MINIMUM WAGE INCREASE, AN EVALUATION OF ITS SOCIAL AND ECONOMIC IMPACT By Yaquelin Barrera A Policy Analysis Presented to the Faculty of the Department of Public Policy and Administration School of Business and Public Administration CALIFORNIA STATE UNIVERSITY, BAKERSFIELD In partial Fulfillment of the Requirements for the Degree of MASTER OF PUBLIC ADMINISTRATION May 2017 Copyright By Yaquelin Barrera 2017 MINIMUM WAGE INCREASE, AN EVALUATION OF ITS SOCIAL AND ECONOMIC IMPACT By Yaquelin Barrera This thesis has been accepted on behalf of the Department of Public Policy and Administration by their supervisory committee: as R. Martinez, Ph.D. Date irst Reader Jinping Sun, Ph.D. Date Second Reader Dedication This thesis project is dedicated to all the first generation college students. Everything is possible with commitment and determination. “But you, be strong and do not lose courage, for there is reward for your work” – 2 Chronicles 15:7 Acknowledgements I would like to thank my Dr. Jinping Sun, Dr. Thomas Martinez, and Dr. Steven Daniels for all their hard work, dedication, and guidance over the last two years. Essentially without their support, thoughtful encouragement, and feedback, this project would have not been possible. Table of Contents Abstract .................................................................................................................................................... ii Chapter 1 – Introduction .................................................................................................................... 1 Statement of Problem...................................................................................................................................... 3 Purpose of Analysis .......................................................................................................................................... 4 Importance of the Analysis ............................................................................................................................ 4 Primary goal ....................................................................................................................................................... 5 Definition of Terms .......................................................................................................................................... 6 Chapter 2 – Review of Literature ................................................................................................... 14 Background ...................................................................................................................................................... 14 The Law of Supply and Demand ............................................................................................................... 14 Keynesian Economics Theory ................................................................................................................... 15 Minimum Wage Evolution .......................................................................................................................... 16 Minimum Wage Among the States ........................................................................................................... 19 Chapter 3 – Policy Analysis .............................................................................................................. 30 Cost of goods and services impact ........................................................................................................... 30 Private and public sector ............................................................................................................................ 31 Income equality and inequality ................................................................................................................ 36 Chapter 4 – Summary ......................................................................................................................... 39 Conclusion ........................................................................................................................................................ 39 Implementation Recommendations ....................................................................................................... 39 Research Recommendations ..................................................................................................................... 40 References ............................................................................................................................................. 41 Appendix A ............................................................................................................................................ 47 IRB Letter .......................................................................................................................................................... 48 Minimum Wage Cartoon .............................................................................................................................. 49 Keynesian Economics Theory Cartoons ................................................................................................ 50 Supply and Demand Theory Chart ........................................................................................................... 51 i Abstract When it comes to minimum wage it is a complex subject to grasp, since it affects everyone and the economy as a whole. Even economist’s perspectives vary amongst them on the effect that raising the minimum wage has on society. For example, some economist states that many people have the misconception that when the minimum wage goes up that they will be jobless. Meanwhile other economist argue that raising the minimum is essential, since it closes the wide gap between the rich and the poor. It also gives them an opportunity to have higher possibilities of living above the poverty line. Throughout the 51 states in the United States the minimum wage varies in the sense that some states minimum wage is still at $7.25 an hour; however, there are states that have their minimum wage as high as 15 dollars. It goes to show that depending on the particular state that what may work for one may not work for the others. This study analyzed the outcomes and impact of raising the minimum wage every year until 2021 in California. Despite both sides point of view this analysis was to give an overview of the causes and effects of minimum wage. Lastly, summative recommendations were made based on the analysis. The following three essential outcomes were examined: the cost of goods and services impact; private and public sector; and income equality and inequality. Based on my analysis it is recommended that the minimum wage to continue to be increased as necessary as there were no studies or statist supporting the negative impact minimum wage has particular in the three outcomes: the cost of goods and services impact; private and public sector; and income equality and inequality that were examined. Conducting additional research for a general sample earning minimum wage would provide more accurate results and unbiased results. As of now, there is not enough unbiased study clarify such a huge impact these to variables have. ii 1 Chapter 1 – Introduction Minimum wage is a standard rate by law employers are required to enforce. The primary of purpose of a minimum wage was to avoid child labor as adults being overworked and most importantly adults being under pay. Basically, the purpose of minimum wage is to set a standard rate for certain people to get paid hourly and sets standard overall working hours. It is against the law to pay your employees below minimum wage and make them work more hours without paying them “overtime”. Although minimum wage sets a standard hourly rate, many workers are still considered low-income since his or her annual income is not high enough. In addition, minimum wage workers believe they are being underpaid, which causes there to be a gap between being wealthy and poor. Although employees are earning minimum wage their annual income is below poverty. Having these families’ income below poverty wages leads to government assistance rates to increase as well. However, the majority of corporations and businesses such as retailers, supermarket stores, and so on consist of minimum wage employees that will significantly benefit from an increase in minimum wage. The increase of minimum wage is stated to have an overall impact on private and public sectors, social class, the cost of goods and services and so on. People at or below minimum wage are the following: “disproportionately young 50.4% are aged between 16 to 24, 24% are teenagers between 16 to 19, 77% white, nearly half are white women, and lastly 64% of the total are largely part – time workers” (DeSilver, 2014, p. 1). The Bureau of Labor Statistics reported in 2013, 1.532 million hourly workers earned the federal minimum of $7.25 an hour, which is 1.8 million more earned less than that because they actually fell under one of the several exemptions such as tipped, employees, full – time students, certain 2 disabled workers and so on that for a total of 3.3 million hourly workers at or below the federal minimum (DeSilver, 2014, p. 1). (See figure). Figure 1: Federal Minimum Wage, 1938 – 2013 Source: Retrieved from Pew Research Center: Who makes minimum wage? By Drew Desilver, 2014 People at or below minimum wage are employed in industries and occupations such as food preparation and serving associated occupations,