Proposition 32 on this year’s ballot would raise California’s minimum wage to $18 per hour, but it would also raise the cost of living. Proponents often claim that previous wage hikes had little impact—usually by focusing on narrow aspects of the issue. This perspective loses the forest for the trees. While the effects of minimum wage hikes might seem small in isolation, they add up across the economy, and the broader impact is clear: lower-income households are disproportionately harmed.
Over the past decade, California’s minimum wage has doubled, from $8 to $16—a real increase of 60%. This marks a sharp departure from the 1% real annual growth between 1991 and 2013. Certain sectors like fast food now pay $20 per hour, and airport workers in Los Angeles earn $19.28, or $25.23 if health benefits aren’t provided.
The push to raise wage floors has been driven by the idea that these policies impose only trivial costs—a notion tracing back to Card and Krueger’s paper. While a small group of researchers continue to support this view, most economists disagree. There is broad acknowledgment that wage floors, when set at reasonable levels, have mild effects. However, California has gone beyond reasonable levels, and the consequences are increasingly obvious.
One report compares an 18% wage increase for fast-food workers to a 3.7% price rise in the industry. But with labor making up 30% of input costs, this means a nearly 70% pass-through to consumers. Focusing only on the price of a hamburger misses the broader point—minimum wage hikes ripple through the economy, raising costs for childcare, groceries, and family services. These increases are passed on to consumers, raising the cost of living, especially for lower-income households who spend a larger portion of their income.
The rising cost of living in California is largely tied to labor policies. In some regions, these policies have driven up living costs by 2% or more, acting as a hidden tax that costs median households over $1,000 annually, according to new research by Beacon Economics. By analyzing Bureau of Economic Analysis Regional Price Parity data, the study estimates how state labor policies have caused the cost of living in California to rise relative to the rest of the nation.
In Riverside, minimum wage hikes since 2013 have raised the cost of living by over 2%, and the proposed $18 wage would add another 0.6%, the equivalent of an additional $400 per year, meaning a typical household will pay about $1,900 more annually than they did a decade ago. In San Francisco, where the relative minimum wage is lower due to higher median wages, the impact would be smaller, with households paying around $800 more per year if the measure passes. While Prop 32 aims to reduce income inequality, it will likely raise the cost of living in the state’s lowest-income areas.
Higher minimum wages also increase unemployment, especially for entry-level workers. Beacon Economics’ recent white paper links California’s rising minimum wage with its rising unemployment rate. The report reveals a non-linear relationship: wage increases to $10 or $12 boost youth employment, but further hikes worsen unemployment. A 2022 study shows Seattle’s $11 wage had little impact, but the jump to $13 caused a significant employment drop.
California’s unemployment rate has risen faster than the national average over the past two years, from 3.8% to 5.3%—a nearly 40% increase compared to the nation’s 17% rise. The state now ranks among the top three for unemployment, a trend driven partly by minimum wage policies exceeding market equilibrium. Proposition 32 is likely to worsen the trend, hitting young workers hardest and increasing living costs for Californians who can least afford it.
Chris Thornberg is the Founding Partner of Beacon Economics and an expert in economic and revenue forecasting, regional economics, economic policy and labor markets.