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Inflation is even making California's minimum wage increase

A state law passed in 2016 says that the minimum wage must rise to $15.50 if inflation increases more than seven percent between 2021 and 2022.

SACRAMENTO, Calif. —  

California's minimum wage will jump to $15.50 per hour next year, Gov. Gavin Newsom's administration announced Thursday, an increase triggered by soaring inflation that will benefit about 3 million workers.

 The increase is required by a state law passed in 2016. But it comes at a good time for Democrats in the nation's most populous state as they rush to find ways to boost taxpayers' bank accounts in an election year marked by rising prices that have diluted the purchasing power of consumers.

California lawmakers voted to increase the minimum wage to $15 per hour in 2016, but the increase was phased in over several years. Today, the minimum wage is $15 per hour for companies with 25 or more workers and $14 per hour for companies with 25 or fewer employees.

The law says the minimum wage must increase to $15.50 per hour for everyone if inflation increased by more than 7% between the 2021 and 2022 fiscal years. Thursday, the California Department of Finance said they project inflation for the 2022 fiscal year — which ends June 30 — will be 7.6% higher than the year before, triggering the increase.

Official inflation figures won't be final until this summer. But the Newsom administration believes the growth will be more than enough to trigger the automatic increase.

California has about 3 million minimum wage workers, according to a conservative estimate from the state Department of Finance. The increase in the minimum wage will be about $3 billion, or less than 0.1% of the $3.3 trillion in personal income Californians are projected to earn.

AN ECONOMIST'S PERSPECTIVE

"Part of that inflation is coming in because of extremely high demand, part of that inflation is because of supply chain constraints, and part of the inflation is because we have seen very high input costs," said Sanjay Varshney, a professor of finance at Sacramento State University.

But while the wage increase might sound promising to many who are struggling financially, Varshney says the increase can be problematic for businesses.

"Many businesses that are large that are stable can maybe absorb that cost, but if you're talking about small-sized and midsized businesses, they may not have the ability," Varshney said.

WATCH MORE:   Will raising California's minimum wage to $15.50 by 2023 make a difference?