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NULab Faculty Alicia Sasser Modestino Comments on California Minimum Wage Increase

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Reposted from Northeastern Global News

By Cyrus Moulton

Most fast-food workers in California got a raise on Monday, as the state implemented a $20 per hour minimum wage for the industry. 

A Northeastern University economist says that such targeted minimum-wage increases may be a new strategy in progressives’ tool box. 

“I think what’s interesting is the strategy is new,” says Alicia Modestino, an associate professor of economics in the School of Public Policy and Urban Affairs and research director for the Dukakis Center for Urban and Regional Policy at Northeastern. “Gov. Gavin Newsom didn’t raise the state minimum wage. He raised the minimum wage for workers in particular industries, which is a much more targeted and nuanced approach.”

“I think it’s an interesting new strategy for progressives to be able to either make an argument for, or find the political will to, increase minimum wages,” Modestino continued.

On Monday, April 1, a new California law kicked in that raised the minimum wage for fast-food workers to $20 an hour, the highest guaranteed base salary in the industry. 

Democratic leaders billed the law as an acknowledgement that most of the state’s 500,000 fast-food workers are primary earners for their low-income households. 

But Modestino also found the politics involved to be interesting.

In exchange for higher pay, labor unions — which have worked to organize fast-food workers — dropped their attempt to make fast-food corporations liable for misdeeds of independent franchise operators in the state. The industry, meanwhile, agreed to pull a referendum related to worker wages off the 2024 ballot. 

The law also was passed just before two major events in October. That month, Newsom signed a law raising the minimum wage for health care workers to $25 an hour and — a day later — striking Kaiser Permanente health care workers won a 21% raise over four years to resolve the largest health care labor dispute in U.S. history. 

Again, the health care workers raise involved compromise: this time a deal among hospital lobby and health care providers and labor unions.

In the context of these events, Modestino notes that the new minimum wage for fast-food workers is interesting for what it didn’t do — increase the state’s minimum wage for all workers from $16.

She says this likely reflects a political calculation that such targeted minimum wage increases are more palatable — “the minimum wage is the most contentious topic in economics you could ever pick,” Modestino says — than an across-the-board minimum wage hike. 

“He probably doesn’t have the political will of the state legislature to raise the state minimum wage, but it’s also — from an economic point of view — more efficient,” Modestino says. “You do cause a little bit less economic disruption because it’s not the whole state.”

Modestino also notes that the Roosevelt Institute think tank reported that between 2014 and 2023, fast-food prices increased by 46.8%, compared to 28.7% for the average of all prices, according to the Bureau of Labor Statistics. 

“If the cost structure is such that it warrants a higher wage — like in health care, which has a higher revenue model — and if it’s the case that prices have increased more in the fast-food industry, then this makes a lot, lot more sense than raising the entire minimum wage for the whole state,” Modestino says. 

As for whether other states might see similar strategies, Modestino says she wouldn’t be surprised.

“If the push for $20 an hour isn’t working, the push for $25 an hour in health care is working. So go with that for now,” Modestino says.

But she adds that $20 an hour may not be the most appropriate goal for all states.

“Raising the minimum wage across the nation is something that advocates have been pushing for, but it’s also not such a great thing to have a one-size-fits-all approach because we have different cost structures in different states,” Modestino says. 

“Going to $20 an hour in some place where the median wage is $10 an hour would put a lot of companies out of business,” Modestino continues. “So, allowing states to do these different things and being more flexible makes a lot more sense.”

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