The California Public Employees Retirement System and the California State Teachers Retirement System recently announced that they had exceeded their investment goals by at least 1 percentage point in fiscal 2017-18, with CalPERS citing annual gains of 8.6 percent and CalSTRS reporting 9 percent returns.

This came after strong returns in 2016-17 as well for both of the pension giants. But even with CalPERS now reporting $355 billion in assets and CalSTRS $225 billion, both systems have 70 percent or less of funds needed to cover their long-term commitments.

This troubling long-term picture is why the League of California Cities, in a January report, said it expects CalPERS to keep raising rates on local governments for years to come until they become “unsustainable.” CalSTRS, meanwhile, relies on the Legislature to set the rates it charges workers, districts and the state for pension costs – and the bailout the Legislature approved in 2014 that sharply increased what districts in particular must pay has not shored up the system nearly as much as was hoped.

Against this backdrop, CalPERS and CalSTRS are offering hints that they aren’t happy with the Legislature and think it is making their jobs more difficult.

CalSTRS’ chief investment officer, Christopher Ailman, issued a statement about the good returns that downplayed their significance: “We will rank high compared to similar funds, but it is only one year. We need to repeat that performance year in and year out, on average, over the next 30 years.”

But in an interview with the Private Equity International website that was posted July 2, Ailman elaborated on his view of investment gains. He did so in a way that challenged claims made by many Democratic lawmakers and pro-pension groups such as the Californians for Retirement Security that state pensions’ biggest problem was the Wall Street crash of a decade ago.

CalSTRS exec: Don’t blame investment results

“Ailman points out it’s often not the investment results that have led to the underfunding, it’s either poor management of liabilities or a lack of contributions,” the article said.

“Asked whether this keeps him up at night, he says he sleeps like a baby – wakes up and screams every three hours. ‘We pay out half a billion dollars a month in benefit payments, more than we bring in.’”

In the interview, Ailman also complained about Assembly Bill 2833, a state law that took effect last year that requires pension systems to disclose more information about expenses and fees related to their investments. He said the law ignored existing disclosure requirements and that it had caused CalSTRS to miss out on lucrative opportunities.

He said the “extra rules and extra issues” were having unintended but negative effects.

“We now have a situation in the state of California where CalPERS and CalSTRS have less invested in Silicon Valley than the Dutch, Asian and Middle Eastern sovereign wealth funds. Fundamentally, as a native Californian I think that’s just so wrong, but I can’t change people’s minds. It is what it is now,” Ailman told Private Equity International.

CalPERS knocks bill to monitor divestment laws

CalPERS’ concerns about legislative actions are also plain, if more muted. The Pensions & Investments website reported July 18 that the pension fund opposes Senate Bill 783, which already passed the Senate and now is before the Assembly. It would set up a review body to analyze how CalPERS and CalSTRS had complied with state laws directing the pension funds to divest from certain industries. CalPERS says this review panel would duplicate the work of pension staffers.

Given that CalPERS and CalSTRS at times have resisted the Legislature’s attempts to micromanage their portfolios, SB783 could be seen as giving teeth to lawmakers’ attempts to have a bigger say in investments.

The debate over SB783 comes as CalSTRS faces demands from activists to divest in a new corner of the private sector: companies which run private prisons. Other recent calls for divestment have targeted assault-rifle makers; finance companies that helped with construction of the Dakota Access Pipeline; and fossil-fuel companies.

“Tech companies in San Francisco and San Mateo counties lost 700 jobs from January to February and tech employment has dropped by 3,200 jobs since hitting a peak last August,” the New York Times observed, citing chief San Francisco economist Ted Egan. “Venture capital has peaked and has been going down steadily since 2015,” said Egan. “A lot of the employment in our tech sector is in companies that are not profitable. If they can’t secure new venture funding, some of them run out of cash. If we see a real downturn in the tech sector we could be in a situation where the U.S. economy is doing better than San Francisco’s.”

