On Friday, Governor Gavin Newsom announced that California’s minimum wage will rise from $16.90 to $17.40 on January 1, the highest state floor in the country, presented in a press release as “putting working families first.” The governor, whose tax returns show annual income between $1.7 million and $2 million, used the occasion to contrast California’s floor with the federal minimum of $7.25, unchanged since July 2009.
The federal number is indefensible. Fifteen years without an increase is not a policy position. The Congressional Budget Office’s February 2021 analysis of the Raise the Wage Act, which would have phased the federal floor to $15 by 2025, found net positive effects on family income across its range of estimates, even after accounting for the agency’s central projection of roughly 1.4 million lost jobs. The CBO also estimated the bill would lift approximately 900,000 people above the poverty line. The federal floor persists at $7.25 because a Senate minority has chosen to block any increase for the better part of two decades. That is a distributional choice masquerading as fiscal restraint.
But $7.25 is not the number that indicts the announcement. The number that indicts it is $36.38.
The MIT Living Wage Calculator, the standard reference used by state agencies, academic researchers, and policy organizations, estimates that each adult in a California family of two working adults and two children must earn $36.38 per hour to cover food, childcare, healthcare, housing, and transportation — not retirement savings, not discretionary spending, the basics. That family composition is not an abstraction; it is the exact “working families” framing Governor Newsom’s press release invokes. His $17.40 covers 48 percent of that threshold. A full-time worker at $17.40 earns roughly $36,192 per year before taxes. MIT’s living wage for one adult in a four-person California household runs approximately $75,700. The gap is $39,500 per year, per worker. And $36.38 is the state average. In California’s coastal metros, where housing costs crush working families hardest, the MIT living wage runs substantially higher. In San Francisco and Los Angeles counties, the gap between the floor and the need is wider still.
The shortfall does not stop at MIT’s calculation. It continues through California state income tax, through gas prices that have topped $6 a gallon, through health insurance premiums that have risen faster than wages for a decade. The family grossing $72,384 on two $17.40 wages is short of MIT’s $75,670 estimate before any of those deductions. The press release counts the increase. It does not count what the increase does not reach.
The CBO’s methodology on minimum-wage scoring is worth understanding because it explains why the “job losses” objection does not tell the full story the agency tells. The CBO analyzed a federal increase to $15 by 2025, a different instrument than California’s annual indexing adjustment to $17.40, but the structural logic it modeled applies at any floor: employment effects, where some employers reduce hours or headcount at higher wage floors, and income effects, where the workers who remain employed earn more, spending rises, and some businesses absorb the cost through price increases rather than layoffs. Across the CBO’s estimates, the income gains have exceeded the employment losses at every proposed federal increase the agency has scored. The Card and Krueger natural experiments in New Jersey in 1994, and the subsequent county-border-pair work by Dube, Lester, and Reich, established that moderate minimum-wage increases do not produce the employment declines that simple supply-and-demand models predict. The CBO’s estimates incorporate this literature.
None of this appears in Governor Newsom’s press release. None of it appears in the Congressional Republican position either.
Both operations use the minimum wage as a prop. Congressional Republicans block any federal increase and call it protecting small business from job losses, a position the CBO’s own scoring contradicts on net income effects. Governor Newsom touts a $0.50 indexing adjustment and calls it putting working families first, a claim the MIT calculator contradicts on documented need. The first operation holds workers at $7.25 while the poverty-reduction case for an increase sits in the CBO’s files. The second operation celebrates $17.40 while the living-wage case for $36.38 sits in MIT’s calculator. The revised $350 billion state budget Newsom unveiled in May closed a projected deficit and added a software tax without triggering a fiscal crisis, which demonstrates the fiscal capacity exists to do more. California has raised its floor from $12 when Newsom took office in 2019. The state has room to act. The gap is not a budget constraint. It is a policy choice.
The empirical literature on low-end labor markets does not provide a precise point at which employment effects become significant, but it does provide a clear pattern: the current floor is below where the weight of the evidence places the no-effect zone. Raising it to $17.40 is a modest step. The floor was raised. The work was not done. The press release was written first, and the arithmetic was fit to it afterward. That is the pattern. It is not new. It is not surprising. It is the thing that stays the same no matter which party holds the office.
The CBO’s scoring and MIT’s living-wage data both support floors higher than what either party has delivered. The policy tools exist. What is absent is the political will to match the floor to the documented need. $17.40 covers 48 percent of what MIT calculates a California family needs. The other 52 percent does not appear in the announcement, because the announcement’s subject was the political contrast with $7.25, not the gap between the floor and the need.
The press release is the press release. The receipt is the receipt.