As a result of recent legislation, the minimum wage in the state of California is increasing this year in its eventual climb toward $15 per hour in the year 2022. The increase is intended to be proportionate to company size with organizations with 26 or fewer employees seeing a change from $10.50 to $11.00 per hour and companies with more than 26 employees increasing their minimum wage from $11.00 to $12.00 per hour. In addition to this statewide rise in wages, the County of Los Angeles has adopted its own wage ordinance that will continue to raise its already exceptionally high minimum wage of $13.25 per hour to $14.25 per hour as of July 1st, 2019. These increases are meant to have a positive impact on the millions of Californians trying to support their households with minimum wage income; the goal is to establish a “living wage” that will allow these earners to make ends meet. However, despite its noble intentions, this legislation has the potential for far-reaching impact across the labor market that may prove to be a significant obstacle for employers and employees alike.
As with any economic market, imposing an artificial constraint will change the dynamic between supply and demand. With the price of labor is increased along with fixed points, it could cause a significant gap between the cost of adding new laborers at the increased wage and the price that employers are willing or able to pay for additional labor which would result in fewer available jobs. There are conflicting reports as to the extent this legislation could reduce the number of jobs based on studies at the national and state level, but for small businesses, the impact could be more noticeable as they have less of a concrete demand for additional labor. The increase would also impact existing jobs that are paid on a minimum wage hourly scale as employers could look to reduce the number of hours for their employees depending on their company’s size and industry. For example, a small business owner who is able to pick up more of his company’s operations may opt to do so instead of continuing to delegate the work and resources to a minimum wage employee.
An employer could also decide to move the resources or the company’s entire operation to evade the restrictions of a higher wage. It is entirely feasible for both small and large companies to utilize labor outside of the confines of the County of Los Angeles as a means to save a potentially significant amount of money. While the County’s ordinance is intended to help workers meet the increased cost of living in their area, it also presents a dilemma to companies whose long-term strategy is to maximize profit, which includes finding a competitive price for labor to reduce the cost of doing business.
Unfortunately, companies may also take this drive for lower labor prices toward solutions that operate outside of the law. According to recent surveys and research performed by UCLA, roughly 17% of domestic employers in the house cleaning and childcare industries fail to pay their employees the state’s legal minimum wage. This translates into approximately 340,000 workers who could be making much less than the minimum wage. An increased minimum wage could motivate more employers to implement these unlawful practices. State and local governments can only regulate and enforce to a certain extent, in a disappointingly significant number of cases, employers disregard the well-being of their employees in favor of profit.
These wage increases are a substantial change to the landscape of the labor market in California, particularly in the LA area. Workers and employers alike will have to adjust to meet the new cost of working and doing business. Ideally, workers will enjoy the benefits of a more “livable” wage without the expense of fewer workers being employed or having more instances of minimum wage violations.
