An Open Letter to Arnold Schwarzenegger Don't raise the minimum wage T. Hutchinson
"I have always said that when the economy was ready, we should reward the efforts of California's hard working families by raising our minimum wage. This is another sign California is coming back stronger than ever."
-Arnold Schwarzenegger
Dear. Gov. Schwarzenegger,
I applaud you, not only for inspiring economic growth in California, but the determination you have to ensure its recovery. You might have the belief that raising the minimum wage would in turn give the lower working class more buying power, which in would hopefully boost the California economy and start down the path of recovery. The reality of this increase, Gov. Schwarzenegger, is that you are inhibiting the growth of California's hard-working families.
This increase, named Assembly Bill 1835, will first take effect January 1, 2007 by increasing the minimum wage $0.75, from $6.75 to $7.50, and again on January 1, 2008 by $0.50 to make it an even $8. At first glance this may appear to be a great deal for the California workers, and in truth, it is. Who wouldn't want to make an extra $1.25 of hourly income? However, Gov. Schwarzenegger, this is extremely short sighted, for you are ignoring simple rules of economics.
I'll start with the obvious detrimental effects of increasing labor wages. With the cost of employees increasing by $1.25 per hour, companies will experience an increase in their expenses. With expenses rising they have only one choice to counter the deficit and that is to raise prices. What happens when you raise prices? Consumers buy less and if people are buying less you lower the amount you produce and sell. With lower production, employers have less use for expensive employees, and they don't hire as many people. Can you see the implications of your increase, Gov. Schwarzenegger?
Take, for example, your typical high school worker. He'll work at a grocery store, restaurant, theater, etc. Does he really posses the skills to earn $8 an hour, or more importantly, is the job he's performing worth $8 an hour? Of course it isn't, most work at minimum wage is mindless, monotonous work. So how does the company deal with all these expenses (the increase from $6.75 to $8 an hour)? They raise the prices of their products so those who make more than minimum wage have to pay more for the same product. This is why we are seeing prices raise everywhere; it's like a sick form of inflation.
NPR had a very interesting segment when they noted how San Francisco has a minimum wage of $8.82, yet still hasn't experienced any of problems economic theory predicts. That's hardly the case. First of all, the unemployment rate in the city is 6.5%, well above the 4.6% national average. As predicted, it turns out that San Francisco is the second most expensive city to live in within the U.S., behind only Manhattan. San Francisco, a financial burden to the middle-class familiy, is the perfect example of why not to raise the minmum wage.
In short, Gov. Schwarzenegger, if you truly love the great state that you govern, please consider repudiating this legislation. Not only would you be rewarded as a governor who maintained a dynamic economy, but also you would undoubtedly be viewed as a man willing to make a decision for the good of all of California.
