By: Stuart Waldman
Every year a bill to increase the state minimum wage makes its way to Sacramento, but this business-unfriendly policy is typically stalled. However, this year Assembly Bill 10 (Alejo) has made progress by garnering approval from the Assembly Appropriations Committee in late May. It is important to the business community that our legislators do not pass AB 10.
Currently, the state minimum wage is $8.25 – the fourth highest in the nation and a full dollar per hour higher than the federal minimum wage. Under AB 10 state minimum wage would jump to $8.75 in 2015 and then $9.25 in 2016. Within two years, California would become the state with the highest minimum wage.
The Valley Industry and Commerce Association (VICA) opposes a minimum wage increase on the federal or state level. The president and legislators want to improve conditions for those in poverty, but that is not accomplished by increasing the California minimum wage. To improve poverty, legislators need to focus on policies that create more jobs.
For a small business employing as few as 10 hourly, full-time employees, these increases will cost $10,400 in 2015, an additional $10,400 in 2016 and will continue to rise according to inflation every year thereafter. This estimate does not account for demands from exempt employees for comparable salary increases.
Many small businesses are toeing the line between being in the black and being in the red. The industries whose profits depend most heavily on lower wages are leisure, hospitality, wholesale trade, retail trade, and manufacturing – all major industries in California. With the state and nation still slowly recovering, businesses should have the ability to respond to any improving profit margins with wage increases on their own timeline. If forced to increase wages before a company has fully recovered, it will likely have to take one or more of the following actions: reduce the hours of employees, reduce employee benefits, reduce training, or eliminate positions entirely.
The problem with the bill is not just a mandated increase to the minimum wage, but also that AB 10 requires additional increases every year in relation to inflation – without accounting for deflation. This means that regardless of economic conditions — such as a recession — the minimum wage would remain at boom highs.
It’s not news that California is competing with other states for business as well as overseas. The Austin Chamber of Commerce in Texas reported that relocation inquiries from California businesses have tripled since November. For many businesses, Texas’ $7.25 per hour minimum wage coupled with a lower cost of living is attractive compared to California’s.
Data from the U.S. Department of Commerce reports that in 1986 about 26 percent of employees in U.S. multinational corporations were based overseas. By 2008, that figure had jumped to 36 percent. Half of these overseas employees work in manufacturing, a field where California has taken a huge hit. When the minimum wages in India or Mexico are a fraction of ours, increasing the minimum wage does nothing to actually bring those jobs back to the U.S. and California -- jobs that exist but our unemployed residents can’t take.
AB 10 would solidify California’s reputation nationwide and globally as being unfriendly to business. In these tough economic times, employers in California simply cannot afford another increase to the minimum wage, let alone a spike every year with no relief even in a down economy.