A proposed ballot measure, The Living Wage Act of 2022 (hereafter LWA), would increase California’s minimum wage from its current $15 to $16 in 2023, $17 in 2024 and $18 in 2025, with inflation adjustments beginning in 2027. Proponents argue that an $18 standard will reduce poverty and recover lost purchasing power from inflation; opponents claim it will destroy jobs and hurt small businesses. Current law calls for an inflation adjustment of the state’s minimum wage to $15.50 on January 1, 2023, and likely to $16 on January 1, 2024 and $16.50 on January 1, 2025. Moreover, about one-third of California private sector workers are employed in 37 localities with their own higher wage standards and inflation adjustments. Most of these local standards will come close to or exceed $18 by January 1, 2025.
To bring all these policy developments into a unified perspective, I discuss here the effects of the past increases to $15, the likely effects of the already-mandated future inflation adjustments, and the effects of a possible increase to $18, should LWA becomes law. To examine the effects of recent increases, I draw on a new companion study by McPherson, Reich and Wiltshire (2022). This study finds that California’s minimum wage increases from $8 in 2014 to $15 (and higher in some cities) in 2022 have significantly increased pay for low-wage California workers, while having minimal effects on the number of jobs in the state. To forecast the effects of future increases, I also draw upon official California forecasts of wage growth and inflation. I find:
The LWA would raise pay for about 4.8 million California workers by 2025 would have a minimal effect on the number of jobs. The LWA would also restore inflation-generated losses in worker purchasing power caused by gaps in current laws, while increasing overall prices about 0.014 percent per year for three years. Equally important, increasing the state’s minimum wage to $18 would eliminate poverty among all the 3.53 million non-elderly Californians in poor working households.