BILL ANALYSIS Ó
AB 10
Page 1
Date of Hearing: March 30, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 10 (Alejo) - As Amended: March 14, 2011
SUBJECT : Minimum wage.
SUMMARY : This bill increases the state's minimum wage from
$8.00 per hour to $8.50 per hour and requires the minimum wage
to automatically adjust annually based on the California
Consumer Price Index (CPI). Specifically, this bill :
1)Increases California's minimum wage from $8.00 per hour to
$8.50 per hour on January 1, 2012.
2)Requires the minimum wage, beginning January 1, 2013, and on
January 1st of each year thereafter, to automatically adjust
based on the percentage of inflation, as specified.
a) Requires the minimum wage be calculated annually by
multiplying the minimum wage in effect on December 31 of
the previous year by the percentage of inflation, as
defined, that occurred during that year and adding the
produce to the wage in effect during that year.
b) Requires the total to be rounded off to the nearest five
cents ($0.05).
3)Requires the Industrial Welfare Commission (IWC) to publicize
the adjusted minimum wage.
4)Defines "percentage of inflation" as the percentage of
inflation specified in the California Consumer Price Index
(CPI-U) for All Urban Consumers, as published by the
Department of Industrial Relations, Division of Labor
Statistics.
5)Defines "previous year" as the 12 -month period that ends
August 31 of the Calendar year prior to the adjustment.
6)Permits the IWC to increase the minimum wage to an amount that
is greater than the rate calculated by this measure.
7)Prohibits the IWC from adjusting the minimum wage if the
AB 10
Page 2
average percentage of inflation is negative.
8)Prohibits the IWC from reducing the minimum wage according to
the formula prescribed above.
EXISTING FEDERAL LAW :
1)Establishes the Fair Labor Standards Act (FLSA), which sets
provisions for the federal minimum wage.
2)Sets the current federal minimum wage for covered nonexempt
employees at $7.25 per hour.
EXISTING STATE LAW :
1)Sets the state minimum wage at $8.00 per hour.
2)Requires all employers in California who are subject to both
the federal and state laws to pay the state minimum wage rate,
unless their employees are exempt under California law.
3)Establishes the IWC to, among other duties, review the
adequacy of the minimum wage at least once every two years.
FISCAL EFFECT : Unknown
COMMENTS : According to the author, minimum wage workers have
not been given a raise in three years. The author writes that
the purchasing power of minimum wage workers declines on an
annual basis while the cost of goods and services increase every
year. In addition, the author notes that the current minimum
wage is inadequate to support a single adult and grossly
inadequate to support a family. The author also states that
economists agree that raising the minimum wage will help the
economy by generating consumer spending.
The author states that, research indicates that state minimum
wages reduce family income inequality by raising overall wages.
A study titled "Minimum Wages and Income Inequality in the
American States, 1960-2000" suggests that the state minimum wage
is important because family income primarily consists of wage
income and not all workers are covered by the federal minimum
wage. In addition, a 2007 study from the University of
California Berkeley, titled "Minimum Wage Effects Across State
Borders: Estimates Using Contiguous Counties" (UC Study), found
AB 10
Page 3
that minimum wage increases raise the overall earnings of low
income workers.
According to a 2006 issue brief released by the California
Budget Project (CBP), the purchasing power of the minimum wage
was 33.1 percent lower than it was in 1968 and provides less
income than would be needed to support a single adult. The CBP
also notes that indexing the state's minimum wage would ensure
that the purchasing power of the minimum wage remains the same
over time. In addition, CBP writes that when the minimum wage
is not indexed to inflation, it loses purchasing power as the
cost of basic necessities increases. The purchasing power of
the state's minimum wage is 11.5 percent lower today than it was
when the minimum wage was last increased.
The CBP brief also noted that, of the 1.4 million workers that
earned within one dollar per hour of the state's minimum wage,
59.7 percent were 25 years or older and 59.1 percent worked
full-time. The CBP estimates that a full-time, full-year single
working adult needs to earn $12.44 per hour to cover the cost of
basic necessities and a single parent with two children needs to
earn $25.96 per hour. CBP acknowledges that $25.96 per hour is
not a starting wage, yet the report notes that this number
highlights the disparity between California's minimum wage and
the earnings needed to support a family.
