Inflation Triggers Mandatory Minimum Wage Increases in California

The state’s unemployment rate is well above average, yet there’s a ballot initiative hoping to push the minimum wage to $18 an hour.

When California passed a massive boost in its minimum wage six years ago so that it would eventually reach $15 an hour, the law included a component that tied the minimum to inflation levels. If inflation starts getting too high, the law forces a mandatory increase in the minimum wage.

This week, Gov. Gavin Newsom's budget director, Keely Martin Bosler, announced that the massive inflation America is seeing is going to force the minimum wage in the state to automatically increase to $15.50 next January. The law requires this automatic adjustment if the inflation rate grows past 7 percent. The Los Angeles Times reports that it's possible that the minimum wage might rise by another 50 cents if inflation continues.

Bosler, of course, sees only the positive here, saying it will help poor families pay for the higher food prices we're all enduring: "They have a huge impact to those families that are living off of those lower wages and their ability to cover the cost of goods."

The national unemployment rate right now is a low 3.6 percent, which the Biden administration is bragging about—just don't look at the labor participation rate!

Rising wages during this time frame is natural, but it's also worth noting that California's unemployment rate continues to be higher than the national average, sitting at 4.9 percent. Just four states and Washington, D.C., have a higher unemployment rate. According to data from California's Employment Development Department, almost every county in California has higher unemployment rates than the average, and some are running more than twice the national average. Two counties—Colusa and Imperial—have double-digit unemployment rates.

At the same time, businesses have also been hit hard by inflation, and those that operate on tight margins (retail stores, restaurants, and pretty much every small business) are going to have new struggles. Combined, inflation and a higher minimum wage will make it difficult for these businesses to take on new employees and keep the ones they already have.

"We recognize this is the law but this has the opposite effect on the people they're trying to help," John Kabateck, state director of the National Federation of Independent Business California, told the Times. "This just adds more pain to the struggle."

Even though California is the state with the highest minimum wage in the country, this is apparently still not enough for some folks. The inflation-triggered increase baked into the 2016 law was the result of a compromise between lawmakers and labor activists, who had begun circulating a ballot initiative that would have automatically tied future minimum wage increases to inflation, meaning that elected officials would no longer have any control over the minimum wage at all.

But now, even though the $15 minimum wage finally kicked in just this year, activists are pushing yet again. As officials were announcing this new unscheduled wage hike, proponents announced they had gathered enough signatures to for a ballot initiative to hike the minimum wage up even further—to $18 an hour. The proposal is being pushed by Joe Sanberg, wealthy entrepreneur and early investor in meal delivery service Blue Apron.

This ballot initiative will bring back the plan to automatically tie the minimum wage to inflation and the consumer price index. When inflation goes up, minimum wages will go up. When inflation goes back down, the minimum wage…will not, in fact, go down. Per the ballot initiative, the minimum wage would only ratchet in one direction.

Sanberg notes that the idea of an $18 minimum wage is "wildly supported." Of course it is—for those who are actually able to get jobs. As for the rest, there are many reasons why California's population is both aging and declining. Lower- and middle-income people are leaving California for jobs in other states, according to a study released in March by the Public Policy Institute of California. Housing costs are the biggest factor, but the survey found 333,000 people leaving the state over the past decade in order to get work. Raising wages even higher can't fix this problem, but it can make it worse.