California has pioneered a new state-level wage standard in its adoption of a $15 hourly minimum, slated for gradual implementation over the next six years.
The current minimum wage — $10 per hour — will see a 50-cent bump by the first of next year and another at the dawn of 2018. The minimum is scheduled thereafter to increase by one dollar annually in order to reach the state’s target wage by 2022 and tie future pay increases to inflation by 2024. Businesses with fewer than 26 employees will have an additional year to comply with the increases.
“Today, we’re not just witnessing the signing of a bill,” State Assembly Speaker Anthony Rendon said. “We’re witnessing the honoring of our social contract, specifically the part that says if you get a job and work hard, you will be able to support your family.”
Governor Jerry Brown signed the landmark senate bill into law Monday morning following approval from the state legislature — by 48-26 on the Assembly floor and 26-12 in the Senate — with each decision determined along a “mostly party-line vote,” according to a report by the Sacramento Bee. Republicans in both houses voted unanimously against the legislation, among them Assemblymember Katcho Achadjian, a frontrunner to replace Rep. Lois Capps in Congress next term.
“Just in the past year, the Governor’s own Department of Finance stated that a minimum wage increase would lead to slower employment growth and slower personal income growth,” Achadjian said in a statement following the Assembly vote.
First District Supervisor Salud Carbajal, one of Achadjian’s leading opponents in the 24th district race, was quick to publicly state his disappointment in the assemblymember’s stance “on the wrong side of history.”
“I am proud to be a Californian today and in Congress I will continue to advocate for hard working families and for raising the federal minimum wage,” Carbajal’s statement read. “No one who works full time should live in poverty.”
That skepticism from Brown’s own administration prompted his insistence on certain insulatory provisions before backing the measure. Per the bill’s current terms, a few economic scenarios can trigger a one-year “pause” by the governor and his successors on any of the scheduled wage increases.
Between each June, when the state traditionally passes a budget for the next fiscal year, and the first of September, when that budget is finalized, the legislature will assess both external economic conditions and internal spending decisions to determine whether such a delay is in order. Should it identify a substantial drop in either sales tax revenue or job growth within the state over the preceding six to 12 months, the governor will be authorized to freeze wage increases for the following year.
Similarly, officials will have two chances over the course of the bill’s timeline to enact a pause if at any point the state projects a spending deficit amounting to more than one percent of its general fund revenue. That projection hinges on the balance in the state’s special reserve fund for economic uncertainties, which by the 2019-2020 fiscal year is expected to dip from $4.2 billion to a negative $1.9 billion — over one percent of the projected $133 billion in general fund revenue for that year.
The bill’s critics are skeptical of these exceptions, many claiming that such brief postponement only serves to kick the proverbial can down the road and ultimately spur a deeper economic recession. Much of this uncertainty stems from a lack of previous evidence, according to Daniel Moncayo, a Ph.D candidate in economics at the University of California, Santa Barbara.
Because no other state has yet attempted a wage policy like California’s, Moncayo said he and fellow academics must rely on broader economic theories to predict the bill’s effects. Basic economics asserts that if “frictions” like a government-imposed minimum wage are introduced in an economy, employment will inevitably suffer due to the disruption of natural supply and demand for labor.
“What is happening is that when you impose a minimum wage that is binding [and] that is higher than what it would be otherwise — without the legislation — what you’re saying to companies is, ‘you must pay this, regardless of how much these people are actually worth in the production of your good,’” Moncayo said.
Furthermore, he said, a wage policy evaluated on a “rolling basis” tends to instill heightened degrees of uncertainty among both employers and employees, a dynamic that has historically proven itself detrimental to business operations. With California ranking among the world’s largest economies, state resources could prove insufficient to artificially maintaining a climate conducive to business growth.
The larger debate among economists over the effect of a minimum wage on poverty is longstanding and contentious. Even while conceding moral support for what state officials have deemed a “living wage,” Moncayo acknowledges a disparity between the ethical intent and reality of maintaining that standard in the long term.
That disconnect also speaks to what Moncayo sees as the politicization of minimum wage policy, which can often lead officials to overlook practicality for the sake of moral ambition. He pointed to alternatives like the federal earned income tax credit (EITC) — a benefit offered by the Internal Revenue Service to lower-income households — as more effective in circumventing poverty.
“The minimum wage seems to be like an axe, when you’d much rather deal with a knife,” Moncayo said. “It seems to me that minimum wage is really great for politics … but do we want politicians to run what we should do in politics, or should we look at more economic-based policies?”