California, Illinois, Michigan Eye Minimum Wage Hikes

State legislators and public interest citizen groups are pushing harder for minimum wage (MW) increases for next year and beyond. Recent evidence shows many businesses are responding in ways that will hurt, not help, workers in the long run.

First a recap: Three states – Maryland, New Jersey, and New York – increased their MW rate to $15 or higher for 2024. They join California, Connecticut, Massachusetts, New York City and Washington DC offering at least $15 hourly to entry-level employees.

In total, 22 states bumped up their MW this year – Alaska, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont and Washington. Some food and hospitality chains either got the memo late, or decided to wait until the rate went into effect, and laid off workers in early January.

9 states to watch for minimum wage raises next year

Businesses have time to prepare now for already-set or potential MW increases starting in 2025. The push for rate hikes begins at the community level – petition drives, lobbying and usually ballot initiatives for voters to decide on. More than 90% of MW ballot measures pass, dating back to the 1990s.

Ballot initiative campaigns are now underway in 6 states: Alaska, California, Michigan, Missouri, Ohio and Oklahoma. The race to get a referendum question on the ballots in time for the presidential year election are ramping up. It’s a good bet voters in at least half of the states listed above will get to decide at the polls in 2024. Thus far, California’s ballot initiative is the only one that’s been certified and will definitely be on the ballot this fall.

Another 3 states – Delaware, Illinois and Rhode Island – are already ratcheting up their MW to $15 starting January 1, 2025. Illinois voters approved incremental increases in 2018 with an end goal of $15 per hour kicking in next year. Chances are a new ballot initiative to raise the MW will get underway there soon.

Pay hikes for low-level workers are a growing concern for employers in both the largest (California) and 10th largest (Michigan) states. Employers there are struggling to afford higher taxes and pervasive regulations. California business owners in particular are looking to move out. Another MW hike won’t help matters for many employers.

GOP lawmakers fight MW hikes in court

Six years ago, the Michigan state legislature adopted year-by-year increases to the MW through 2025. More than 280,000 registered voters signed petitions to boost pay as well as sick time pay. The measures never went on the ballot for voters to decide.

Republican state lawmakers, at the urging of industry groups and business owners, sought to “dilute and delay” the increases. Hotel, restaurant and bar owners strenuously opposed what would amount to a tripling of tipped workers’ pay rate.

A Michigan appeals court ruled the legislature and governor violated the constitution by bypassing the voters. The Michigan Supreme Court just heard an appeal and will announce its ruling on the matter soon. The court is composed of four democrat and three republican judges.

California business costs never go down

The California ballot measure calls for raising the MW from $16 to $18. The initiative is almost certain to pass and comes on the heels of:

• a $15.50 MW for 2024 in the Golden State
• a $25 MW for health care workers, and
• a separate pay hike just for fast food workers. Those who avoid layoffs in the restaurant industry are now required to be paid between $16 to $20 hourly.

For now, Washington DC’s standard MW is the highest in the country at $17. California’s new rate would take the lead and perhaps spur other states to keep pace.

Downstream effects of MW hikes

Mandatory increases to hourly pay for entry-level workers impacts higher-paid workers. Companies are forced to adjust pay up for experienced higher-level workers, supervisors and managers to keep talent on board. CFOs say they’re planning 3% increases this year, but inflation-adjusted hourly wages increased by just 1% over the past year, according to the Bureau of Labor Statistics.

No wonder some workers’ right groups are now calling for a $25 MW. California is likely to become the first state to go that high. Los Angeles-based investor Joe Sandberg is behind this year’s MW ballot question in the Golden State.

Profitable businesses can afford to get out ahead of the issue and offer more competitive rates. For example, Live Nation announced a minimum wage hike of $5 for 2024. All workers will earn at least $20 hourly this year. CEO Michael Rapino takes home north of $130 million a year so count Live Nation among the companies that can pay its people more.

Choices aren’t as cut-and-dried for businesses struggling to stay competitive. To deal with MW increases, companies will be forced to consider strategies like:

• reducing customer service, including front desk and phone interaction with helpful human beings
• passing increased costs along to customers
• using AI and robots to handle menial tasks, and
• moving operations out of higher-cost areas.