September 23, 2023
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Dubroff: Raising minimum wage to $15 per hour will hurt businesses


Henry Dubroff

Henry Dubroff

Having pushed through one of the largest tax increases in California history, Gov. Jerry Brown has now put his stamp on a minimum wage hike that will likely take away as much opportunity as it provides.

A pragmatist and fiscal prude, Brown jumped into the minimum wage debate and wrung from union advocates concessions that would not have been included in two proposed ballot measures.

What California does get is a phased-in $15 per hour minimum wage, with built in deferrals in case of a recession or stock market meltdown that causes state revenue to fall. Under the agreement, the minimum wage would rise from $10 to $10.50 in 2017, $11 in 2018 and then another dollar each year through 2022.

But the governor’s deal with the left-leaning legislative leadership will have deeply negative impacts on smaller business, on young professionals and on those at the very bottom of the employment ladder. It would have been much smarter if he’d held out for indexing future minimum wage hikes to inflation beginning now instead of more than half-a-decade in the future.

That’s because while Gov. Brown and the legislature get the right to suspend these pay hikes in the event of a recession, small businesses don’t get the right to plead hardship. And small businesses have plenty to worry about when considering that baseline wages for most will be going up 50 percent. Businesses with fewer than 25 employees get one extra year.

Today, very few small businesses have the ability to raise prices at all – many will be facing declining prices, particularly if they sell products online. My guess is that as the minimum wage takes hold and the gap between California and other states widens, small businesses will begin to move elsewhere as they start to grow, especially past the 25-employee mark.

These will not be high-profile departures like CKE Restaurants, which is moving from Carpinteria to Nashville. Instead it will be small companies that elect to grow in other states.

When it comes to young workers, the problem is that as the minimum wage steps up so does the minimum salary requirement for exempt workers. Set by law at two times the minimum wage, it recently jumped from below $40,000 to around $43,000. When the minimum wage hikes are done, that translates to a $62,400 in order for workers to be exempt from overtime rules.

What happens as the level for exempt pay rises is that more and more professional employees lose their exempt status, have to fill out time cards and are consigned to what amounts to second-class status in most professional organizations.

They will lose the opportunity to become fully engaged as managers, participate in those after-hours activities that are key to advancement and learn important middle management skills. The disruption will spread to the nonprofit sector, where mid-rank and even senior staffers don’t often make $62,400.

Finally, we come to the very lowest paid workers. They will be heavily disrupted by automation, which will be speeded up by the rising cost of labor.

In fast food, perhaps in agribusiness and anywhere they can, employers will replace low-wage workers with robots and machines who won’t require benefits, payroll taxes or a guaranteed 50 percent pay hike.

As mandatory minimum wages roll on, some will get laid off while others will be scheduled for part-time work so that their Obamacare-mandated health benefits don’t kick in.

Don’t get me wrong. I think that minimum wage laws are a good idea. They were particularly good ideas in the 1970s when prices were rising much faster than wages and employers were able to quickly pass price hikes along.

Those days have vanished into the rear view mirror and in the absence of some inflationary pressure, a long-term “command and control” style series of minimum wage hikes will have terrific unintended consequences. A better solution would be a linking of minimum wage hikes to inflation before putting a $15 per hour wage on the books, but that’s too smart an idea for the political class.

I’m sure that Gov. Brown made a careful political calculation and decided that the smart play was to head off a ballot initiative and wring minor concessions to claim victory.

But for many small companies and nonprofits, young workers, low-skilled workers and their families trying to eke out a living in a time of near-zero price inflation, this is going to hurt. And California will be hollowing out many of its mid-rank companies, leaving behind only giants and smaller companies which break apart every time they approach the 25-worker threshold.

• Reach Editor Henry Dubroff at