For months, Bay Area businesses and investors have had to adjust to unfamiliar economic terrain. “The drop continues a year-long slowdown of the economic machine that powers Silicon Valley’s tech sector, leaving some startups resorting to layoffs and other cost-cutting measures to make ends meet,” the San Jose Mercury News reported. “But analysts say they’d better get used to it — investment activity isn’t going to return to the highs the industry saw in 2014 and 2015 any time soon. Instead, they say, the lower numbers represent a new, more sustainable normal as investors become more selective.”

High stakes

The Valley’s outsized importance to California’s economic fortunes has shifted expectations for tech nationwide. “Nationwide, the number of angel and seed stage funding rounds — which generally mark a company’s first fundraising efforts — dropped 62 percent in the first quarter of 2017 compared with the first quarter of last year,” the Mercury News noted. “Though startups closed fewer funding deals, the amount of money investors spent actually ticked up in the first quarter of this year compared to the quarter before — largely thanks to Airbnb raising $1 billion this year, and Instacart and online personal finance company SoFi each raising more than $400 million. Smaller, early-stage startups suffered most in the slowdown.”

But larger, established tech firms have encountered new problems, too — including fierce challenges in potentially huge markets, like the one for driverless cars, that are now crowded with heavyweight competitors. “Google’s lawsuit alleging that Uber straight-up stole its autonomous vehicle technology won’t go before a jury until October, but Uber already finds itself on dangerous ground,” according to a Wired report on the conflict. Last week, the magazine observed, “the judge presiding over the civil case said he might just grant Google’s request for a preliminary injunction, which could force Uber to rein in or even stop testing its robocar technology testing until the case is resolved.”

Pumping the brakes

Prognosticators have altered their outlook accordingly. “Extrapolating from Q1, the full year 2017 is on track to hit the lowest level in terms of dollars since 2012, and in terms of deals since 2011,” Business Insider noted. “But it’s not for a lack of money. In 2016, VC funds raised $41 billion, the best year in a decade. In Q1 2017, they raised another $7.9 billion.”

According to some analysts, the combination of big war chests for funds and more modest pathways for founders was likely to translate into slower but more sustainable growth. Eric Buatois, veteran venture capitalist at Benhamou Global Ventures, told Marketplace that while a crash was unlikely, a cooling-off period would probably help avoid a hard landing. “Like most people in Silicon Valley, Buatois doesn’t use the words ‘tech bubble’ or ‘bust’ when describing the recent tech economy. Instead, he describes it as ‘frothy,'” according to the program. “‘Froth’ is the Silicon Valley term for when startups are valued at much more than they’re worth. Unlike a bubble, froth doesn’t pop — it subsides. Buatois thinks that could be a good thing for Silicon Valley.”

The MyRA program is one of a few possibilities being considered by the California Secure Choice Retirement Savings Investment Board, along with Treasury securities, to be used for up to three years as the state’s program develops.

Last month, Gov. Jerry Brown signed Secure Choice into law, which will automatically enroll Californians who lack access to employer-provided retirement plans in the state-sponsored Secure Choice Retirement Savings Trust, unless they opt-out.

It’s estimated that around seven million Californians would be eligible for the program, and while the law doesn’t go into effect until January 2017, it’s expected to take a few years to work out the details. 

In the interim, the nine-member California Secure Choice Retirement Savings Investment Board, which is chaired by the state treasurer, is considering using the federal government’s MyRA program.

MyRA

During the 2014 State of the Union address, Obama introduced MyRA as a low-risk, low-return, starter investment account. The program was launched last year, but has since only enrolled 15,000 accounts nationwide, according to Reuters.

California is expecting to have 1.6 million participants in its first year, worth $3 billion in assets, making this a massive expansion of MyRA — if that’s the option the Secure Choice Board pursues.  

MyRA is similar to Secure Choice in theory, both would likely be Roth IRAs in low-risk investments with no outside contributions.

