The current wage per hour in the State of California stands at $7.25. This has prompted the legislature in California to amend the minimum wage to $15 an hour. This law is expected to take effect by the year 2023. This change is in response to the increasing inflation rate. When implemented, the minimum of $15 every hour will be the highest compared to other states across the entire United States and in the history of the US. More so, it will be the higher as compared to minimum wage rates in other countries in the world. The incidence and impacts of the real change due to minimum wage increment will be felt significantly by people residing in the rural areas and the central places where the cost of living is low. Many people are struggling to try to keep up with today's economy, some taking on other jobs and careers to make ends meet. Many people have to work twice as hard to support their families yet are still unable to provide medical and basic needs for them, but keep a roof over their heads and food on the table.
Payment for necessities of life like food, clothing, medical care, and rent is lower in the rural areas as compared to the urban areas. That is why the impact of the $15 per hour in minimum wages will be felt more in the rural and the inland regions. Full implementation of the minimum wage will cater for over one-third of all people employed in California. There were numerous protests and strikes by employees to demand an increase in the minimum wage paid to them. The workers, being aware of the struggle involved in pay rise demands, didnt give up. The legislature came to employees rescue by increasing minimum wage as tabulated below (Jacobs, et. al 2016).
The labor law amendments of the labor code of California State were aimed at raising the minimum wage and have an allowance for in-house support employees for the sick. In January 2017, all businesses with 26 employees and above were supposed to increase their minimum wage to $10.50 hourly, and this was to be applied annually until the rate reaches $15 hourly. On attaining the set limit of $15, further increments will be done at a rate of approximately 3.5% annually. This increment will be based on the level of inflation and calculated based on the national consumer price index (CPI). This is tabulated as follows:
Table showing expected minimum wage implementation:
Year (From Jan 1) Businesses with 26 employees and above Businesses with 26 employees and below
2017 $10.50 $10.00
2018 $11.00 $10.50
2019 $12.00 $11.00
2020 $13.00 $12.00
2021 $14.00 $13.00
2022 $15.00 $14.00
2023 $16.00 $15.00
2024 Indexed* Indexed*
*Means that the rate will be adjusted according to inflation rates based on calculated CPI.
The governor of the State of California can withhold further increments for one year if the prevailing economic conditions dictate so except the $10.50 initial increment rate and after the indexing of the prices in 2024. According to the above table, the new minimum wage pay per hour effected is kicking some businesses out of California State. A survey conducted in California indicate that many business operators have the intention of relocating their businesses to other States whose minimum wage per hour is low. A clothing designer intends to transfer his trade to the State of Las Vegas where she asserts that the minimum wage rate is low. Another business owner argues that raising the wage rate to $15 by 2022 is too high for some employers who have to maintain their products competitive globally.
Houman Salem, who runs ARGYLE Haus of Apparel located in San Fernando pays his employees $10.50 every hour plus some bonuses associated with productivity. When the minimum wage rate rises to $15 every hour, including compensation of workers and tax on payroll, will part with $40,000 annually for each employee. Bearing in mind that Salem is in a competitive environment from companies in other US states and countries paying lower rates for labor, he knows very well that he cannot transfer these costs to his customers. Salem will end up registering a loss of $200,000 annually which is too much for small businesses to cope with. Salem has indicated intentions to move his business to Las Vegas where the wage rate is $8.5 but maintains that he will continue paying his employees $10.5 hourly ( Dube, 2017)
Salem has valid reasons to shift his business outside California State. California, on the other hand, is justified towards increasing minimum wage rate. It is argued that its challenging to survive on a low income. This is due to the much high housing costs in California. Housing and Community development Department (HCDD) report mentions that one-third of California residents part with over 50% of their earned income on paying for housing. This leaves these residents to have little left to spend on transport, medical care, education as well as what to put into savings. High housing costs have a more significant impact on employees who are lowly paid.
On the contrary, an employee in California earning a wage of $10.50 every hour on a full-time basis will receive $21,840 annually. This wage cannot afford this employee room in the subsidized government houses. It is a requirement that any employee who earns $10.50 every hour should only pay $550 monthly for housing. One should not part with more than a third of his wage income on housing. In Pacoima, rent figures average $1,300 monthly, far much lower than in Los Angeles city, where the average wage rate is $2,300. The amount of rent paid by an employee earning $10.50 per hour in Las Vegas averages $780, which still is very little for this employee to afford an apartment of his or her own.
In a situation where we have two adult employees each receiving $10.50 hourly, the two are almost in a position to afford to house in Pacoima. Their condition is worsened if they have children for whom they must pay $700 monthly for medical care. This doesnt work for them without help from the government. Despite the minimum wage increasing by 2022, workers will still pay more for rent around $780 monthly which is still lower than rent paid today on average. This is attributed to Californias housing construction inability to keep pace with the growing demand for housing.
It is worth noting that California State implementing the $15 as the least wage to be received by employees will bring in additional benefits to the employees. First, an employee at the age of 25 years receiving wages amounting to $14,000 annually will realize a 21% increase in earnings. Another employee at the age of 45 years getting $23,000 annually will have an 8% boost in lifetime earnings for the remaining years of work. The increase will boost the workers savings for retirement and increase the income at their disposal. Another benefit will be that social security benefits will significantly increase especially for the low-income earners. A 25-year-old low-income worker will have his or her social security benefits rise to $1,720 which is an 11% increase. On the other hand, a 45-year-old employee will get $590 translating to a 4.5% increase.
In my opinion, the idea of increasing the minimum wage to $15 by 2022 should not be implemented. This is because many businesses will either close down due to stiff competition from other companies offering their products at relatively lower prices than California products. Other companies may still opt to leave California and settle in other states where the minimum wage is low. This will leave many California residents jobless or struggle to find employment.
In conclusion, it is a noble idea by the California state and the lawmakers to pass an increase in the minimum wage paid to employees on an hourly basis. The idea was intended to put on par the employees life with the ever-increasing cost of living. The strategy is highly welcome from the employee perspective, but more needs to be done. Key players from the various cities and counties must address the issue to allow more to be able to construct apartments and houses. The low-income earners also need to be looked into in such a way that they can be empowered to afford to house in the government subsidized houses. As long as the cost of housing remains high, the 15 per hour will not be of much help to the employees.
Jacobs, Ken, and Ian Perry. "$15 Minimum Wage in California: Who Would be Affected by the Proposal to Raise Californias Minimum Wage." Center for Labor Research & Education, University of California-Berkeley, March (2016).
Dube, Arindrajit. "Book Review: The Long-Run Impact of Minimum Wage Research: A Case Study of Myth and Measurement." ILR Review 70.3 (2017): 818-823.
Zhang, Wei. "Business Plan for an All You Can Eat Korean Restaurant in Ontario, California." (2016).
Quinn, Joseph F., and Kevin E. Cahill. "The Relative Effectiveness of the Minimum Wage and the Earned Income Tax Credit as Anti-Poverty Tools." Religions 8.4 (2017): 69.
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