UC Berkeley study suggests positive effects of increased minimum wage

Dani Sundell/Senior Staff

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A report conducted at UC Berkeley’s Institute for Research on Labor and Employment found that the benefits of raising the minimum wage to $15 per hour will outweigh the costs, even within less affluent areas.

Campus economists Michael Reich, Sylvia Allegretto and Claire Montialoux conducted the research throughout California as well as in Fresno County, one of the poorest towns in both the state and the U.S. According to the report, the researchers focused on Fresno County because similar studies had already been conducted in more expensive cities in California.

The report details specific effects on workers, business owners and consumers and employment as a whole.

Jesse Rothstein, UC Berkeley associate professor of economics, said he considered the study important, as it dispels some of the worries that critics of a higher minimum wage may have.

“This study suggests that there’s a fair amount of room for the nation to raise the minimum,” Rothstein said. “The negative effects are not as bad as some people are worried about. Higher minimum wage will lead to greater consumer demands.”

Increasing the minimum wage is expected to generally prove beneficial for workers. The economists’ research found that 5.26 million workers would see an increase in earnings, and annual pay would increase by 25.4 percent. Those who would receive pay increases earn approximately half of their family’s income and are currently less likely to have employer-sponsored health insurance.

According to the report, retail trade, restaurants and health services employees would see increases, with 79.2 percent of restaurant workers earning more.

From a business perspective, there are positive effects, as well. Employers would see increases in employee productivity and reduction in employee turnover, which would offset costs.

Small businesses, however, take an immediate hit from the rising minimum wage. Nefeli Cafe owner Abraham Rodriguez said that while he thinks a higher minimum wage is a good idea, it should be more prevalent in bigger companies.

“People deserve more money … but it hurts small businesses, definitely,” Rodriguez said. “It’s hurting me.”

In order to keep up with a higher minimum wage, businesses would have to increase their prices by 0.6 percent, although the report points out that this is less than the current annual rate of inflation — 1.8 percent.

The report also projects a slight increase in employment, with a 0.1 percent growth in California by 2023. In the context of Fresno County, the percentage is closer to zero, but still positive.

“It’s difficult to predict the short-run effects for small cities like Berkeley that are on a faster pace to $15,” Reich said in an email. “The results should be similar for the East Bay as a whole.”

Contact Revati Thatte at [email protected] and follow her on Twitter at @revati_thatte.