12/01/2011 01:12 pm ET | Updated Dec 04, 2011

San Francisco Minimum Wage Hike Sets National Record

On January 1st of next year, San Francisco will make history. The city will become the first place in America to have its minimum wage top ten dollars.

The new minimum wage in San Francisco will be $10.24 an hour, up from the current rate of $9.92. This automatic increase is the result of a law passed by San Francisco voters in 2004 that tied the city's minimum wage to inflation, hence its inevitable, yearly upward creep.

San Francisco joins eight other states (including Colorado, Florida and Ohio) also raising their minimum wages at the start of 2012.

California has one of the highest minimum wage rates of any state in the union; all employees in the Golden State must be paid at least $8 per hour with exceptions for students, teens, informal workers (like babysitters) and seasonal workers.

Unlike in the rest of California, San Francisco doesn't allow employers to pay minors under the age of 18 a lower rate than adults and also mandates that its regulations apply to undocumented workers in additional to legal residents.

A full-time employee making the California minimum wage will earn around $16,000 per year, about $2,000 above the national poverty line for a family of two.

The federal minimum wage was set at $7.25 in 2010.

While San Francisco's minimum wage is indexed to inflation, the vast majority of others around the country are not. Increases in minimum wages have been far outpaced by the gradually declining value of the dollar. In a recent New York Times article, NPR's Adam Davidson notes, "the minimum wage, at its pre-1970s peak, was almost 50 percent higher than it is now (inflation adjusted, naturally)."

Even so, there are many who feel that minimum wage laws are counterproductive. Opponents argue that by making labor more expensive, it reduces the number of jobs available and increases unemployment.

"Despite the claims of advocacy groups, the evidence is clear: raising the minimum is a poor way to reduce poverty or boost the economy." said Michael Saltsman, research fellow at the Employment Policies Institute said in a statement. "With a nine percent unemployment rate that's even higher for vulnerable subgroups, cities and states should be wary of policies that create additional barriers to employment."

However, a recent study of San Francisco's 2004 minimum wage hike by the Center for Economic and Policy Research found that "citywide minimum wages can raise the earnings of low-wage workers, without a discernible impact on their employment."

Looking as far as three years past the city's implementation of the wage increase, the study's authors noted that the law had virtually no effect on the number of jobs in the city's fast food, food services, retail and low-wage sectors because the dent in most companies' bottom lines wasn't large enough for them to pull back on hiring. Additionally, the study found little difference between the way small and firms reacted to the increase.

A separate 2005 study from the U.C. Berkeley Institute of Industrial Relations found that the the 2004 rate increase did have a slight effect in one area--it induced fast food chains in the city to raise their prices.

Some local businesses have claimed the city's comparatively higher minimum wage makes it difficult for them compete with companies located elsewhere in the Bay Area.

Lacrouts-Lyonnaise French Laundry owner Kevin Lacrouts, who has been docked by the city four times for paying his workers illegally low wages, insisted to the San Francisco Examiner that the law was putting him at a disadvantage against other commercial laundries based in places like Oakland or Marin. "It's unfair when you have big companies that can offer price concessions to get the business and you're under restrictions that they're not," said Lacrouts.

Conversely, in an interview with SF Weekly last year, the San Francisco Living Wage Coalition's Karl Kramer noted that increases in the minimum wage can often help those whose incomes are above the lowest possible rate. "Not only bare minimum wage-earners benefit from San Francisco's ordinance," he said. "Those earning in the low two-digits tend to see their wages raised accordingly whenever minimum wage is hiked." Kramer called it, "the pushup effect."

Almost all minimum wage laws are set at the state level; only a small handful of cities--San Francisco, Santa Fe and Albuquerque--have wage standards above those mandated by their home states.

CORRECTION: The article originally stated that California workers who received a large volume of tips weren't required to be paid minimum wage as long as their wages and tips combined to greater than or equal to the state's hourly minimum wage. In fact, California law requires tipped employees to be paid minimum wage in addition any tips they earn.