Governor Jerry Brown recently signed a new minimum wage law. It will increase minimum wage to $9 per hour on July 1, 2014 and to $10 per hour January 1, 2016. This will have both positive and negative effects.

The obvious positive effect is minimum wage earners will see an increase in their paychecks, assuming the employer continues to employ them for the same number of hours.

Increases in minimum wage usually have some “trickle up” effect too. In other words, hourly employees who make more than minimum wage are more likely to see some increase in their hourly wage. The theory is if their services are worth more to the employer than the services of minimum wage employees, then the employer should still be willing to pay more for those services even after an increase in the minimum wage.

Even salaried employees should get an increase in their wages. In California, the state requires an employer to set minimum salaries by using minimum wage as part of the equation. For instance, exempt managers must make at least twice minimum wage multiplied by 2080 hours. (2080 hours is 40 hours per week times 52 weeks per year.) So, by 2016, the minimum salary for exempt managers will be $41,600 (2080 hours x $20 per hour).

Of course, increases in labor costs will increase the costs of producing goods and services. The market will force employers to elect one or more methods to combat the increased costs.

Usually, employers will attempt to pass along the increased cost to the purchaser. To the degree the market allows that, we all will pay more for goods and services. However, not all markets allow for much, if any, increase in the costs of goods and services. Some businesses will undoubtedly not be able to pass enough of the cost along to survive and will go out of business. Other businesses will pass along some cost to the purchaser but will also need to reduce other costs. As a result, some businesses will actually fire some of the employees who just received increased wages because of the increase in the minimum wage. Other businesses may elect not to hire workers that they had planned to hire or may elect to reduce the number of working hours it offers to its employees. Still others will cut costs by reducing the quality of the goods or services they provide. Of course, certain employers may be able to deal with increased labor costs by using one or all of the above strategies.

Clearly, minimum wage employees, who keep their jobs and maintain the same number of working hours after a minimum wage increase, will benefit. Similarly, minimum salaried employees who retain their jobs will benefit too. Other employees may well receive more wages because of the general upward pressure on wages. However, other members of the public, such as, consumers, terminated workers, employers, etc. will feel economic pain as a result of the increase in minimum wage, but they may feel good about that because their pain will help others receive a more decent living wage.

S. Ward Heinrichs, Esq.
Employment Law Office of Ward Heinrichs
4565 Ruffner Street, Suite 207
San Diego, CA 92111
858-292-0792
(858) 408-7543 (fax)