(The Center Square) – Gov. Gavin Newsom has announced that California is set to increase the statewide minimum wage to $17.40 per hour.
The increase, which is a .50 cent bump from the current $16.90, will go into effect on January 1, 2027. The federal minimum wage is $7.25 per hour, and has not changed since 2009.
The Center Square reached out to Governor Newsom’s office requesting an interview but was referred back to a press release.
“For years, Donald Trump and Republicans have blocked efforts to raise the federal minimum wage while handing tax breaks to billionaires and big corporations,” Newsom said in the press release. “California has chosen a different path — one that rewards work, grows the economy, and puts working families first. We believe if you work hard, you deserve a decent paycheck. They think $7.25 an hour is enough. We don’t.”
But economists say increasing the minimum wage can destroy jobs, making it tougher for the people it is trying to help.
“This is bad economically,” Wayne Winegarden, senior fellow of business and economics at the Pacific Research Institute, told The Center Square in an interview Tuesday. “It’s a policy that is deceptively kind, but in practice, it destroys opportunity and worsens the business environment. It’s just the wrong way to go.”
The statewide minimum wage increases automatically each year under California Labor Code 1182.12. The annual adjustment is made to keep pace with inflation and is based off of the Consumer Price Index.
According to Rebekah Paxton, research director for the Employment Policies Institute, rather than help with affordability, the increase will increase cost-of-living conditions in the state and limit job opportunities for Californians.
“Decades of economic research shows that this would kill a significant amount of jobs,” Paxton told The Center Square in an interview on Tuesday. “It’s going to continue to raise prices that businesses have to charge, therefore also contributing to inflation, not making it better.
“It will also leave folks who remain employed potentially with fewer scheduled hours because it’s now making it so expensive for businesses to employ their workers,” Paxton added.
According to Winegarden, the population that could potentially be helped the most by the minimum wage increase is also the population who could be hurt the most.
“If you are a low-skilled worker and you get to keep your hours, and you get the minimum wage increase, you’re going to benefit the most,” Winegarden said. “The people who are going to be hurt the most are the ones who lose the job and now have an income of zero.”
Paxton added that workers in the hospitality and food industries specifically, as well as young workers, are going to be hurt.
“Typically, folks who work in industries like hospitalities, restaurants, and retail are going to be hard hit by this,” Paxton said. “Also a large number of minimum wage earners are 16 to 19 year olds, so folks who are looking to get career experience with their first job, are going to be disproportionately affected.”
An EPI analysis found that a $1 increase in the minimum wage can lead to upwards of a 5.5% increase in prices.
“When the minimum wage goes up, it increases the cost of keeping those employees on staff or hiring new ones, and so a lot of times businesses raise their prices that they charge to absorb some of those increases in labor costs,” Paxton said.
Paxton said that minimum wages hikes are squarely the responsibility of business owners to absorb.
“If you have very few skills to begin with, it’s harder to get a job, and the higher you force somebody to pay you, the less opportunities that there’ll be. So in effect, you’re punishing those companies willing to hire people with low skills, and so you’re going to create less opportunities,” Winegarden said. “This just gives people less opportunity to kind of climb the economic ladder.”
According to Winegarden, businesses are being transferred additional costs because of the failure of the income support system.
“Rather than focusing on the minimum wage, what we should be focusing on is how can we ensure that there is a standard safety net that gives people an incentive to get the skills to continue working, in effect earning income that outgrows the need for income support,” Winegarden said. “It’s really a responsibility for all of society. It’s not a responsibility that should be thrusted upon people who are willing to hire them.
“We have this minimum wage because we have an ineffective income support system,” Winegarden added.
In 2023, Gov. Newsom signed a law that made the minimum wage for fast food workers $20. The law went into effect in 2024, and has cost Californians thousands of jobs, The Center Square has reported.
In San Diego, a new minimum wage law went into effect for hospitality workers on July 1. Under the City of San Diego Hospitality Minimum Wage Ordinance, wages increased for specified workers at event centers, amusement parks, and hotels.
Workers at San Diego event centers must be paid $21.06 per hour, and workers at covered hotels and amusement parks must be paid $19 per hour. The wages will increase every year on July 1 until they reach $25 per hour in 2030.
