Valley economist: New law ‘pushes wages to completely different plane’

Jeff Michael is the director of the Center for Business Policy and Research at University of the Pacific in Stockton.
Jeff Michael is the director of the Center for Business Policy and Research at University of the Pacific in Stockton. University of the Pacific

Although some small business owners say California’s plan to raise the hourly minimum wage to $15 in the next few years will cripple them, an economist and author of a semiannual Fresno business forecast believes the changes don’t necessarily spell doom.

Jeff Michael, director of the Center for Business Policy and Research at University of the Pacific in Stockton, said he’s been fielding calls about the minimum wage increase all week. The California State Assembly approved a plan on March 31 to gradually raise the state minimum wage to $15 by 2022. The bill now goes to Gov. Jerry Brown, who is expected to sign it into law on Monday.

“I don’t know how it’s going to shake out,” Michael said. “This pushes wages to a completely different plane.”

The increase is unprecedented in the state’s history. Michael said a similar 50 percent increase happened from 1996-2002, but the minimum wage was at a historic low in 1996. The $10 current wage 20 years later is far from a historic low.

Michael said the changes impact a much larger percentage of the Valley workforce than they do in Southern or Northern California, where wages are predominantly higher.

“When fully implemented, this will affect about half of workers in the Fresno area,” he said.

According to Michael, the changes will bring both positive and negative effects to the Valley.

Many workers will have a much larger paycheck. They will spend that paycheck, which will stimulate the economy.

On the other side, those costs will be felt by business owners. They will have to manage labor differently. Many will have to raise prices.

80-90 percentThose making a $15 minimum wage will earn between 80-90 percent of Fresno’s average total wage, economist Jeff Michael said.

Michael said those in the restaurant industry, which typically has a smaller profit margin compared to other industries, will almost certainly need to raise prices.

But will they close?

Not necessarily.

“Competitors will face the same cost pressure and will have to go through the same price increases,” Michael said. “I may be a little more likely to pack my lunch, but I won’t stop going out to eat. There won’t be a world of no restaurants in Fresno.”

Michael added that workers will have more money in their pockets to afford those higher costs. The two may well offset.

The retail industry may not be hit as hard, as labor costs aren’t as bad as in restaurants, Michael said.

Effects on the ag industry, where the lion’s share of workers make minimum wage, are a little tougher to predict.

“Farmers will make less, and farmworkers will make more,” Michael said. “That’s very much the intention of the law. The farmers will also have to  manage the costs.”

Michael believes the new law will accelerate the technology advances already replacing much of the minimum-wage labor force in California. Things like ordering kiosks at fast food restaurants, self-checkout lines at grocery stores or counter service instead of table service at restaurants will become more common.