A bill passed in 2016 has raised the statewide minimum wage each year. The new rate will be $17.40 an hour starting next year

SACRAMENTO, Calif. — California’s minimum wage will increase to $17.40 an hour starting January 1, 2027, continuing a system created a decade ago to help Californians keep pace with inflation.

The annual increase is mandated by state law — Senate Bill 3 signed by then-Democratic Gov. Jerry Brown. 

“Every year we’re seeing an increase, 50, 75 cents an hour,” said Chris Micheli, a legislative analyst.



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SB3 was designed to help Californians keep up with inflation, said former Assembly Speaker and state Sen. Bob Hertzberg, a co-author of the bill.

“And this avoided having to go back to the Legislature [each time for a wage increase] and to create over time increases that really reflected changes in inflation,” Hertzberg said.

SB3 passed along party lines with strong backing from labor unions, setting up what Micheli described as a hard-fought battle between business and labor groups.

At the time, labor unions were pushing their “Fight for 15” movement, calling for a $15 minimum wage. The Legislature ultimately used SB3 to create a phase-in approach.

Starting in 2017, when SB3 took effect, the Legislature raised the minimum wage each year. By 2023, all California employers were paying at $15 an hour.

Since that threshold was reached, the governor’s Department of Finance has been responsible for calculating the annual inflation adjustment on or before August 1 of each year.

SB3 requires the state to specifically use the United States Consumer Price Index for Urban Wage Earners and Clerical Workers to calculate inflation. The annual increases are capped at 3.5%.

The most recent increase, to $17.40 starting Jan. 1, is a 3% raise.

Despite workers statewide being paid more — most of them directly by their employers — the increase is not expected to have a major effect on the state’s budget.

“In terms of the net effect on the state’s budget, we would say very modest,” said Seth Kerstein, a senior economist with the nonpartisan Legislative Analyst’s Office.

One reason, Kerstein said, is that changes in workers’ incomes can affect their eligibility for health and social-services programs.

“When their incomes change, their eligibility for health and social services programs change,” Kerstein said.

That can mean fewer people are enrolled in taxpayer-funded safety-net programs such as Medi-Cal and CalWORKs.

Among low-wage workers, Kerstein said those in in-home supportive services and developmental services benefit the most from the increase.

Certain industries and local jurisdictions are excluded because they offer their own higher minimum wages, such as fast food workers — most of whom make $20 an hour due to a 2024 state law — and those at certain healthcare facilities — who make $25 an hour, also per state law. 

For Californians earning the minimum wage, the increase means they will make more money starting in January. But Kerstein said the broader effect is an adjustment for inflation.

“It’s an inflation adjustment so they’re making, from a substantive standpoint, they’re making the same amount of money,” Kerstein said.

SB3 also included an off-ramp that could have allowed California to skip an increase in a year with a budget deficit.

But the data shows California has never skipped an increase, and the state can no longer do so under the law after exceeding the $15-an-hour threshold.

“[Trying to] be sensitive to businesses on one hand but also make sure people can make a wage that they can pay rent and buy food for their kids,” Hertzberg said of the off ramp. 

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