

  • Dan Wendlick

    Quite the contrary. Placing a premium on unskilled labor above market rate will lead to more demand for people willing to work off-the-books, or when it becomes too expensive to hire people legally, but the work still needs to be done (can't send your lawn to Nevada to be mowed, for instance) you're going to be more willing to hire illegally.

  • jimc5499

    I wonder if there is an exemption for workers covered by collective bargaining agreements. Seattle and San Francisco had exemptions when they raised the minimum wage.

  • Jerryskids

    California isn't creating more unemployable low-skill minorities, they're creating more Democrat voters. Kinda nice that you can thump somebody upside the head and get them to vote for you on the grounds that you're going to protect them from getting thumped upside the head.

  • Shane

    Awww and you could still be doing business there. I bet you are kicking yourself in the ass for leaving 😛

  • Shane

    Illegally doesn't just mean immigrants. This will further push for things to be "off the books". This is the same problem Greece faces. More and more work and trade is pushed into the black market, lowering tax revenues causing calls for more and more taxes ... ad nausem.

  • marque2

    The successful integration of Muslims in this country is a myth. Yes there are some that came in the 60's and 70's that seem to do OK but after that the assimilation is about nil. Two factors that mke things better for us, we have fewer Muslims so there aren't as many ghettos - though some exist and they are all problematic (Dearborne, Minneapolis, Waterloo, IA) Dearborn already has areas Jews and even Christians should attempt to enter. The other factor is a slightly lower level of public assistance. The whole goal is to run to Europe get on public assistance and never have to work again Public assistance in Belgium, is a 10x Better lifestyle than in most Muslim countries. Of course idle minds with nothing to do are easily succeptible to being coaxed by loonies into hating the very people feeding them to the point of being willing to murder - sorta the ultimate class warfare. And a good example of the expression, an idle mind is the devil's playground.

  • marque2

    It is interesting that some citizens would have to renounce their citizenship and pretend to be Hispanic to get jobs. Illegal aliens can take sub minimum wage jobs with little fear that they or their employees will be harassed. In fact the police in several countries aren't even allowed to ticket them for traffic infractions, or expired tsgs, etc.

  • marque2

    Why would his law keep them out? They will flood in because illegals will be the only ones who can accept substandard wage, and local governments are told to close a blind eye to employers and illegal employees who engage in such practices. Gardening, home construction, general construction help, is all underpaid illegals in CA.

  • mesocyclone

    There are 7000 Somalis now in the Phoenix area. If 1 percent of them turn terrorist, we will have a very big problem. Ask Minnesota where it is already a big problem. Oh, and then there were the three terrorists from Phoenix who targeted the Mohammed cartoon contest. Fortunately, two were killed in the attempt and the third convicted.

    Integration of some Muslims work - mostly affluent and well educated, although watch out for their kids. Others will have the same problems as Mexicans - ghetto life with radicalized or gangster kids.

  • ano333

    "By the way, the 5-6 year implementation time is a frank admission by the authors of the law, not matter what they say in pubic to the contrary, that they know there will be substantial negative employment effects from the minimum wage increase."

    While this is possible, it is not necessarily true. The authors may have preferred to raise the wage immediately, but may have been forced into a political compromise in order to get the measure passed.

  • ano333

    "There are 7000 Somalis now in the Phoenix area. If 1 percent of them turn terrorist, we will have a very big problem. "

    There are millions of gun owners in this country. If 1 percent of them turn to murder, we will have a very big problem.

    See how we can just make up statements about large groups of people?

  • Rick Caird

    But, that boils down to the same situation as Coyote claimed. Why would some people insist in a longer time frame if they believed there would be no harm from the proposal.

  • Shotgunner

    $15/hr is good. $35/hr is better. Maybe $100/he would be best.

  • SamWah

    We already know they don't.

  • mlhouse

    $100, seriously. How about $2500. Then we can all live like CEOs, buy private jets, and drink fancy French wine.

