California plans to increase minimum wage

April 7th, 2016



California’s legislature approved minimum wage increase according to The Los Angeles Times. The current minimum wage in California is $10 per hour, and will increase to $15 per hour over the next six years, which is the highest statewide wage. According to the plan, by Jan. 1, 2017, the minimum wage per hour will be increased to $10.50. After that increase, the minimum wage will increase annually by $1 per hour. By 2022, the minimum wage in California would be $15. According to Los Angeles’ ABC affiliate, Jerry Newman, a professor at the University at Buffalo’s School of Management said, “the most important thing is that California is doing this over a six-year period, that is the smart move.” The plan also states that businesses with fewer than 26 employees have an additional year to comply and if there is an economic downturn, the annual increase of $1 per hour could be pushed back another year.


The Los Angeles Times reported that economists have estimated the measure would increase the pay of about 5.6 million workers across the state. These are the workers that work at the minimum wage. “Workers are struggling,” said California state Senator Mark Leno. “2.2 million Californians are currently earning minimum wage, and they are struggling in poverty because it is a sub-poverty wage.” Many experts hope that this would help alleviate poverty.


This does not mean that raising minimum does not have its downside, according to some experts. Increasing the minimum wage would place pressure on small businesses and governmental budget. The Los Angeles Times reports from the California Department of Finance that by 2023 there would be an increase of $3.6 billion annually on the state budget due to the wage increase.


Some economists are also concerned that the increase in minimum wage would cost jobs in the market because businesses are unwilling to hire employees. According to economic consultant Christopher Thornberg, founding partner at Beacon Economics, employers might decide to cut positions that are low-income. Arindrajit Dube, associate professor of economics at University of Massachusetts Amherst, said “The risk of course is that when you raise wages sufficiently higher, you slow down hiring… When you go big, both the rewards and the risks are bigger.”


Steve Kaplan, a professor at the University of Chicago Booth School of Business, told ABC News, “The big challenge today is we have technology that’s replacing people. With that headwind of technology, the worst thing to do is to make jobs more expensive. Technology is already taking jobs. What you ought to do is make it easier to hire people.”


However, California Governor Jerry Brown is optimistic and says in a news conference in Sacramento, “I’m hoping that what happens in California will not just stay in California but will be exported to the rest of the country.”


Editor’s Note: Information from The Los Angeles Times, NBC News, ABC7 and Reuters was used in this report.