Minimum Wage in California Raising to $15…and Its Possible Effects | DCR Workforce Blog

Minimum Wage in California Raising to $15…and Its Possible Effects

The world is still recovering from the infamous Panama Papers, which reveal how the so-called rich and powerful rulers and citizens of the world stash away their riches in tax havens. They make the efforts of the Pharaohs of Egypt to carry their wealth into the after-life pale in comparison. The obscenely high amounts could throw a light on why California’s Governor Jerry Brown felt that raising minimum wage is a moral act and is needed to balance a system becoming even more unbalanced every day. After all, a minimum wage of $15 is not going to be paid immediately, but gradually raised to that level by 2022. Last year 53.6 million workers in the U.S. were paid less than $15 an hour, of which nine million were in New York and California. Oregon lawmakers recently approved a $14.75 wage for the Portland area with a $12.50 rate in other parts of the state by 2022; while 21 other states still follow the federal mandate of $7.25 an hour.

Many unions have put their weight behind this initiative which proposes to increase minimum wage to $15 for businesses with more than 25 workers and until 2021 for smaller businesses. This is an increase to the bottom rung pay by roughly 10 per cent per year, starting January. After 2022, wages will be tied to the rate of inflation. Let’s take a look at what that means for the state’s employees and taxpayers in the government.

  • It will raise the standard of living for workers impoverished by how the minimum wage has not kept pace with the inflation over the years.
  • A raise in minimum wage helps raise the floor on wages and puts pressure on wages in general to raise. So, it will positively affect the personal finances of millions of Californians who perform low-skill jobs, not only those earning minimum wage in California now but those that are a rung or two higher on the economic ladder. Conversely, higher paid workers may find their pay suppressed, and experience lower salary increases, if not impacted by the higher minimum wage proposal.
  • There is some fear that ‘compaction’ could occur which results in a rejection of roles with higher responsibilities as people prefer jobs that carry less responsibility, when the pay offers little difference.
  • Raising pay may increase the cost to taxpayers, but since the tax comes out of the raised pay, that should not pose an issue. Moreover, it will bring in more funds for Social Security even as there is a reduction in government spending for the poor, which would reduce taxes for all others. The ripple effect of consumer spending, thanks to higher incomes, could positively affect the economy.
  • Entry level jobs may be less, making it harder for someone looking to begin a career.
  • Higher wages may raise employers’ costs and may translate to fewer wage earners. It may also eliminate jobs, especially in roles that can be automated or are in marginal segments of the economy, including agriculture. However, studies show that graduated increases have little impact on unemployment. (Notwithstanding such doomsday warnings, California has lifted its minimum wage twice since 2014 without seeing any rise in unemployment.)
  • Small business owners may be more stressed as they struggle to stay afloat.
  • Prices may go up as businesses try to offset their labor costs.
  • No one knows how a recession in the interim could affect these plans and pauses in the plan need to be invoked, to be triggered in the event of the State experiencing a projected deficit of more than 1% of general fund revenue in a fiscal year or when there is a deficit in the state’s special fund for economic uncertainties.

The State of New York followed close on the heels of California’s minimum wage ruling to approve a $15 hourly wage for businesses with 11 or more employees, and by 2020 for others. Suburbs would reach $15 in 2022 while minimum pay in upstate New York would climb to $12.50 an hour in 2021, then rise based on a formula until it reaches $15. It must be remembered that the purchasing power of the dollar is not the same in all the locations. Location could significantly impact the cost of food, rent and other expenses and alter the lifestyle and living standards of persons who earn identical wages.

What is the minimum wage where you live? How is that impacting business?

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.