PAYDAY Workforce Solutions Blog

California Finance Office Opposed to Minimum Wage Hike

On Oct 29, 2015

In June 2015, the California state Senate approved a bill to raise the minimum wage from $9 to $11 an hour and boost it again to $13 in 2017. Supporters say it is necessary to give millions of workers a living wage. Detractors say the state’s economy can’t withstand the $393 million in increased costs and negative effects on business.

Supporters and Detractors

Sen. Mark Leno (D-San Francisco) introduced the increase in SB 3 because a quarter of the state’s 38 million residents live in poverty, according to the U.S. Census Bureau.

He says it should be illegal to pay sub-poverty wages in California, and claims the wage increase would boost the economy. He claims that the state is currently subsidizing employers who pay sub-poverty wages because lower wages mean the state provides financial assistance to those low-income families. He also believes that working families would spend more money in California communities.

Governor Jerry Brown has a different view on the minimum wage increase, and is opposing the bill that would raise California's $9 minimum wage to $11 an hour on Jan. 1 and boost it again to $13 a year later.

The finance office claims the proposal will cost hundreds of millions this year, almost $1 billion next year, and increase thereafter. The governor agrees, so the bill would likely be vetoed if it gets to his desk.

Senator Leno plans to try to convince the governor of the value of the minimum wage hike to the state’s economy. He claims it will generate greater sales and income tax revenue and stimulate spending that would match or exceed any additional costs it creates. He says a Department of Finance report on the probable negative effects on the state’s economy are flawed because it didn’t analyze the benefits he claims have been verified by the California Research Bureau.

The Department of Finance report was cited by those with concerns about raising the minimum wage, such as Senate Minority Leader Bob Huff (R-San Dimas). Huff agrees that low income families need help to rise from poverty and join the middle class, but agrees with the Department of Finance report that raising the minimum wage would hurt low income families. Huff says raising minimum wage wouldn’t benefit low income families with more jobs and higher incomes because it would have a negative effect on businesses and slow opportunities for higher income.

Others agree, even though the Senate approved the bill 23-15. Senator Jeff Stone (R-Murrieta) believes that raising the minimum wage would force businesses to cut their number of workers and hurt the economy by causing job loss. Senator Tom Berryhill (R-Modesto) says raising the minimum wage isn’t a strategy to improve the economy because “Minimum wage was never meant to be a living wage. It is a start-up wage for kids.”

Impacts on Employers

While low-income workers would see their wages almost doubled with the hike to the minimum wage, employers would experience varying effects. Some struggling small companies may have to close down if forced to pay higher wages, while others might benefit from losing weaker rivals and gaining new customers. Most employers would have to pass the increased costs of labor on to their customers in the form of higher prices and possibly lay off workers or pare back on service offerings.

Even though there are convincing arguments on both sides of the minimum wage hike issue, the outcome seems to depend on how convinced the Governor is one way or the other. The Department of Finance opposition to it seems to indicate it is in jeopardy.

Leno’s bill, SB 3, awaits a decision in the Assembly.


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