According to the United States Department of Labor (USDOL),
there are ten states that have minimum wages that are linked to
a CPI. In an attempt to preserve the purchasing power of
low-wage workers, states have tied their minimum wage to the
CPI. According to the California Department of Industrial
Relations (DIR), the CPI measures the average change over time
in the prices paid by urban consumers for goods and services.
The CPI provides a way to compare the costs of goods and
services costs at a specific point month what the same goods and
services at a prior point in time (e.g. a month or a year
prior). According to DIR, as inflation erodes consumers'
purchasing power, the CPI is used to adjust consumers' income
payments, such as Social Security; to adjust income eligibility
levels for government assistance; and to automatically provide
cost-of-living wage adjustments to millions of American workers.
As a result of this linkage, the minimum wages in these states
are normally increased each year, generally around January 1st.
On January 1, 2011, seven of these states increased their
AB 10
Page 4
respective minimum wages. A 2004 study released by the Economic
Policy Institute (EPI Study) titled "Employment and the Minimum
Wage - Evidence from Recent State Labor Market Trends" reviewed
the impact of minimum wage increases in Washington State and
Oregon and found that increases in their respective state
minimum wages did not increase job losses. In addition, the EPI
Study notes that their research has not shown a causal link
between minimum wage increases and unemployment. The EPI Study
asserts that economists have recently suggested that an increase
in the minimum wage may not have substantial impact on
employment because workers are being paid less than what they
are really worth economically to their employer. The EPI study
suggests that rather than job loss, minimum wage increases can
correct a market imbalance by forcing employers to pay a fair
wage. In addition, by decreasing recruitment, training and
supervision costs, increases to the minimum wage may not have a
substantial impact on the cost of doing business for employers.
Oregon
The State of Oregon indexed its minimum wage in 2004. According
to Oregon Revised Statutes (ORS), the state's minimum wage is
adjusted annually for inflation, and is calculated by the
state's Commissioner of the Bureau of Labor and Industries based
upon the increase from the August of the preceding year to the
August of the year in which the calculation is made in the U.S.
City Average Consumer Price Index for all Urban Consumers
(CPI-U) for All Items as prepared by the Bureau of Labor
Statistics of the USDL. ORS also requires the minimum wage
amount to be rounded to the nearest five cents (ORS 653.025(b)).
Washington
The State of Washington began indexing its minimum wage in
September of 2000. The Revised Code of Washington (RCW)
requires the state minimum wage to be calculated and adjusted
annually using the CPI for urban wage earners and clerical
workers for the twelve months prior to each September 1st as
calculated by the USDOL. In addition, the RCW states that the
minimum wage rate is calculated and adjusted annually "to
maintain employee purchasing power by increasing the minimum
wage rate by the rate of inflation" (RCW 49.46.020 (b)).
In 2010 a Coalition of Washington business groups, including the
AB 10
Page 5
Washington Farm Bureau, the Washington Restaurant Association
and the Washington Retail Association, filed a lawsuit to halt a
12-cent minimum wage increase that was to take effect in January
2011. The Coalition argued that the minimum wage could not be
increased in 2011 because the CPI had not reflected a net
increase in the cost of living since 2008. Kittitas County
Superior Judge Scott Sparks ruled against the summary judgment
request made by the Coalition, and the 12-cent wage increase
took place on January 1, 2011.
Colorado
Colorado's State Constitution (Article XVIII, Section 15)
requires the Colorado minimum wage to be adjusted annually for
inflation, as measured by the CPI-U. On January 1, 2010, the
state's minimum wage was set to decrease from $7.28 per hour to
$7.24 per hour. This was the first time that one of the ten
states that have a minimum wage tied to inflation saw the
minimum wage decrease. However, the state's minimum wage for
most low-wage workers only decreased by three cents, to $7.25
per hour because Colorado state law prohibits most businesses
from paying below the federal minimum wage. On January 1, 2011,
Colorado's minimum wage increased to $7.36 per hour.