But there are some major differences. Secure Choice is automatic, MyRA is not. MyRA also has a $15,000 cap while Secure Choice has no limit. Once that limit is reached, the individual is encouraged to transfer to a private account. MyRA is meant to be temporary — a starter plan. Secure Choice is not. 

“Secure Choice accounts will have no limits other than the contribution limits for Individual Retirement Accounts that already exist in the Internal Revenue Code,” said Grant Boyken, deputy treasurer for retirement security and health care. “Secure Choice accounts are intended to be portable and to potentially follow workers from job to job throughout their career.”

Through a legislative measure, signed into law by Gov. Jerry Brown on Thursday, most workers in the state who don’t have access to an employer-provided retirement plan will automatically join the Secure Choice Retirement Savings Trust through their work, although employees can opt out.

Senate President Pro Tempore Kevin de León, who championed the bill, argued that while anyone already has the option of enrolling in a private account, many are not. 

“With today’s action, California is providing workers a new chance to achieve better retirement security,” the Los Angeles Democrat said in a statement. “Secure Choice will empower younger generations, working families, and the women who lead them, and help provide the financial security they have earned for the later years of their life.”

Workers will be able to contribute to their account as much of their salaries as they choose, although the default will be 3 percent initially. The accounts will be held in mostly low-risk investments, like treasury bills, with a focus on long-term financial growth. 

The legislation also has provisions to block the state and employers from incurring any liabilities associated with the new program. However, critics are unconvinced that enough safeguards are in place.

“You can anticipate that this ‘secure’ investment has the potential to morph into a massive boondoggle and may become more expensive in meeting investor expectations during the inevitable next economic downturn,” said Sen. John Moorlach, R-Costa Mesa, a certified public accountant and certified financial planner. “SB1234 has no provision from using taxpayer funds to go towards a bail out.” 

The program would be administered by a nine-member California Secure Choice Retirement Savings Investment Board, which is chaired by the state treasurer.

According to a treasurer spokesman, the program will begin being phased in in three years, depending on the number of employees a business has, starting sometime in 2018.

As San Francisco’s sharp inequality draws national attention this election year, California Democrats have begun to question how to explain their role in fostering — and reversing — the trend.

The gulf between the progressive city’s richest and poorest, and the emptying space between the two, has come to haunt Democrats worried that their almost unfettered control over state and municipal politics has left promises unfulfilled and little plan for change in the future. “During all my years in Asia I constantly grappled with the perniciousness of poverty,” Thomas Fuller wrote in a dispatch for the New York Times Sunday Review. “Yet somehow I was unprepared for the scale and severity of homelessness in San Francisco. The juxtaposition of the silent whir of sleek Tesla electric vehicles, with the outbursts of the mentally ill on the sidewalks. Destitution clashing with high technology. Well-dressed tourists sharing the pavement with vaguely human forms inside cardboard boxes. I’m confounded how to explain to my two children why a wealthy society allows its most vulnerable citizens to languish on the streets.”

A city in the hot seat

Liberals have recently raised the alarm about inequality in other elite blue-state cities. “Boston is the headquarters for two industries that are steadily bankrupting middle America: big learning and big medicine, both of them imposing costs that everyone else is basically required to pay and which increase at a far more rapid pace than wages or inflation,” as Thomas Frank recently observed. “A thousand dollars a pill, 30 grand a semester: the debts that are gradually choking the life out of people where you live are what has made this city so very rich. Perhaps it makes sense, then, that another category in which Massachusetts ranks highly is inequality.”

But with California’s rising generation of leaders drawn so heavily from San Francisco elites like Gavin Newsom and Kamala Harris, the leading candidates for governor and U.S. senator respectively, critics have suggested that the city’s dominant political ethos is even more determinative of the near future than its prevailing technological worldview. “San Francisco and the Bay Area have long been committed to values which embrace inclusivity and counterculture. To see these values fraying so publicly adds insult to injury for a region once defined by its progressive social fabric,” Frederick Quo suggested this summer at Quartz, warning “San Francisco has become one huge metaphor for economic inequality” across the country. “In the face of resentment it is human to want revenge,” he warned. “But regressive policies such as heavily taxing technology companies or real estate developers are unlikely to shift the balance.”

