Dec. 26—The next time you walk into McDonald's, don't be surprised if the dollar menu becomes the $1.25 menu.

California will increase its minimum wage to $15.50 effective Jan. 1, the state's Department of Industrial Relations said in a Dec. 14 news release.

In response to the state's New Year's resolution, many businesses are bracing for possible changes.

This is the seventh wage increase since 2016, when state lawmakers passed a law phasing in a $15-an-hour wage by 2022 or 2023, depending on the size of the business. It is also the smallest increase — 3.33 percent— since 2018.

"Bigger employers are not going to get hurt that much," said Richard Gearhardt, an economics professor at Cal State Bakersfield. "In an inflationary environment, they are likely to pass some, if not all, of this on to consumers. For smaller businesses, however, they don't have the same latitude to pass this on to consumers (in part because they are competing against big-box retailers who have sufficient economies of scale)."

The state's minimum wage is now more than double the federal minimum of $7.25 an hour, and one of the highest in the country.

While larger businesses — those with 26 employees or more — will see a 50-cent increase, smaller businesses will now have to cover a $1.50-per-hour pay jump.

"I think the wage increase is going to affect the continued cost of goods going up," said Alejandro Ocampo, owner of several restaurants in town, including Camino Real Kitchen & Tequila and Bakersfield Pizza Co. & Bar. "Unfortunately, what the customers don't understand is that we're not just raising prices to make money, but to stay in business."

Ocampo said that despite misconceptions that owners make "fistfuls of cash," he has had to close on Mondays at his three restaurants. In April, he shortened his menus a second time to offset food and labor costs.

Despite the state's good intentions, some small-time employers fear this will only translate to less employment, a higher cost of living and businesses closing shop.

"The moment it goes up, the cost of goods goes up," Ocampo said. "Ever since the minimum wage went up, food and housing costs went up. At what point is 'minimum' enough?"

Gearhart anticipates small businesses will hire less and make less money as a result. He said the hardest hit will be fast food, retail, entertainment and transportation, where minimum wage work constitutes the largest share of labor.

"The first three are going to be the biggest in Bakersfield," Gearhart said. "Especially if we hit a recessionary environment; if that's the case, small businesses are going to be disproportionately hurt (they already are with inflation and exiting COVID)."

Some experts have referred to this as an inflationary increase, which means higher wages translate to higher prices, a sort of shifting the problem onto the consumer.

"In basic economic theory, yes, this has the potential to be 'inflationary,'" Gearhart said. "In practice, however, the inflation impact from minimum wage increases (which are a small fraction of the whole labor force) will be small."

Ocampo made the point that he has paid his employees at least a dollar more than the minimum wage for the past three years.

"I get what they're trying to do with minimum wage, but my concern is what about people that went to school and have businesses — do their wages go up?" Ocampo asked. "Why am I going to school to make $20 an hour when I can flip burgers and make $21?"

That said, Gearhart believes the inflation impact from minimum wage increase is small. "There are other, bigger drivers of inflation currently," he said.

Despite all the concern, a measure to phase in $18 an hour by 2026 will be placed on the state ballot in November 2024.

Denise Davis, executive vice president of communications at the California Chamber of Commerce sounded alarm about wage increases while also calling for greater awareness on the party of business owners.

"Continued cost pressures on business can be problematic," she said. "But this is the law and, right now, we are just making sure employers understand the rules and can comply."