Center on Wage and Employment Dynamics

The Raise the Wage Sacramento Coalition has put forth a proposal to establish a $13.50 per hour minimum wage by 2019 in the city of Sacramento (see Table 1). The minimum wage would be raised to $11.50 on January 1, 2017; to $12.50 on January 1, 2018; and to $13.50 on January 1, 2019. In Section 1 of this report, we estimate the effects of the proposal on Sacramento workers and businesses, and place the proposal in context with other local minimum wage laws. In Section 2, we review the economic research literature on the effects of minimum wage increases on workers, employment, and business operations.

Recent news on the economy seems erratic and confusing. Is the economy improving, or is it still stuck in the “Great Recession” rut? Well, as any good economist would say, “it depends”—in this case on one’s vantage point. The good news is that the economy that officially came out of recession in June 2009 is growing again; the bad news is that only a few are benefiting from this growth. Our colleague Emmanuel Saez recently analyzed how the expanding economic pie in 2009 and 2010 was divvied up. He found that 93% of the economic gains went to the top 1% of Americans—which is not indicative of a broadbased recovery. It also affirms the continuation of long-term trends of increasing inequality. Today, far too many of California’s workers and their families are stuck in the harshest job market since the Great Depression. The economic scarring on families and communities is incalculable given the length and depth of the downturn. And, as the Dow flirts with 13,000, the Wall Street-Main Street divide looms as large as ever.

Last December marked four years since the start of the Great Recession. While recent monthly data show a welcome improvement in the jobs picture, the United States and California have only just begun the long road to recovery. In this brief we evaluate how California’s economy is faring on jobs, wages, and income growth since the start of the recession in December 2007 using newly revised state jobs data from the Bureau of Labor Statistics.

In a 2010 brief, we called for a significant jobs bill and additional measures to boost demand, aid ailing states and spur economic growth. We also sounded the alarm on the dangers of pursuing austerity policies. At that time the debate was between the need for more stimulus and federal spending to get the economy going or switching gears to reign in the federal deficit. Unfortunately, severe austerity measures were enacted and they have lessened the strength of the recovery. Today, widespread budget cuts have become the norm, putting immense strain on California’s already fragile economy and having an antistimulus effect. The Golden State remains in crisis; cuts in government spending and the subsequent loss of 132,800 state and local jobs have not helped the larger economy. After four years, we still need help from the federal government to implement policies that help job seekers, protect workers, and lay the foundation for future growth and become the norm, putting immense strain on California’s already fragile economy and having an antistimulus effect. The Golden State remains in crisis; cuts in government spending and the subsequent loss of 132,800 state and local jobs have not helped the larger economy. After four years, we still need help from the federal government to implement policies that help job seekers, protect workers, and lay the foundation for future growth and prosperity.

The employment consequences of increasing the minimum wage in the United States continue to be a major subject of debate, but how researchers choose to estimate the effects of raising the minimum wage can substantially affect the results of their work. In “Credible Research Designs for Minimum Wage Studies”, my coauthors and I examine one group of low-wage workers—teenagers—whose hourly wages are significantly raised by minimum wage increases.

A common objection to raising minimum wages is that doing so will reduce the employment opportunities of low-skilled workers such as teenagers. We show, however, that some studies find negative effects of the minimum wage on teen employment because they fail to control for other economic factors that independently reduced employment around the time of a minimum wage increase. After controlling for these factors, we demonstrate that the large, negative effect on teen employment disappears.