Economic Idiocy: California Hikes Minimum Wage to $10/Hour by 2016

In a two-step move, in the wrong direction, California signs law raising minimum wage to $10/hour by 2016

California has become the first state in the nation to commit to raising the minimum wage to $10 per hour, although the increase will take place gradually until 2016 under a bill signed into law by Democratic Governor Jerry Brown on Wednesday.

The law raises minimum pay in the most populous state from its current rate of $8 per hour to $9 by July 2014 and $10 by January 2016. The state with the highest minimum wage currently is Washington, where employers must pay at least $9.19 per hour.

State Assemblyman Luis Alejo, who authored the wage hike bill, said the increase would help working people pay for necessities in a state where rising costs have long outpaced wage increases for the poor and working class.

"We have created a system where we pay workers less but need them to spend more," Alejo said in a statement. "That causes middle-class families to fall down the economic ladder. It's the reason our middle class is shrinking and the reason we are facing the largest gap between upper- and lower-income Californians in at least 30 years."

Economic Idiocy

We do not need people to spend more. Realistically, we need people to save more. Higher prices (which are going to be the end result of this move) are all but guaranteed to eat up most of the presumed benefit.

Worse yet, these minimum wage hikes will hurt small businesses the most. Walmart may be able to maintain profit margins by hiking prices a few cents, but many low-volume retailers will feel the pinch.

Economic idiots blanket the California and Illinois state legislatures and the results are easy to spot. Illinois and California are two of the most economically distressed states, with the worst improvements in the unemployment rate during the recovery. Hikes in the minimum wage are guaranteed to make the situation worse.

California, Illinois, US Unemployment Rates

• California Seasonally Adjusted Unemployment Rate: Blue
• Illinois Seasonally Adjusted Unemployment Rate: Green
• U.S. Seasonally Adjusted Unemployment Rate: Red

California and Illinois are two of the most business-unfriendly states you can find, and the results speak for themselves.

Both states nearly always have higher unemployment rates than the national average, and both states perform miserably following every recession.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com