West coast anxieties  

The sense that San Francisco has painted itself into a kind of policy corner has played into growing perceptions among Golden Staters that residents are facing a painful, threatening squeeze, despite the state’s significant aggregate economic turnaround from the bad old days of the financial crisis when Sacramento issued IOUs. In a recent CALSPEAKS poll, “seven out of 10 respondents believe the number of people living in poverty is a “major” problem,” KQED News reported. “There was wide agreement, regardless of race, political affiliation, income level or age. Two-thirds of Californians also believe income inequality is a major problem. (The cost of health care was another top concern, considered a problem by 70 percent of respondents.)”

For a time, it appeared that Democrats were turning the corner on inequality anxieties by focusing on raising minimum wages nationwide, starting with big cities — an approach that courted big controversy in California but ultimately largely succeeded. “In the last few years, as concerns have grown about economic inequality, proposals for a higher minimum wage have enjoyed remarkable success, thanks in part to an energetic campaign for a $15 minimum wage led by fast-food workers and backed by organized labor,” NBC News recalled. “New York, California and Washington, D.C., have all passed laws to raise their minimum to $15 an hour within the next eight years.” But as KQED noted, in the new CALSPEAKS survey, just “one-third of those polled ‘strongly favor’ the state’s recent $15/hour minimum wage bump approved,” while only 26 percent “somewhat” favored it — a majority, but one still uncertain about the best way to right what they see as the state’s stubborn economic wrongs. 

The bill’s sponsor, Assemblywoman Lorena Gonzalez, took to Twitter to show her exuberance, especially after having been named in Politico’s national list of 50 “thinkers, doers and visionaries transforming American politics in 2016,” which called the San Diego Democrat a “progressive ideas lab” (partially for this bill).

Si se pudo! Farmworker overtime!!! We did it @UFWupdates! Thank you to the leadership in both houses & this Gov! https://t.co/GPe0t9tY0T

— Lorena Gonzalez (@LorenaSGonzalez) September 12, 2016

Farmworkers currently earn overtime pay past 60 hours in a work week and past 10 hours in a work day. But starting in 2019, the threshold will lower incrementally until 2022 when workers will earn time-and-a-half pay beyond 40 hours in a week and eight hours in a day under the new law.

Contentious debate

Democratic supporters often argued that passing this measure was a matter of “fairness,” while detractors, mostly Republicans, said farming isn’t like other professions, as it’s susceptible to uncertainty caused by weather delays, perishable goods, seasonal schedules and external price setting. 

“It’s the same old story of a government that is out of touch with the reality of living, working and doing business in California,” Assemblyman James Gallagher, R-Nicolaus, said in a statement.

“If you understand agriculture, you know that this new law will result in lost wages for farm workers,” added Gallagher, who is a partner in his family’s farming business. “There are no real winners with AB1066.”

The matter wasn’t a simple partisan issue, though. Many Democrats either voted against or didn’t vote earlier this year when the measure was defeated.

But through a controversial procedural gimmick known as a “gut and amend,” which circumvents the chamber’s rules, Gonzalez was able to bring the bill back to life. And, with the help of the United Farm Workers, she rallied enough Democratic support for passage.

Of course, even that wasn’t so simple. Days before passage, Gonzalez had brought UFW members to the Capitol for an early morning show of support and to watch the vote from the galleries.

However, there still wasn’t enough support and Gonzalez and Assembly Speaker Anthony Rendon suffered an embarrassment when the floor session ended without a vote. But after proponents spent the next few days whipping votes, the measure passed.

Democratic Assemblymembers Susan Eggman of Stockton, Jacqui Irwin of Thousand Oaks, Marc Levine of San Rafael and Jim Wood of Healdsburg did not vote.