ARGUMENTS IN SUPPORT :
In a letter of support for this bill, the American Federation of
State, County, and Municipal Employees, AFL-CIO (AFSCME) writes
that an increase in the minimum wage is not only good for
workers'; it is also good for the state, which can profit from
workers ability to spend more. AFSCME writes that AB 10 would
provide relief for California's working families, helping to
alleviate some of the exorbitant increases in costs of the past
several years. The California Rural Legal Assistance Foundation
(CRLAF) writes that this bill is a carefully crafted reasonable
response to California's failure to protect the hardest working
and lowest paid workers from stagnant wage rates that negatively
impact their ability to provide a decent standard of living for
themselves and their families. The California Teamsters Public
Affairs Council asserts that all Californians deserve decent
wages, and maintaining a fair minimum wage puts money in the
hands of people who are the most likely to put it back into the
California economy.
ARGUMENTS IN OPPOSITION :
AB 10
Page 6
Writing in opposition, the California Chamber of Commerce,
California Farm Bureau Federation, California Restaurant
Association and other business groups state that this bill will
increase the cost of doing business for employers in California
by raising the minimum wage to $8.50 per hour and then
automatically indexing the wage rate upwards every year
thereafter.
They write employers cannot take the hit of an increased minimum
wage in the current financial strain of the current recession.
In addition, they assert that increased cost of doing business
could discourage new business from locating to California and
encourage existing business to relocate elsewhere. These groups
also note that an automatic annual rise in the minimum wage
according to the percentage of inflation does not take into
account competing economic factors or conditions. They write
that businesses could be suffering financially, such as now, and
the minimum wage would continue to increase.
The California Landscape Contractors Association (CLCA) writes
that, though they supported a minimum wage increase in 2006,
today's economy looks much different. They assert that raising
the minimum wage in the current economy would cause employers to
reduce employees and/or hours worked. CLCA writes that the
average wages in the landscaping industry greatly exceed the
minimum wage; the ripple effect of raising wages at the bottom
of the skill ladder would put upward pressure of the wages of
all employees and managers within a landscaper's business.
Finally, CLCA state that they will oppose all proposals to
increase the minimum wage until some future time when the
state's economy is fully mended.
RELATED AND PRIOR LEGISLATION:
AB 1835 (Lieber), Chapter 230, Statutes of 2006, increased the
minimum wage to $7.50 per hour effective January 1, 2007, and to
$8.00 per hour, effective January 1, 2008.
AB 1844 (Chavez) of 2006 would have increased the state minimum
wage in 2006 of $6.75 per hour to $7.25 per hour as of July 1,
2007, and to $7.75 as of July 1, 2008, and provided for the
automatic adjustment of the minimum wage each year by the rate
of inflation as measured by the California Consumer Price Index
AB 10
Page 7
for All Urban Consumers, beginning January 1, 2009. This bill
was held in the Assembly Appropriation Committee.
AB 48 (Lieber) of 2005 would have increased the minimum wage to
$7.25 per hour effective on and after July 1, 2006, and to $7.75
per hour effective on and after July 1, 2007, and provided for
the automatic adjustment of the minimum wage on January 1 of
each year thereafter, beginning in 2008, by multiplying the
minimum wage by the previous year's rate of inflation as
measured by the California Consumer Price Index. AB 48 was
vetoed by the Governor.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation
California School Employees Association
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Laborers' International Union of North America, Local 777, 792
Professional and Technical Engineers, Local 21
Restaurant Opportunities Center of Los Angeles
SCOPE, Laborers International Union of North America
Service Employees' International Union, Local 1000
South Bay Labor Council
UNITE HERE!
United Domestic Providers of America
United Food and Commercial Workers-Western States Conference
Utility Workers Union of America, Local 132
Western Center on Law and Poverty
Opposition
Applebee's
California Association of Health Facilities
California Attraction and Parks Association
AB 10
Page 8
California Chamber of Commerce
California Citrus Mutual
California Cotton Ginners and Growers Association
California Farm Bureau Federation
California Grape & Tree Fruit Processors
California Landscape Contractors Association
California League of Food Processors
California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
California Taxpayers Association
Chambers of Commerce Alliance of Ventura & Santa Barbara
Counties
Christensen and Giannini
Gilroy Chamber of Commerce
Grower-Shipper Association of Central California
Monterey County Farm Bureau
National Federation of Independent Business
San Benito County Chamber of Commerce
Sardine Factory Cocktail Lounge and Restaurant
The Californian.com
Western Agricultural Processors Association
Western Growers Association
Western Milk Producers
Western Pistachio Association
Analysis Prepared by : Shannon McKinley / L. & E. / (916)
319-2091