When Governor Jerry Brown recently signed a new law to increase the minimum wage 50 percent by 2022, it was hailed by some as an historic achievement that will reduce income inequality. But I fear that when the law is fully implemented, income inequality will remain virtually unchanged while making opportunity inequality even worse.
The new law is a short-term “fix” that will create long-term negative impacts. Although the new law gives businesses with 25 employees or fewer more time to comply, this “concession” merely delays the inevitable choices they may have to make — reduce hours, raise prices or cut workers — or all of the above.
When the Legislature considered the minimum wage proposal, I received many calls and emails from concerned constituents and small business owners from North County and beyond. Some said they may have to move to another state with lower costs. My discussions with them confirmed my belief that raising the minimum wage is a false promise to those who are struggling to get ahead.
Let me share what I have heard from businesses on Main Street.
First, they have had to absorb higher costs from the Affordable Care Act and new sick pay mandates. They are also dealing with increases in the cost of workers’ compensation insurance and new costs for complying with various environmental regulations.
And these businesses are still struggling to absorb increases to the minimum wage that the state mandated in recent years: a 12.5 percent increase in July 2014 and another 11.1 percent hike earlier this year.
Now the minimum wage is set to incrementally increase from the current $10 to $15 in 2022, and perhaps more as it will be indexed annually for inflation thereafter. If you ran a small business, could your budget absorb that kind of increase while keeping the same number of employees?
When the California Restaurant Association and I held a roundtable discussion last October with local restaurant owners at Encinitas’ Roxy Restaurant and Ice Cream, they said that existing laws and regulations made it difficult for them to stay in business. Rising costs could force them to hire less. It is not just small business owners saying this. University of California, Irvine, economics professor David Neumark recently estimated that the minimum wage increase could cost five to ten percent of low-skilled workers their jobs.
One medium-sized business I spoke with, that currently has multiple locations, outlined the impacts that closing just one location will have:
- 30 employees will lose their jobs, many of which are senior citizens supplementing their retirement incomes;
- 25 sales representatives will have one less account to call on;
- There will be one more vacancy in a community shopping center; and
- There will be a loss in sales tax revenue to the state.
This is just one example of the impact to the private sector. But what about the public sector?
The hit to California’s General Fund has been tabbed by the governor’s own Department of Finance at $4 billion annually by 2021. This is because the state employs many workers earning minimum wage. It is ironic that the governor once opposed increasing the minimum wage because it would hike government’s cost. But apparently he found an extra $4 billion each year to pay for the new mandate.
Given that the governor is saying that the state does not have enough money to repair our deteriorating roads and bridges, his decision to add another $4 billion to the state budget is curious. This tells me that Sacramento has a spending problem, not a revenue problem.
As a former social worker who worked in some of our state’s most troubled communities, I found that many people just wanted an opportunity to move up. Their goal was not to earn a higher minimum wage because they did not want to be stuck in a minimum wage job for life. What they wanted was a good education and the opportunity to pursue their dreams. California should be focusing on boosting educational opportunities for all and making it easier to invest in our state.
Instead, California has just passed a mandate making it more expensive to create jobs, which may lead to a perverse result — fewer jobs.