California’s Minimum Wage Law Provides Safety Valves if Increase Hurts Retail Sales

California’s new minimum wage law provides Gov. Jerry Brown with some flexibility in case the increased wage negatively impacts the state’s economy, such as reducing the state’s retail sales.

The law, which was signed by the governor last week, has a phase-in schedule that will increase the state’s minimum wage to $15 by 2022 for large businesses, while businesses with 25 or fewer employees will be required to increase wages to $15 per hour by 2023.

Under the legislation, California’s minimum wage will increase to $10.50 per hour on January 1, 2017, for businesses with 26 or more employees; to $11 per hour on January 1, 2018; and then by $1 per hour each year until reaching $15 per hour in 2022. The law also gives businesses with 25 or fewer employees an extra year to phase in each of the wage increases.

However, the state’s minimum wage law provides what the governor’s office refers to as “safety valves” to pause wage hikes if negative economic or budgetary conditions emerge. The governor can act by September 1 of each year to pause the next year’s wage increase for one year if there is either a forecasted budget deficit (of more than one percent of annual revenue) or poor economic conditions (negative job growth and retail sales).

Once the minimum wage reaches $15 per hour for all businesses, wages could then be increased each year up to 3.5 percent (rounded to the nearest 10 cents) for inflation as measured by the national Consumer Price Index, according to a press release issued by the governor’s office.

While the wage increase may seem reasonable in larger cities in the state, a 50 percent wage boost could indeed prove unsustainable for employers in other areas, according to a recent Desert Sun editorial, which noted that “the last thing California needs to see is an exodus of companies that rely on a more appropriate minimum wage in lower-cost parts of the state pulling up stakes for places like Texas.”