California employers cut hours and reduced benefits in response to the state’s minimum wage hike

Beginning July 1, the minimum wage in Minneapolis is set to increase to $12.50 for small businesses and $14.25 for big businesses. The minimum wage will reach $15 next July for big businesses, and July 2024 for small businesses. This has far-reaching implications for Minneapolis workers, businesses, and the whole city.

Generally, research has shown that minimum wage hikes reduce employment. This effect is particularly significant for young and low-skilled workers. Even beyond that, minimum wage hikes may force employers to cut wages or reduce benefits, as a recent study comparing California and Texas reveals.

Each year between 2015 and 2018, California raised its minimum wage, while Texas did not. A new study compared the work schedules of workers in the two states to analyze how California’s workers fared.

According to the study, California’s minimum wage forced employers to cut work hours.

For every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decreased by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week — which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%.

This decreased elligibility of work benefits.

We found that for every $1 increase in minimum wage, the percentage of workers working more than 20 hours per week (making them eligible for retirement benefits) decreased by 23.0%, while the percentage of workers with more than 30 hours per week (making them eligible for health care benefits) decreased by 14.9%. This suggests that as minimum wage increases, firms may strategically adjust their scheduling practices to reduce the number of workers eligible for benefits: Our estimates suggest that the average store in our California data set recouped approximately 27.5% of the increase in its wage costs through savings associated with reducing benefits.

Workers were also left with more erratic schedules.

In addition to the direct reduction in wage compensation and associated reduction in eligibility for benefits, we also found that increasing minimum wage led to less consistent work schedules, both in terms of the number of hours employees worked from one week to the next, and in terms of the timing of those shifts. A $1 increase in the minimum wage corresponded to a 33.0% increase in fluctuations in the number of hours worked per week, a 9.5% increase in fluctuations in the number of hours worked per day, and 9.8% increase in fluctuations of shift start times. Furthermore, this negative impact on scheduling consistency was generally more severe for workers who had held their jobs for less time, suggesting that newer employees were particularly impacted by these shifts. 

It is well established that the minimum wage is a bad policy. It raises costs for employers, reducing employment for low-skilled workers.

Minneapolis is not immune to the laws of demand and supply that dictate the labor market. As the city’s wage hike law goes into effect next month, that is worth remembering.