A Golden State Payout for Big Labor

California’s impending $15 minimum wage will take full effect by 2022-23. Evidence suggests that organized labor’s $1.6 million investment in the venture is already set to pay off.

Typically, unions support a higher minimum wage to achieve an indirect pay benefit . An analysis of union collective bargaining agreements available from the Department of Labor’s Office of Labor-Management Standards illustrates that many pin baseline wages to the federal minimum wage. For example, one SEIU local agreement states that, “[t]he minimum hourly wage rates shall exceed any statutory applicable minimum wage rate by fifty cents.”

California’s unprecedented $15 minimum wage promises a more direct benefit for unions. For example, Bureau of Labor Statistics data show that the median weekly wage for a unionized food-prep employee come out to just under $13 an hour full-time. (Other unionized occupations face a similar pay structure.)

Using Census Bureau data, the Employment Policies Institute estimates that roughly 223,000 union members in California will receive a direct pay bump by the time the law is fully implemented in 2022. (These estimates are based on data from Outgoing Rotation Groups of Current Population Survey between January 2013 and December 2015 and assume annual wage growth of 2.9 percent and 2.2 percent inflation annually.)

A majority of the affected employees are concentrated in four industries: Retail, health care, education and public administration (i.e. government.) Roughly 100,000 of the union employees work in the public sector, and 123,000 work in the private sector.


Graph 1. Total Increase in Annual Earnings, 2022

According to our analysis, union members earning less than $15 an hour will receive an estimated bump in annual earnings of $883 million when the law is fully phased in.

Importantly, the cost borne by the state will differ from the public sector estimate above. Gov. Jerry Brown, in a May revision to his budget projection, estimated the combined cost of the $15 minimum wage to the state general fund at $3.4 billion, which includes an increase in the cost of in-home care reimbursements (among other cost increases).

For many union members, the higher earnings translate to higher dues payments.

A review of federal filings of California-based SEIU locals confirms that many set their dues payments as a percentage of employees’ wages, typically 1% to 2%. One percent of $883 million in additional annual wages for California union members would yield roughly $9 million per year in new dues dollars.

Raising the minimum wage may be all gain and no pain for union bosses, but that is not the case for California’s taxpayers and employees in the private sectors whose jobs are now at risk.