    The liberals really miss the boat on this one. I prefer the "Wal-Mart" economy. Low input prices, including labor. Cheap retail prices. The labor force in inclusive.

    But the liberal prefer an exclusive one. The main reason for the minimum wage demands is not to help the poor, but to help the union workers whose compensation is pegged to the minimum wage. Getting into the union is their type of process because they can make selections and this creates gratitude. I help you get in, you help me down the road.

  • mlhouse

    The other thing outside of the unemployable is that it will create more unpleasant work environments. If you have to pay someone $15/hour for the lowest productivity workers in the market, you are going to work them like a fn dog. The employer is going to use one laborer were they used to use 2. If their lives weren't miserable enough, it will be more miserable.

    ANd a note on the Democrats creating voters, they know how to work the system. The minimum wage is not an economic issue it is a political issue. And the reason why the Dems push this is that politically it is win, win, win. Like I noted above, most labor contracts have pegs to the min wage. So when that goes up, their labor constituents are happy. They vote Democrat and make more contributions. When the minimum wage goes up, some lucky slobs are going to get a big pay raise. That will make them happy and they will thank the Democrats for it. And even the unlucky slob who loses his job is going to vote Democrat. Do you think they think that the Republicans will be their gravy train on unemployment benefits?

  • MJ

    The original version of the minimum wage hike, which the unions wanted to put on the ballot statewide, called for a more aggressive timeline for phasing in the $15/hr minimum. That said, any requirement that a wage rate hike be phased in is essentially a tacit admission that it will cause some disemployment effects.

  • poitsplace .

    In almost every conversation a person on the far left has about greatly increasing minimum wage they support it by saying it won't hurt jobs...then they usually meander at some point and complain about how "greedy industrialists" are sending jobs overseas to take advantage of lower labor prices. In extreme cases they'll say these things one after the other. And they won't admit to the job losses even when you point out that they themselves made the claim of jobs being lost.

    It boggles the mind.

  • J K Brown

    Let's see after 1929, the unions pressured FDR to not let the wages decline as they had in previous recession/depressions, even as the economic conditions meant that employers couldn't afford the old wages and remain viable. So layoffs and unemployment for a decade.

    Now, California is looking to by government fiat to raise wages above the level that economic conditions permit employers to afford. I wonder what the result will be?

    Also, non-intuitively, all through the 1930s, those businesses that survived installed new, more productive machinery that permitted them to use fewer workers. Did someone say something about robots today?

  • Maximum Liberty

    @Mr. Generic, when I started reading your comment, I thought your logic was going to take you to the need to keep out the wave of immigrants coming into the country from California, after it raises its minimum wage and all its unemployed but ambitious people leave.

  • Mr. Generic

    Well, there is a weird thought in my head that this is California we are talking about. If the immigrants reached out to whichever agency is supposed to enforce the minimum wage, can they successfully sue for missing wages and damages. I mean, all it will take is some union rep/activist/government employee to walk up to a guy mowing a lawn and ask if he's making $15/hour and the landscaping company is screwed. Heck, if I was a crazy CA lawyer, I'd put up signs in Spanish at the border saying to call me if an employer is paying less than $15/hr.

    That said, rereading our host's post with fresh eyes, I believe he is talking about legal immigrants and assimilating them into US with above the table jobs.

  • mesocyclone

    The difference is history. Somalis in Minneapolis are already joining the jihad. Islam provides a handy set of violent (and radically non-libertarian) ideologies for disaffected youth , as has been repeatedly demonstrated.

  • jhertzli

    One possible effect: Poor people leave areas with higher minimum wages. A few years later, left-wing sites carry articles showing high increases in per-capita incomes in "blue" states.

  • irandom419

    I had a partial win, by pointing out that Bentonmart employs marginal people. So without them, they would probably be unemployed and fully on welfare, but working for them private industry is subsidizing government benefits. Also helpful to point out the profit per head about $10k and without that, there would be no store. Next time they point out greedy CEO's, divide the compensation by the number of employees, it ain't a lot.