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Minimum wage increase may benefit Valley, says economist

POSTED September 27, 2013 10:13 p.m.

The California minimum wage is set to increase to $10 per hour by 2016 after Governor Jerry Brown (D) signed the bill into law on Wednesday.

While the bill passed the State Senate with a vote of 26-11, and in the Assembly by 52-25, the minimum wage increase has seen a mixed reaction throughout the state.

The California Chamber of Commerce labeled AB 10 as a “job killer,” saying in a letter to the members of the California Legislature that the bill would drive up costs for all California businesses and “may jeopardize any economic recovery California is enjoying.”

After signing the minimum wage increase into law, Gov. Brown said that he sees the bill as means to help California’s working families.

“It’s a special day to stand with workers who are laboring for all of us and laboring at a very low wage. Turning that wage into a $10 an hour wage is a wonderful thing," said Governor Brown prior to signing AB 10 in Los Angeles. "It’s my goal and it’s my moral responsibility to do what I can to make our society more harmonious, to make our social fabric tighter and closer and to work toward a solidarity that every day appears to become more distant."

The newly signed law will see the California minimum wage increase in two one-dollar increments from the current $8 per hour to $9 per hour effective July 2014, and from $9 to $10 per hour, effective January 2016.

Over the past several years, local economist Gӧkҫe Soydemir has followed the continuing economic recovery since the Great Recession in the San Joaquin Valley. And while Soydemir notes that the structure of the labor market creates a great divide between economists, there is reason to believe a higher minimum wage could benefit the Valley.

“Some believe that the labor market is closer to a perfectly competitive market structure, while others believe that it is closer to a monopsonistic market structure where there is a single buyer and many sellers,” said Soydemir, the Foster Farms Endowed Professor of Business Economics at California State University, Stanislaus. “In the case of the former, minimum wage is inefficient and leads to misallocation of resources. In the case of the latter, however, minimum wage can be efficient, leading to a more optimal resource allocation. Evidence, so far, supports the second view of favoring minimum wage.

“When economic conditions begin to improve, such as the current recovery we are going through at the moment, aggregate demand increases thus rendering the existing minimum wage ineffective,” he continued. “Under these circumstances, it would make sense to increase minimum wage to make it effective once again.”

According to Soydemir’s 2013 San Joaquin Valley Midyear Update report, wages have been falling behind recovery in the Valley.

 In his report Soydemir found that in 2012 the weekly wage growth did not keep up with inflation in the Valley, with wages declining further at a yearly rate of 1.67 percent in the third quarter of 2012, when the inflation rate registered at 2.2 percent. 

“From this perspective, it would make sense to increase minimum wage,” said Soydemir. “It would also bring the Valley economy closer to a more efficient outcome reflecting those conditions if perfectly competitive market forces prevailed."

Soydemir also noted that with the high presence of unskilled workers in the Valley, a higher minimum wage would be beneficial for Valley workers.

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