The Question

Should California raise its statewide minimum wage to $18 an hour by January 1, 2026, and then each year based on inflation?

The Situation 

California’s statewide minimum wage is now $16 an hour, with yearly increases based on inflation. Yearly increases range from $0 if the inflation rate is zero or less, to 3.5% if inflation is 3.5% or more. 

Some California workers already have minimum wages higher than $16 an hour and higher than the proposed rate ($18 per hour) in Prop 32. These include fast-food workers, healthcare workers, and workers in California cities with their own minimum wage laws.

The Proposal

Prop 32 would increase California’s current statewide $16 an hour minimum wage each year until it reaches $18 an hour by January 1, 2026.  Minimum wage for employers with 26 or more employees would increase to $18 an hour in 2025.  Employers with 25 or fewer employees would move to $17 an hour in 2025, and $18 an hour in 2026. Prop 32 would not change industry specific or local minimum wages.

Inflation adjustments would pause temporarily while the minimum wage is increased in 2025 and 2026. In 2027, yearly increases to minimum wage would resume based on inflation.

Fiscal Effects

Proposition 32 could have a wide range of economic effects:

• Higher wages.  A higher minimum wage tends to push up wages for other workers.  Employees making a bit more than $18 an hour would also likely see a pay increase.
• A higher minimum wage would likely increase business costs and decrease profits. Businesses may set higher prices for their products and services to offset decreased profits. The overall price increase from Proposition 32 likely would be smaller than one-half of 1 percent. 
• Reduced profits for business means they will pay less tax. The decrease in tax revenue will not be more than a few hundred million dollars each year, out of an overall revenue collection of about $200 billion each year.
• The number of jobs in the state could go up or down.  The change in the number of jobs would likely be less than one quarter of a percent. 
• State and local government costs could go up or down, because Prop 32 will increase costs in some way and decrease them in others.  State and local governments will have to pay higher wages, which will increase costs.  At the same time, Prop 32 will reduce the number of people enrolled in health and human services programs, such as Medi-Cal. The enrollment changes would likely reduce state and local government costs.  With these factors combined, state and local government costs could go up or down and the change would not likely exceed the high hundreds of millions of dollars annually.  Total state and local government spending in California is greater than $500 billion annually.

Supporters Say

• Prop 32 will improve the standard of living for millions of workers in California. Today, many full-time workers can’t afford the cost of living in California.
• Prop 32 will improve the economy by making it so that people can increase spending on rent, groceries, and other basic necessities. Increased spending will create more jobs and boost local economies.
• Prop 32 will alleviate taxpayer burden. Taxpayers should not have to subsidize some corporations paying extremely low wages, enabling them to keep record level profit for owners.

Opponents Say

• Prop 32 will hurt businesses, especially small businesses that are more vulnerable to the impact of higher operating costs.
• Prop 32 will result in higher prices and cause job loss.
• Prop 32 will increase government expenses and deficits. This may result in fewer government services or increased taxes.

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