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In case you missed the big news, California Governor Jerry Brown reached a tentative agreement this weekend with labor unions designed to raise the state minimum wage to $15 an hour over the next several years. This is a $5 increase from the current state minimum wage of $10. This makes California the first state to pass such a high minimum wage for all workers (New York passed one for public workers). However, several cities across the country, including a few in California itself, have already come up with similar measures.

No matter if you are for or against this wage hike, one thing is likely: you probably want to know just how it is going to affect you. Well, sit back and get ready because below I will do my best to answer that concern with the information currently available to us.

The Deal Between Labor and Government

The idea of increasing the state minimum wage to $15 has been around for a while in the state of California. In fact, it was set to be taken to a vote when citizens go to the ballot box in November.

This expected measure is in large part why Governor Brown sat down with labor organizations to negotiate a deal – the measure was widely expected to pass (a Field Poll taken in 2015 suggested that 2/3 of voters were in favor of the increase), and this way, the state could negotiate on some terms that are supposed to be more business-friendly than the proposed law and also save money on an expensive campaign and a long, potentially drawn out fight.

For example, under the agreement, which the governor should release sometime soon and which still needs to be passed by the legislature, the state would slowly rollout the plan over the next several years with the $15 mark being reached by 2022. It would also tie any future increases to inflation and allow the governor to block certain increases when the state is facing a period of budget deficits or slow job growth.

According to the LA Times, the agreement could be signed in as early as the end of next week.

The fight for a higher minimum wage has been warring throughout the country for the last several years, causing protests by many minimum wage workers fighting to make a livable wage. It makes sense that California would be one of the first states to try this both in that it is one of the state liberal leaders as well as the fact that it is one of the most expensive states in which to live – making that livable wage minimum wage earners want so much even more necessary for survival.

On the proposed agreement, Governor Brown, who has historically not been a strong supporter of minimum wage hikes in the state, said in this case, “It is a matter of economic justice, it makes sense, and will help our entire state do much better for its citizens.”

A Small Extension for Small Businesses

For those of you worried about the 2022 deadline and how you will be able to get to $15 an hour by that date, there is a short extension for small businesses. Any business employing 25 workers or fewer will have an additional year to phase in the higher minimum wage.

The Plan Rollout (or What We Know So Far)

While the deal is not final – as noted, it still has to be approved by the state legislative branch – we do have some details on how it would work if it is passed. Once the deal is finalized by the governor, more details will follow, but here is what we do know at present:

The increases would grow gradually to $15 starting with an increase to $10.50 by 2017. After that, the increases would start coming in at $0.50 to $1 increases until the final figure was reached. Once at $15, the wage would be raised based off of inflation.

This is what the proposed law would look like:

  • 2017: $10.50
  • 2018: $11
  • 2019: $12
  • 2020: $13
  • 2021: $14
  • 2022: $15

Of course, cities and localities are free to set their minimum wage higher or more aggressively if they like. For example, Los Angeles has already implemented a minimum wage spike to $15 by 2020. That still stands. So, for employers in a city with its own minimum wage laws, make sure you follow whichever is the higher and/or first to be implemented.

Critics of a Minimum Wage Hike

As with most measures, this potential agreement is not without its critics and proponents. The critics have a few main concerns.

  • The hike will severely and negatively affect businesses – especially small businesses – and smaller, more rural parts of the state.
  • The hike will not help because the cost of living will increase with the pay raises.
  • The hike does not address the real issues.

Effect on Businesses and Rural Areas

Many small businesses say they do not know how they will be able to afford a $15 an hour salary. They say the only way they will be able to survive such an increase is to cut workers – meaning many people across the state will lose jobs – or to increase costs. Some owners have stated plans to increase prices on their goods by 25% in order to support the salary requirements of their workers if this were to pass.

Others say they think the only thing they will be able to do is shut down.

Critics also say that the increase might make sense for more populous parts of the state, such as LA or San Francisco, but will be devastating for the more rural areas, where the economy is not as strong.

The Cost of Living

Other critics point out that because so many businesses will raise their prices in order to make up the difference in new salaries, the cost of living will go up – making a $15 an hour salary as far below a living wage as $10 is now.

The Real Issue

Still others claim that this measure does not address the real problem: that of the too high cost of living in the state. California Assembly GOP Leader Chad Mayes summed up this concern by saying, “The reason people are even talking about increasing the minimum wage is because things cost too dang much here in California. Until we fix the root problem, which is the policies that we’ve put in place here in this building, we’re not going to solve the problem.”

Proponents of a Minimum Wage Hike

Of course, proponents of the bill counterpoint the critics’ arguments with views of their own.

  • Workers deserve a livable wage.
  • More money will be going into the economy.
  • Through this agreement, the government is more in control.

Livable Wage

The most prominent part of proponents’ arguments is that workers deserve a livable wage. Even at $15 an hour, working 40 hours a week, a single worker would earn around $31,000 a year pre-tax. This is still below the Economic Policy Institute’s estimates as to what constitutes a livable wage for a single, childless person working in a metro area of the state. Add in a child, and it is even less livable.

Money Going Into the Economy

Another argument for this increase is that, while businesses may in the short term lose some money because of higher wages, they will eventually start earning that money back through increased spending by a class of workers who are now closer to earning a livable wage and who, consequently, have more spending money.

Better than Allowing It to Go to a Vote

Another point for those in favor of this agreement is that it is inevitable. With voter approval of the measure so high, it is only a matter of time before the pay increase is passed one way or the other. At least this way, the government has a little more control on how it is implemented.

What This Means for the Rest of the Country

California is set to be the first state to pass a $15 minimum wage, but, as the NPR article cited above points out, they may not be the first state to implement one. New York Governor Andrew Cuomo has also called for similar increase, but – if passed – New York’s would reach that threshold by 2019. Similarly, cities across the country, such as Seattle, Washington, have already implemented such measures. Plus, while maybe not so high, states and cities across the country have already been implementing higher minimum wages.

This issue has also become a Democratic talking point on a federal level with candidate Bernie Sanders calling for a federal $15 wage and candidate Hillary Clinton calling for a federal $12 wage. Whether it happens anytime soon is to be determined, but with all the attention, it is reasonable to assume it will eventually come to light at a federal level, even if the eventual wage hike is on a smaller scale than $15 an hour, which is more than double the current federal minimum wage of $7.25.

It is likely that this trend will keep growing – especially if it turns out to be successful in the test places. So business owners need to start paying attention to the growing landscape of minimum wage laws across the country. It might not be to you yet, but there is a chance it will get there soon.

What This Means for You

If you are a business owner in the state of California and this law passes, get ready to start increasing wages. While you might still have some time, it is best to start coming up with a plan for how you will implement this wage increase. Study your assets, learn how much you can currently afford to pay, see where you can make cuts, and perhaps consult some legal or financial experts along the way.

If you are a business owner anywhere else in the country, pay attention to California. There is a good chance that what is happening there will happen in a state or city near you at some point in the future – if it has not already. So watch and gain insight into just what worked for businesses and what didn’t. You have the benefit of a real life example to study, so take advantage of it. Hindsight is 20/20 after all, but you have the benefit of using someone else’s hindsight.

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