California Is Moving Toward An $18 Minimum Wage. (Will $25 be next?)
Will an even higher minimum wage help lift more people out of poverty, or drive more businesses out of California?
QUICK FACTS:
California’s minimum wage is $15 per hour for employers with 26 or more employees, and $14 an hour for employers with 25 or fewer employees (until 2023)
As passed in 2016, California’s minimum wage will be tied to the Consumer Price Index and rise up to 3.5 percent each year beginning in 2023.
Proponents of the Living Wage Act of 2022 are now gathering signatures for a November ballot initiative to increase the state’s minimum wage to $18.
As California becomes more and more expensive to operate in, companies have been “rapidly leaving,” according to the Hoover Institution.
DETAILS:
On January 1, 2022, California’s minimum wage went to $15 per hour for employees of all employers with 26 or more employees. For employees of employers with 25 or fewer employees, the $15 minimum wage will take effect on January 1, 2023.
Those wages may only be temporary, however, because advocates now believe that $15 per hour is too low.
Although the current minimum wage is tied to the Consumer Price Index (beginning in 2023), advocates now want the minimum wages to go to $18 per hour and are pushing a ballot initiative to let California voters decide in November.
The Living Wage Act of 2022
“If you work full time, you should be able to live with full financial security, and that’s not the case in California,” said investor and anti-poverty crusader Joe Sanberg last December. “We were a leader in pushing for a $15 minimum wage, but now we have to move the ball forward and farther. It’s overdue for $18.”
Sanberg, a multi-millionaire, is currently funding the campaign to get signatures on the ballot in November.
If the measure succeeds, it will give some 5.5 million people in California a raise of more than $6,000 per year, notes CNBC.
If the measure goes onto the November ballot and it passes and is signed into law, explains CNBC, “the measure would gradually raise the minimum wage in California to $18 from $15 by 2025. That means that it would increase to $16 in 2023 and $17 in 2024. This would apply only to businesses with more than 25 employees – those with fewer than 25 employees would reach $17 an hour in 2025.”
Like the $15 minimum wage law currently in effect, the $18 minimum wage would also be tied to the Consumer Price Index, according to documents [in PDF] Sanberg filed with the California Attorney General’s office in January.
In the past, Sanberg has advocated for a $25 minimum wage—a position he still holds today.
For Californians, though, even if the minimum wage is raised to $18—or even $25—it still might not be enough.
Earlier this month, California’s Secretary of State Shirley Weber cleared the way for Sanberg and supporters of increasing the minimum wage to begin circulating petitions to get it on the November ballot.
Proponents have until August 8 to submit signatures from at least 623,212 registered voters in order to qualify the initiative, reports the Sacramento Bee.
Not Without Costs
When Congress was debating passing a $15 federal minimum wage, a 2021 report from the Congressional Budget Office found that raising the minimum wage to $15 an hour by 2025, while it could lift 900,000 out of poverty, it could also lead to 1.4 million job losses.
Even before the minimum wage went to $15 this year, California companies were already “rapidly leaving” the state, according to a study by the Hoover Institution.
According to the Hoover Institution, these Bay Area migrations “reflect high-tech companies […] opting for less expensive locations not only to control business costs but to lure workers who want to avoid living in ultra-expensive Silicon Valley or San Francisco.”
As an example of companies “opting for less expensive locations, the California Policy Center, an educational non-profit “working for the prosperity of all Californians by eliminating public-sector barriers to freedom,” maintains a database called the California Book of Exoduses, which documents the ‘exodus’ of individuals and businesses leaving the state.
While tax and regulatory policy are two of the main drivers for companies to leave California, the Hoover Institution found additional reasons [in PDF] why companies leave:
Regarding labor costs, reasons exist for why compensation in California is higher than in other states. California employees often have (or demand) elevated wages to meet the high cost of living, excessive housing prices, burdensome income tax rates, expensive utilities, and in some cases payments for private schools to avoid the failing public school systems. For an employer, labor costs are higher than elsewhere when comparisons are made of charges that include not only wages and salaries but employer-paid statutory benefits and fringe benefits.
Presuming Sanberg succeed with his Living Wage Act of 2022, whether that helps (by lifting more people out of poverty) or hurts (by driving more companies and people to flee the state), only time will tell.
Related: Top Reasons Why People Are Moving Out of California
Further Reading: The Fight for $20 and a Union: Another California Minimum Wage Earthquake?