A bill sponsored by Senate President Pro Tem Kevin de Leon, D-Los Angeles, would have added three members to the South Coast Air Quality Management Board, which regulates air quality in Los Angeles, Riverside, San Bernardino and Orange counties.

And while that probably seems as dull as watching paint dry to nearly everyone who just read it, the measure had major implications for Republicans, local governments, business interests, environmentalists and residents of the broad district that has some of the most toxic air in the nation.

De Leon introduced the board-packing plan shortly after Republicans engineered a takeover of the board, swinging the focus from environmentalists to business interests. In December, the board disregarded SCAQMD staff recommendations and instead adopted rules on refineries backed by the oil industry, and in March it ousted the the longtime director who had been seen as anti-business.  

Representatives to the board are local city council members and county supervisors, appointed locally. De Leon’s bill would have added three seats to the 13-member board, appointed by the the Senate Rules Committee (which de Leon chairs), the Assembly speaker and the governor.

During floor debate, proponents argued that the measure was about adding diversity to the almost all-white board that had no Latinos, which defies the demographics of the heavily-Latino region. 

“Needless to say, I’m disappointed,” de Leon told CalWatchdog on Thursday. “Any time people of color are excluded from decision-making processes directly tied to their health and wellbeing, fundamental change is needed. This is a textbook example of institutional racism.”

De Leon added that Los Angeles County Supervisor Mike Antonovich, a Republican who also sits on the SCAQMD board, is termed-out and will soon be replaced by “someone far more progressive on the matter,” likely shifting the balance of power back to the environmentalists. 

However, of the current board’s ethnic composition, and the persistent lack of diversity, belies the fact that it’s largely been in Democratic, or environmentalist, control for years. De Leon did not say whether he’d reintroduce similar measures in the future.

Local control

Many opponents of the measure argued that the bill was a power grab by state policy makers at the expense of local control. And the large bloc of Democrats who either voted no or abstained suggest that the matter is not purely partisan.

“State versus local, that’s what this is about,” said Mike Madrid, a GOP strategist who helped devise the SDAQMD takeover. “It happened to be Republicans, but it was a state/local fight.”

But it was still a big win for Republicans, who are steadily slipping in their share of voter registration throughout the state, face the very real possibility of a Democratic supermajority in the Legislature next year and are not considered a consistent threat in any statewide election. For Republicans, local offices are where they can have a policy impact.

And despite several major policy victories for environmentalists, the defeat of the de Leon measure is a big win for the advocates of economic development. 

John Husing, the chief economist of the Inland Empire Economic Partnership, has been studying Southern California’s economy since 1964. His research suggests a correlation between the rise of poverty and the rise of environmental regulations in the state. Husing argues that while the policies have had a positive impact on air quality in the region, the policies are imbalanced in relation to business development and subsequently drive poverty, which affects health. 

“The whole air-quality, green initiative is having detrimental effect on moving people out of poverty and into the middle class,” Husing said of the SCAQMD region and the neighboring central valley.

Environment v. economy

Environmentalists have often said that any job loss associated with these air-quality policies would be offset by job creation in green sectors. However, Husing says statistics say that isn’t true, at least not in areas with high unemployment, like many communities in the SCAQMD.

Citing data from the California Employment Development Department and the U.S. Bureau of Labor Statistics, Husing said from 2010 to 2016 the U.S. added 836,000 manufacturing jobs, compared to California which added 42,500 — a mere 5.1 percent. While the growth rate is on pace with with the national average, it lags by over 50 percent behind the state’s share of gross state product.

Husing said that the sluggish growth of manufacturing jobs in the state is attributed to three factors: Companies leaving, companies growing beyond the state’s borders and out-of-state companies refusing to grow in the state.

“Whose affected by that? It’s not the companies,” Husing said. “They’re doing fine some place else. It’s workers whose jobs are never created. … So you’re basically cutting off routes to the middle class for those workers.”

