California’s minimum wage has some significant collateral damage that advocates failed to factor.
While all of the hyperbole as well as gloom and doom was centered on the private sector, the real-time bomb that is ticking down as we move closer to 2022 day by day is the public sector.
It is not because government has a lot of minimum paying jobs. It doesn’t in comparison with the private sector. What the government has are pay scales with steps.
As the movement from $10 an hour to $10.50 an hour happened at the start of the year, many school district and city government employees were all bumped up in pay even if they were making significantly more an hour than minimum wage.
Compare that with the small business on Main Street or the folks running a yard service. For the most part they bumped only those at minimum wage, although they are feeling pressure to bump pay for other positions. Of course, the fact that minimum wage is heading toward $15 an hour by 2022 will take care of that.
But government only knows one way. Besides, no one is eager to tick off bargaining groups. But even more important everyone does salary surveys. So, the minimum wage ripple effect up the pay ladder is a self-fulfilling prophecy. This is on top of other pay movements for jobs paying significantly above minimum age
You’d be correct to note that this has happened before without major pain. But this time it is different.
Minimum wage in California took 16 years to double to $1.25 an hour in 1963. It took 13 years to double to $2.50 in 1976. It took 21 years to double to $5 in 1997. It took 19 years to double to $10 in 2016. It will take only 5 years to go up 50 percent. While that is obviously not doubling, it does represent the quickest gain ever in minimum wage.
That means there has been more time in past years for the economy — and those not receiving wage bumps due to mandated minimum wages — to absorb the added costs and to adjust accordingly.
It won’t be the case this time.
And while some in the private sector may respond by eliminating some jobs while bigger players such as McDonald’s may pick up the pace of automation, you’re kidding yourself if you think government will do the same. They are not driven by the same economic realities as the private sector.
What you will see is five consecutive waves crashing into ratepayers and taxpayers over the next five years.
On Tuesday, the Manteca City Council was told to expect the golf course costs to accelerate beyond normal wage increases by between $30,000 and $40,000 a year. It doesn’t sound like a lot but it is when you add up other costs.
And to be realistic, the consultant was only looking at jobs that the ultimate $15 an hour minimum wage will impact that now fall below that threshold. Given he is in the private sector, that would make sense. But government operates in its own universe when it comes to reality. The maintenance worker making $18 an hour today will make $23 an hour in 2022 because the lowest person on the pay ladder now making $10 an hour will make $15 an hour in 2022.
It’s because pay scales and steps have built in “fairness” and “equity” between positions.
The California minimum wage law has set the stage for government salary costs to go up as much as 50 percent during the next five years. Granted the real damage starts on pay scales where the minimum wage matches or exceeds the bottom rung but there will be a distinct ripple effect as pay increases across the board.
What does this mean in dollars and cents?
Let’s take the golf course as an example.
There were 51,800 rounds played in 2016 with the average round played bringing in $12.99 in green fees. Let’s split the difference between the projected annual cost of the minimum wage impact on the golf course estimated at between $30,000 and $40,000 a year by the consultant and say it is $35,000.
That means green fees would need to go up 68 cents a round to cover the minimum wage hike just to keep things where they are now financially at the course. That is before the city factors in $100,000 or so annually for capital improvement needs that aren’t currently being addressed.
Another 68 cents for a round of golf doesn’t seem like much but it is only one drop in a big bucket of impacts coming your way as the 50 percent jump in minimum wage is implemented.
The annual $1 jump for five years will be difficult for many to absorb doing business in the private sector with little enthusiasm to keep proportional pay spacing between minimum wage earners and others on the payroll. But when it comes to the public sector, it will be automatic and virtually across the board.
This is one minimum wage increase law everyone will feel — including those at the bottom who will be hit the hardest by the fact there isn’t enough time between pay jumps for the impacts to be fully absorbed without the costs being passed onto the consumer.