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ObamaCare, Minimum-Wage Hike To Spike Calif. Low-End Labor Costs 50%


Compensation for California’s lowest-paid workers will rise as much as 50% or  more per hour by 2016 due to the state’s minimum-wage hike and ObamaCare’s  employer penalties.

But total wages earned by a full-time worker today making close to the  minimum wage may not rise at all and may well decrease.

This one-two punch is likely to miss its mark as employers bob and weave to  avoid ObamaCare fines. Instead, it may hit California’s low-wage workers with  fewer hours or fewer new jobs.

Gov. Jerry Brown last month signed into law a 25% minimum wage hike from $8  an hour to $9 in July 2014 and $10 in January 2016.

Over that span, the Affordable Care Act employer mandate could add roughly $2.58  per hour, or 32%, to the pretax cost of a full-time minimum-wage worker.

Labor Cost Jump Unusual

California Republican lawmakers and business groups opposed the hike as a  “job killer.”

While some research has found only a modest hiring impact due to minimum-wage  hikes, there’s little history of compensation costs rising on the scale of those  facing California employers.

Meanwhile, employers will be able to sidestep ObamaCare’s equivalent of a  steep minimum-wage hike for full-time workers by making them part-time.

Even before California’s minimum-wage hike, some state employers had moved to  cut work hours to avoid liability under ObamaCare’s employer mandate.

As of now, IBD’s list of 331 employers cutting hours or staffing levels  due to ObamaCare’s employer penalties includes a dozen from the Golden State.  They include the Mexican American Opportunity Foundation, Fatburger and Kern  County.

ObamaCare’s prospective penalties, now delayed to 2015, are already squeezing  profits and budgets tighter than these employers are able to accept. It stands  to reason that adding a 25% hike in the minimum wage will force many more to cut  hours.

At worst, the minimum-wage hike may be self-defeating. A 29-hour week at $10  an hour would yield $30 less than a 40-hour week at $8 an hour. That’s $1,560  over a year.

Yet little is predictable about how the minimum wage and ObamaCare penalties  will impact California employers.

In June, the state Assembly came close to the two-thirds vote needed to  approve a measure to penalize large employers who don’t provide coverage to  part-time, low-wage workers.

Businesses with 500 employees would have faced fines if a worker clocking as  little as eight hours a week enrolled in Medi-Cal. That would take away the  incentive for big companies to cut work hours, while dampening the incentive for  firms with a low-wage workforce to expand.

Low Wages, Fewer Hours

While the White House has denied any negative ObamaCare impact on work hours,  IBD has shown that the workweek has sunk to a record low 27.4 hours among the 29  million workers in industries where pay averages about $14.50 an hour or  less.

Employers who offer unaffordable or skimpy coverage were initially supposed  to face a $3,000 tax penalty per full-time worker who gets ObamaCare  subsidies.

That was delayed until 2015, but the penalty will grow each year based on the  rise in average health insurance premiums. Assuming historically mild 3% annual  premium growth, the penalty will rise to $3,180 in 2016.

That penalty is nondeductible, so it is the equivalent of $5,370 for a  profitable California firm facing a 40.7% combined corporate and state tax rate.  Divided by 40 hours per week over a full year, that equals $2.58 an hour.

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