The vote

The measure failed just before the stroke of midnight on Wednesday, 30-36. And while it is seen as a victory for Republicans, the measure was largely defeated by the 14 assemblymembers, all Democrats, who didn’t vote.

Those who didn’t vote were Luis Alejo of Watsonville, Joaquin Arambula of Fresno, Kansen Chu of San Jose, Jim Frazier of Oakley, Rich Gordon of Menlo Park, Adam Gray of Merced (who was not present), Kevin Mullin of South San Francisco and Shirley Weber of San Diego. The six who didn’t vote and live in the region were Ian Calderon of Whittier, Eduardo Garcia of Coachella, Mike Gipson of Carson, Roger Hernandez of West Covina, Chris Holden of Pasadena and Patrick O’Donnell of Long Beach.

The bill would, over the course of a few years, bring the overtime structure for farm workers in line with that of many other professions by giving overtime past eight hours in a day, where currently the threshold is at 10 hours, and over 40 hours in a week, where it’s currently at 60 hours.

Democrats, the primary supporters of the measure, largely argued that it is a matter of fairness and dignity.

“Right now, we’re telling our farm workers ‘You’re different, you’re less than other workers,'” said Assemblyman Rob Bonta, D-Oakland. 

Opponents, largely Republicans, argued that the lower threshold would force farmers to cut hours to stay below the overtime rule and that increased labor costs could spur job loss. Democrats rebutted that the same argument was made during the debate to abolish slavery.

Gut and amend

Some members opposed on procedural grounds. Assembly rules prohibit a measure from being reintroduced if it had already been defeated during that legislative session — the same measure was defeated in the Assembly earlier this year.

Democrats overruled the challenge from Assemblyman Don Wagner, R-Irvine, because they said the original text of the bill was not the same. The bill’s sponsor, Assemblywoman Lorena Gonzalez, D-San Diego, changed the language in a controversial process called a “gut and amend,” which is designed to circumvent the rules. 

Wagner then challenged that since the body decided the bill was different from the original text, it needed to be referred to a committee as the process requires, but Democrats overruled that as well.

The gut and amend process also violates rules of both chambers prohibiting “non-germane” amendments — those amendments that have nothing to do with the original bill. The original bill had to do with the use of non-employee contractors by school districts and community college districts.

The non-germane amendment point of order was not raised on Monday. 

Thursday’s misfire

Gonzalez had previously scheduled the vote for last Thursday, after having a demonstration at the Capitol with United Farm Workers supporters in the morning. And dozens of those union farm workers stayed for the vote.

However, as the day dragged on, it became clear that something was wrong. Members generally call for votes once they know that there is enough support to pass, as a failure can be embarrassing — so when session ended without a vote many on social media speculated that something had happened.

#farmworker overtime vote these folks all showed up for evidently not happening today pic.twitter.com/SGizrIhpr4

— Jeremy B. White (@CapitolAlert) August 25, 2016

@ccadelago You gotta whip before you send out invites to your party…

— Matt Fleming (@mflemingterp) August 25, 2016

The farm workers protested for at least another hour, demanding a vote, outside the speaker’s office. Finally, Speaker Anthony Rendon, D-Paramount, came out to calm the crowd, promising a vote on Monday. 

Gonzalez’s office declined to comment on what happened.

Emotions flare at the Capitol over #AB1066 to expand farmworker overtime. #caleg pic.twitter.com/AK8XvN1g7T

— Jazmine Ulloa (@jazmineulloa) August 25, 2016

While farmworkers do get overtime, there is a much higher threshold than other professions — this bill would bring the over-time thresholds more in-line.

Supporters argue it’s a matter of fairness — that farmworkers should have the same overtime and break protections as everyone else. Opponents say farmers can’t afford it and that an industry dependent on weather, perishable goods and external price-setting can’t be regulated the same as other professions.

“This vote boils down to a moral argument,” said Sen. Bill Monning, D-Carmel, who, like many of his colleagues, added that the doomsday economic arguments that workers will lose hours or jobs were either overblown or untrue.

