California's $10 Minimum Wage: Still Not High Enough?

June 29, 2012 - Modesto, California, U.S. - DARRYL BUSH/dbush@modbee.com - Brittany Peralta, 17, of Salida, hands out a receipt
Alamy
Last week, California became the first state in the U.S. to pass a law creating a double-digit minimum wage, with Gov. Jerry Brown signing legislation that will increase the current $8 per hour minimum wage to $9 next July and to $10 by the beginning of 2016. The move is the first for the state's wage since an increase in 2008 brought it to its current level.

Unfortunately, even a boost to $10 won't necessarily address all the concerns that policymakers have about low-income workers.

Costs of living are high enough in California that employees there need to earn more than in most states in order to make ends meet, according to figures from the Massachusetts Institute of Technology's Department of Urban Studies.

Still, California's move renews a long debate about minimum wages and their impact on the economy.

The Controversy Over Minimum Wages

Opponents argue that higher minimum wages hurt small employers, reducing their ability to retain current employees and hire new workers. Proponents point to the need to pay employees enough to make ends meet, and as costs of living steadily rise, stagnant wages leave low-income families having to work harder to cover rising expenses.

But as MIT's Living Wage Calculator reveals, the costs of living in California are high enough that even a $10 per hour minimum wage isn't sufficient for residents to meet even basic needs. Using estimates of costs for housing, food, transportation, medical care, and other expenses, the calculator estimates that even a single adult with no children would need to earn $11.20 per hour in order to cover basic costs of living.

For families with children, the costs are even higher. Single parents see their costs more than double, requiring $22.70 per hour in order to earn enough to cover them. Added demands for housing, food, and medical care play a role in the increase, but child care represents another huge added expense. Even in two-parent households, a minimum wage isn't enough to make ends meet, regardless of whether the parents both work to earn the most income or one parent stays at home to reduce child-card expenses.

Moreover, certain areas of California are even more expensive. In San Francisco County, for instance, it costs $12.83 per hour for a single adult to make ends meet, and more than $26 per hour for a single parent.

Limited Options

The MIT calculator also looks beyond costs to determine what types of jobs pay adequate wages to keep families afloat financially.

In California, most of the more modest-paying occupations -- including food preparation, personal care, sales, and office and administrative work -- don't pay enough to allow a single parent with one child to cover expenses.

Instead, only those with better-paying jobs -- like in the education, health-care, technology, and financial fields -- enjoy typical hourly wages high enough to meet their money needs.

Where Minimum Wage Goes Further

There are places in the country where $10 an hour would be enough for some families to get by.

In North Dakota, single adults can cover costs with a job paying $7.37 per hour, just above the federal $7.25 per hour rate that governs wages in that state. Similarly, two-parent families with one child can get by if they both work and incur reasonable child care costs.

Yet even with California's recent move, efforts to boost the national minimum wage haven't made much progress. Given that more than half of states pay the same rate as the national minimum, a higher federal minimum wage would have a big impact on the entire nation.

Meanwhile, policymakers will be watching in the years to come to see how California's increases will affect workers and businesses and how they interact.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

21 Comments

Filter by:
mac2jr

Come on folks, businesses will raise selling prices to the highest level possible as long as there are a sufficient number of buyers that have the money to pay.

Thus, businesses cater to the wealthy, and the folks on the bottom will continue to fall into more and more poverty, unless something is done to help them increase their earning;

What are those somethings? Free College, Increased Minimum Wages, Lower Cost Medical Care, and UNIONS that can fight for those not in the 1% to 10% billionaire class..

October 03 2013 at 1:33 PM Report abuse rate up rate down Reply
mac2jr

Why did the California government decide there was a need to raise the Minimum Wage to $10.00 per hour.. Simply put, business has increased its sales prices to the point that a working person no longer can afford to live in California. So, many here are in a 'loop' mode, 'if the wages go up the selling prices have to go up', and nobody wins.

So, the solution is to DROP all the wages to the foreign competitor wages of $2.00 per day, this will then FORCE the Business community to drop the Sales Prices of all goods, including food, rents, mortgages, etc., RIGHT?

October 03 2013 at 1:30 PM Report abuse rate up rate down Reply
rini1946

right what they need to do know is close the borders till our unemployment numbers go down then the wages will rise because less workers more pay. and we also need for you people to (as hard as it is )to buy quality stuff made here.

October 03 2013 at 12:19 AM Report abuse -1 rate up rate down Reply
1 reply to rini1946's comment
rini1946

oh forgot I wonder why calif is going broke

October 03 2013 at 12:19 AM Report abuse -1 rate up rate down Reply
Mark Sabbai

Hiking minimum wage to $10 will hurt consumers and small businesses in the long run. Small businesses will pay more to less employees...and provide less full-time jobs. Govt. should not dictate minimum wage and allow the free market to decide.

October 01 2013 at 11:34 AM Report abuse rate up rate down Reply
Gg

Where did this whole mess start?

October 01 2013 at 10:40 AM Report abuse rate up rate down Reply
Sonny

Just raise the minimum wage on up and run everyone out of business. That is the desired result.... right? Then everyone can go on Govt assistance and there will be more voters for the liberals and socialists. Sounds like a plan to me..................!! Hutty up, I am getting tired of working.

October 01 2013 at 10:13 AM Report abuse -1 rate up rate down Reply
franco.anastasia

Plain and simple, if you are in your 40's and you skill level is that of a greeter at Walmart, you did something really dumb with your life. Secondly, if you are not educated, have no skills at all, you have no right having children.

October 01 2013 at 9:54 AM Report abuse -1 rate up rate down Reply
BR549

$10.00 an hour maybe wouldn't be all that bad, depending on where you live, if they could get the whole $10.00 right now, instead of the $2.00 raise being strung out in bits and pieces, finally reaching the $10.00 in 2016. Doing it in bits and pieces till 2016, will make that $2.00 raise about as worthless as the $8.00 is right now. For God's sake, if you're going to give someone a raise, then give it to them, and if you're not, then don't.

October 01 2013 at 9:42 AM Report abuse +3 rate up rate down Reply
dave

if it costs more in employment it will cost more for goods and services. its a wash then we will need to raise minimum wage again then the price for goods and services will go up then we will need to raise minimum wage and the price............. do you get it now!

October 01 2013 at 9:29 AM Report abuse -1 rate up rate down Reply
Michael

So, let's see....you pay people 10 dollars an hour. The increase is passed down to the consumers. The people making 10 dollars an hour pay more for everything they buy. Hmmmm..... Makes sense to me....Thanks lawmakers.....what a great thing you are are doing....What a joke.

October 01 2013 at 9:29 AM Report abuse -1 rate up rate down Reply
1 reply to Michael's comment
Sonny

It appeals to a few people, so that means more votes for the politicians.

October 01 2013 at 10:14 AM Report abuse rate up rate down Reply