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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.

Minimum Gain chart

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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