By: Stuart Waldman
Minimum Wage Hike Could Squeeze Out California Businesses
There is a serious threat looming on the horizon for the business community in California. Assembly Bill 10 (Alejo) would raise the state minimum wage to $8.50 per hour as of January 2012, but it doesn’t stop there. The bill creates an automatic increase in the wage that is connected to the annual percentage of inflation, with no consideration for economic factors or conditions.
AB 10 increases the minimum wage by 50 cents. While that alone would be a huge financial blow to businesses there are even more concerning parts of the bill. In addition to the rate hike is a provision that would tie minimum wage rates to the Consumer Price Index (CPI). Beginning January 2013, the minimum wage in California would increase each year according to the percentage of inflation as determined by the state CPI.
The new method of minimum wage computation does not allow for a reduction in years when deflation occurs. This means that regardless of economic conditions (similar to those we are dealing with now) the minimum wage would continue to increase each year.
Employers in California cannot afford another increase of the minimum wage rate, let alone a spike every year with no chance for relief in a down economy. Already, under the burden of a minimum wage far above the national average, AB 10 would make California’s rates the second highest in the nation.
Businesses across California have closed their doors or are on the brink of insolvency. Small business owners are already struggling to make payroll and AB 10 would further complicate that problem. Without the passage of AB 10, California has the third highest unemployment rate in the nation. That number will only increase if the bill passes.
Under AB 10 a small business with 10 full-time, minimum-wage, hourly employees would face an annual payroll increase of $10,400 in January 2012. The increase in minimum wage also drives up the annual salary that is necessary for employees to be considered “exempt.” If AB 10 is implemented, that amount would rise from $33,280 to $35,360, an increased cost of $2,080 per exempt employee.
If California wants to keep its business-unfriendly reputation, it is certainly on the right track. Businesses who were considering leaving the state have yet another incentive to leave—aside from the fact they are subject to some of the most stringent regulations and highest taxes in the nation. And we will be hard pressed to get anyone to relocate or start a business in California.
The exodus of businesses also takes jobs and workers along for the ride. Without the economic benefits of job creation and workers infusing their earnings back into their communities, California’s recovery will lag even further behind the rest of the nation.
Our government, at all levels, must do everything it can to get people back to work and the way to do that is through job creation. Instead, members of the California Legislature are making it even more difficult for the businesses that have managed to survive one of the worst economic downturns in decades.
The more regulations and taxes placed on the backs of California businesses, the more the state’s recovery will slow. To return California to its glory days of innovation and entrepreneurial spirit we must fight legislation like AB 10 that threatens to suffocate economic growth.
Stuart Waldman is president of the Valley Industry and Commerce Association (VICA). VICA is a business advocacy organization that represents employers throughout the Los Angeles County region at the local, state and federal levels of government.