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California Legislature Passes Measure to Raise Minimum Wage

Late last week the California Assembly and Senate passed Senate Bill 3 (Leno - D), which will increase the state's minimum wage to $15 an hour by the year 2022 (2023 for a business with less than 50 employees). The bill is now headed to Governor Brown's desk and he is expected to sign the measure into law.

Although the minimum wage in California is one of the highest of any state in the union, the legislature has pushed forward with their plan to increase minimum wage, which has been largely praised and supported by leading labor groups in the state. By 2023, Senate Bill 3 will increase the state's minimum wage according to national inflation, with no "off-ramps" to slow the pace of the increases if the economy is struggling or if businesses are suffering from other increased costs. The only "off-ramps" provided for in the bill are limited and at the discretion of the governor.

When combined with the most recent minimum wage increase (raised to $10/hour in January 2016), this measure will cause the state's minimum wage to increase 87% in just 8 years! This significant increase is simply "a matter of economic justice . . . [that] makes sense" according to Governor Jerry Brown, but this economic justice will come with a price tag of approximately $3.6 billion according to a new study performed by a legislative analyst and will largely affect the fragile economies within the state. As one study by Professor Sabia of San Diego State University and Professor Burkhauser of Cornell University concluded, minimum wage increases are often misplaced as they do not actually target those individuals who are living in poverty. Instead, another study by Professor MaCurdy of Stanford University has shown that "[v]irtually as much of the additional earnings of minimum-wage workers went to the highest-income families as to the lowest." According to their study of the 1996 federal minimum wage hike, "[n]early one in five low-income families benefited, but all low-income families paid for the increase through higher prices."

This is another example of Sacramento and Bay Area political leaders joining with labor unions to impose on all of California a law which actually will harm many areas of the state that are primarily supported by small businesses (unlike large metropolitian areas that are home to large corporations). California is not generally a one-size-fits-all state due to its diverse geography, climate, population, and business communities. As a result, this measure will not help everyone, as the politicians claim, and instead will actually harm many people with higher costs.

L. Sue Loftin is the Founder and Managing Shareholder of The Loftin Firm. For questions relating to this blog or any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Loftin at (760) 814-9649. 

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