Of course, opponents disagreed. Sen. Jim Nielsen, R-Gerber, said that increased labor costs would force farmers to reduce those costs, especially as the minimum wage hikes begin to kick in.

“What’s been accomplished? Maybe a noble goal where we can pat ourselves on our back,” Nielsen said, adding that “the victory would be hollow.”

Gut and amend

What made this bill particularly interesting is that the last iteration died a few months ago and so Assemblywoman Lorena Gonzalez, D-San Diego, inserted the language into another bill — a process called gut and amend.

By gutting and amending, the San Diego Democrat’s proposal will circumvent some of the normal steps in the legislative process. However, that alone won’t change members’ minds and it’s unclear if Gonzalez or other supporters have secured enough votes in the Assembly for final passage.

Confronted with an impending hike to $15 in the California minimum wage, businesses, labor advocates and political analysts have all begun to shift strategies and tactics. Given current trends, the combined impact could be a smaller, more unionized workforce — that doesn’t always see the benefits wage activists have promised.

The consequences will be quick and could be dramatic. “Most state raises over the past decade, when there have been any, ranged from 1 percent to 3 percent annually. The law Gov. Jerry Brown signed will increase bottom-rung pay roughly 10 percent per year starting in January,” as the Sacramento Bee reported.

Manufacturing flight

One immediate result of the hikes has already appeared in Southern California, where the garment industry faces an especially rough road. Sung Won Sohn, former director of apparel company Forever 21 and economist at Cal State Channel Islands, told the Los Angeles Times a veritable “exodus has begun,” with manufacturers already tempted to shift garment production overseas to retreat from the Golden State still further. “The garment industry is gradually shrinking and that trend will likely continue.”

“In the 1990s, as borders opened up, foreign competitors began snatching up business from Southland garment factories. Eventually, many big brands opted to leave the region in favor of cheaper locales. Guess Jeans, which epitomized a sexy California look, moved production to Mexico and South America. Just a few years ago, premium denim maker Hudson Jeans began shifting manufacturing to Mexico. Jeff Mirvis, owner of MGT Industries in Los Angeles, said outsourcing was necessary to keep up with low-cost rivals.”

The problem, particularly acute for business owners who can’t automate jobs as readily as, say, fast food restauranteurs, was encapsulated by Gov. Jerry Brown himself, who signed the $15 wage into law despite clear reservations about its economic wisdom. “Economically, minimum wages may not make sense,” he said, defending the law on moral and sociopolitical grounds. A high minimum wage, Brown claimed, “binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.”

Incentives in tension

According to critics of the change, the tension involved in using poor economic choices to encourage good moral ones has driven labor unions themselves toward a predictable, if hypocritical, shift in their own policy objectives. Many of the same unions that agitated for a higher wage “have been quietly — and often successfully — lobbying cities to let employers who hire union workers pay them less than the mandated minimum,” as Quartz observed. “Unions say it gives them the flexibility to negotiate packages for their workers that supplant wages with health insurance and other benefits.

“Critics say that it’s a shrewd move by unions to drive up membership dues and ensure that their workers are the cheapest in town. The exemption gives cost-conscious employers little choice but to hire union, and workers who want jobs little choice but to join their local.”

At the same time, however, workers who have been rallied to the $15 cause have been swiftly pressed into service for pro-unionization demonstrations. “The demand from the original strikes in 2012 was $15 and a union,” said Mary Kay Henry, international president of the SEIU, according to the Times. “Underpaid workers in California are now on a path to $15, but we think the way we can make these jobs good jobs […] is through a union.”

In an added twist, some economists defending the wage hikes have raised the question of whether subsequent job losses are a price worth paying. Gov. Brown, in fact, has referred favorably to that view. “We understand that this can be difficult,” he said, as the Washington Post recalled. “But the fact is that there’s a principle called the living family wage, which is a doctrine that has been around for a long time, since probably before the 1900s, which is that you can’t expect someone to work if the wages for that work can’t support a family.”