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Uncertainties Shadow California Plan for Nation-Leading Wage

  • Associated Press

Union workers support California Gov. Jerry Brown signing a bill creating highest statewide minimum wage at $15 an hour by 2022 at the Ronald Reagan building in Los Angeles, April 4, 2016.

Union workers support California Gov. Jerry Brown signing a bill creating highest statewide minimum wage at $15 an hour by 2022 at the Ronald Reagan building in Los Angeles, April 4, 2016.

California's decision to push its statewide minimum wage to a nation-leading $15 comes with uncertainties that could see the pay jumps postponed if the economy sours or the state budget slumps, while the overall goal of helping the working poor might be lessened if some employers cut jobs or, worse, leave the state.

With Congress deadlocked on sweetening the federal minimum wage, California on Monday stepped in. Under a law signed by Gov. Jerry Brown, the state will bump its $10 hourly minimum by 50 cents next year, and to $11 in 2018. Hourly $1 raises will then come every January until 2022. Businesses with 25 or fewer employees have an extra year to comply; wages will rise with inflation each year thereafter.

But after the first 50-cent step-up, there's a catch.

The governor can suspend a planned increase if job growth retreats and retail sales tank. And a delay could also kick in — up to two times — if the state is facing a serious budget crisis.

"Predicting the future's a dangerous game,'' warned Jeffrey Wenger, a senior policy researcher at Rand Corp.

With incremental steps planned until 2022 "it's difficult to know how binding the $15-an-hour wage increase is,'' Wenger said.

The governor, too, has alluded to the uncertainties of a fickle economy, and what it could mean for the planned wage hikes. He began his term in early 2011, when the state was struggling to recover from the recession and a housing crisis.

"You get a big recession, particularly in different parts of the state where the wages are a lot lower, there could be real problems in terms of reductions of jobs,'' Brown said last week.

But with tools to slow the wage jumps in bad times "this one gives the opportunity to pay a $15 wage, but does so in a way that takes account of the vagaries of the capitalist economy,'' he added.

Brown's action Monday came on the same day that New York also pushed its minimum wage to $15 an hour — the highest in the nation. Hillary Clinton joined New York Gov. Andrew Cuomo in Manhattan as he signed the law that will gradually boost the pay rate. The former first lady predicted the movement will "sweep our country.''

Bernie Sanders said in a statement that his campaign is about building on the steps in California and New York "so that everyone in this country can enjoy the dignity and basic economic security that comes from a living wage.''

The new laws in California and New York mark the most ambitious moves yet by legislatures to close the national divide between rich and poor. Experts say other states may follow, given Congress' reluctance to act despite entreaties from President Barack Obama.

The bill's effects could vary widely in vast and diverse California — itself the world's eighth-largest economy — from sparsely populated mountain and desert areas to inner city Los Angeles and wealthy Silicon Valley.

While it was a victory for those struggling on the margins of the economy and the politically powerful unions that pushed it, business groups warned that the higher wage could cost thousands of jobs as employers are forced to provide steadily bigger paychecks.

"Minimum-wage workers should not be excited about this wage hike. It's only going to prompt businesses to automate more jobs and move those jobs, if possible, to areas where there's a more feasible minimum wage,'' Stuart Waldman, president of the Valley Industry and Commerce Association, said in a statement.

"Ultimately, this will mean higher costs and fewer jobs for everyone,'' he predicted.

The bill was pushed through the Legislature by Democrats — who control both chambers — without a single Republican vote. A nonpartisan legislative analysis put the cost to California taxpayers at $3.6 billion a year in higher pay for government employees.

It's not clear how the state will absorb those costs.

"It's a huge state with lots and lots of tax base and lots and lots of tax revenue,'' Wenger noted. On the other hand "that's big as a number and it's big as a percentage of the state budget.''

Brown, a Democrat, never specifically addressed criticism of the bill on Monday but argued the decision to set the nation-leading wage was about "economic justice.''

"Economically, minimum wages may not make sense,'' the governor said. "But morally and socially and politically they make every sense, because it binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.''

Predicting what the higher wages will mean is not an exact science. Some jobs could be lost, but others might grow with increased economic activity from the higher wages. Prices could increase for businesses that rely heavily on lower-wage workers, such as restaurants.

About 2.2 million Californians now earn the minimum wage, but University of California, Irvine, economics professor David Neumark estimated the boost could cost 5 to 10 percent of low-skilled workers their jobs.

California and Massachusetts currently have the highest statewide minimum wage at $10. Washington, D.C., stands at $10.50. Los Angeles, Seattle and other cities have recently approved $15 minimum wages, while Oregon officials plan to increase the minimum to $14.75 an hour in cities and $12.50 in rural areas by 2022.

New York's state budget includes gradually raising the $9 minimum wage to $15, starting in New York City in three years and phasing in at a lower level elsewhere. An eventual statewide increase to $15 would be tied to economic indicators such as inflation.

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