President Donald Trump is flying to El Centro, California on Friday, April 5 and then traveling five miles south to the border town of Calexico to inspect a newly completed section of the border wall. He is also scheduled to hold a roundtable discussion with local law enforcement officials.
As Pres. Trump tours California’s Imperial Valley—a rich agricultural region overshadowed by its far larger counterpart, the Central Valley, 200 miles to the northwest—he may want to focus on the negative effects that California’s minimum wage law is having on the non-urban parts of the state.
About 58,500 people work in the El Centro region, which encompasses most of the Imperial Valley for employment reporting purposes by the U.S. Bureau of Labor Statistics. Of these, about 6,200 work in agriculture.
For the past 10 years, the region has suffered from glacial employment growth—adding only 3,300 people to nonfarm payrolls since February 2009 for 6.7% growth over the decade. By comparison, California added 17.8% nonfarm jobs over the past 10 years. In February 2019, Imperial County had an official unemployment rate of 17.4%, the second-highest in the state.
Unfortunately for El Centro and other rural and agricultural parts of California, economic development and job growth is about to become more difficult. That’s because the state passed a minimum wage law in 2016 that imposes a uniform minimum wage, regardless of the vast cost-of-living differences in the most-populous state of 40 million people.
This minimum wage law boosted the state’s minimum wage to $12 an hour for employers with more than 25 employees, increasing every year until it hits $15 per hour in 2022 after which the minimum wage will be indexed to inflation. For 25 or fewer employees, its $11.00 an hour, hitting $15 by 2023. Minimum wage exempt employees must earn a minimum of $49,920.
However, the cost of living in El Centro was 89.3% of the national average in 2016. Statewide, the average, was 114.4%. In Los Angeles it was 117.7% and in San Francisco, 124.7%.
The cost-of-living differences may even be greater than reported by federal statistical bureaus. The average rent for an apartment in El Centro as of February 2019, was $738 compared to $2,855 in Los Angeles, almost four times greater.
Yet, just taking the more conservative federal cost-of-living estimates and applying them to the minimum wage to generate an equivalent buying power shows the threat to El Centro and other low-cost California communities.
Los Angeles has its own, higher minimum wage of $14.25 per hour. Factoring in the cost of living there results in an equivalent buying power of $12.11 an hour nationally. In El Centro, the minimum wage is set at the state minimum, $12 an hour, with an equivalent buying power of $13.44 nationally. This means that employers in El Centro effectively pay more for their labor in real terms than do similarly situated employers in Los Angeles.
The effects of California’s statewide minimum wage law may now be manifesting themselves, at least in the regional employment figures. California’s major urban centers employ about 80% of the workforce. The cost of living in these areas averaged about 117% of the national cost of living in 2016. The remaining 20% of California workers labor in lower cost areas where the average cost of living is very close to the national average: 103%.
The effective minimum wage in the high-cost urban areas is $10.23 an hour compared to $11.66 an hour in the lower-cost parts of California, giving a 14% cost of labor advantage to the urban areas. In El Centro, it’s even worse than that, with the effective wage being $13.44, giving the urban areas a whopping 31% labor cost advantage over El Centro.
The U.S. Bureau of Labor Statistics reports that in the 12 months ending January 2018, urban California’s nonfarm employment grew by 2.4% vs. 2.9% in the lower-cost regions of the state. Non-urban areas can have favorable advantages when it comes to the cost of labor, land, and other businesses costs.
The state’s new minimum wage law was just starting to bite in 2017, going from $10 an hour to $10.50 an hour for businesses with more than 25 employees. On January 1, 2018, it went to $11 an hour.
In the 12 months ending January 2019, however, rural California saw its employment growth fall proportionately 37% below the urban centers, at 1.2% vs. 1.6%. The El Centro region reported nonfarm employment growth of only 1% over the past 12 months.
While it’s true that many factors go into regional employment growth, including taxes, regulatory burden, the availability of land to develop for business and housing, infrastructure, and quality of life issues, the minimum wage and its relative effect due to the cost of living cannot be ignored as a factor—and perhaps a substantial one at that.
One last data point shows just how hard hit El Centro may be unless California’s Legislature amends the minimum wage law to account for regional differences: in May 2018, the annual mean wage for all occupations in El Centro was $45,540. Now, in 2019 the minimum wage for exempt employees in California is $49,920.
Will El Centro employers gain a productivity boost to be able to pay higher wages? Or, will they simply be forced to lay off some employees? The employment data suggests that the latter may be happening in California, contributing to the decline of rural areas.