Economists warned California not to raise the minimum wage to $20 ($24) They were posdibly wrong!
"The results are nowhere as dire as predicted,” Michael Reich, the study author and chair of the Center on Wage and Employment Dynamics at UC Berkeley, told Fortune.
Nearly two years after the law’s passage, economists are seeing very different results than what was initially feared. A working paper from University of California at Berkeley released this month found the policy increased average weekly wages for eligible workers by 11% **and did not reduce employment**. Prices increased modestly, **about 1.5%, or the equivalent of about six cents** for a $4 item.
Was California’s 20 dollar minimum wage hike actually not nearly as dire as some economists had predicted?
byu/YogurtclosetOpen3567 inAskEconomics
Posted by YogurtclosetOpen3567
1 Comment
This keeps getting posted, but the answer is that other strands of research found both employment losses and relatively significant price pass through.
[https://www.nber.org/papers/w34990](https://www.nber.org/papers/w34990)
[https://www.nber.org/papers/w34033](https://www.nber.org/papers/w34033)
[https://www.tandfonline.com/doi/abs/10.1080/13504851.2026.2641130](https://www.tandfonline.com/doi/abs/10.1080/13504851.2026.2641130)
The minimum wage is an incredibly nuanced topic, and analyses like this do it a disservice. Because: (1) employment loss does not mean a minimum wage is a failure; and (2) the minimum wage should be judged on all benefits and all costs, not a small fraction of them. Clemens (author of two of the papers above) has a good article on why assessing non-employment margins matters as well. [https://www.aeaweb.org/articles?id=10.1257/jep.35.1.51](https://www.aeaweb.org/articles?id=10.1257/jep.35.1.51). Economists have known, for at least a decade, that there are other margins that matter for the impacts of a minimum wage. The problem with CA is twofold: (1) it’s sector specific, so likely causes labor frictions for workers who choose to wait for a job here, rather than in other low skill sectors; (2) it’s a large increase, where most findings of minimal employment losses are from small changes.
Here is what we know about the minimum wage.
1. Overall estimates find (at most) small job losses from minimum wage increases. There is a substantial amount of 0 estimates, however. Edit: a recent paper from Seattle with a relatively large increase in the minimum wage did find disemployment, though it was mostly reductions in hours worked. [https://www.aeaweb.org/articles?id=10.1257/pol.20180578](https://www.aeaweb.org/articles?id=10.1257/pol.20180578)
2. There can be positive employment effects, in monopsony models. Empirical evidence of this exists.
3. Even if employment doesn’t fall, there are other mechanisms that exist that can worsen both worker and social welfare: reduced hours of work, reduced non wage benefits, higher prices, reduced training, changes in the composition of the workforce. There’s evidence that these play some role in minimum wage responses.
4. There are secondary positive and negative impacts from minimum wages (externalities) in: crime, education, health, time with children, …. The Neumark paper is a good one for this. [https://www.nber.org/system/files/working_papers/w31191/w31191.pdf](https://www.nber.org/system/files/working_papers/w31191/w31191.pdf)