BILL ANALYSIS Ó
AB 1439
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Date of Hearing: April 18, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 1439 (Alejo) - As Amended: March 29, 2012
SUBJECT : Minimum wage: annual adjustment.
SUMMARY : This bill requires the state's minimum wage to
automatically adjust annually based on the California Consumer
Price Index (CPI). Specifically, this bill :
1)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 August 31 of the
previous year by the percentage of inflation, as defined,
that occurred during that year.
b) Requires the total to be rounded off to the nearest five
cents ($0.05).
2)Requires the Industrial Welfare Commission (IWC) to publicize
the adjusted minimum wage.
3)Defines "percentage of inflation" as the percentage of
inflation specified in the California Consumer Price Index for
All Urban Consumers (CPI-U) as published by the Department of
Industrial Relations, Division of Labor Statistics.
4)Defines "previous year" as the 12 -month period that ends on
August 31 of the Calendar year prior to the adjustment.
5)Prohibits the IWC from reducing the minimum wage according to
the formula prescribed above.
6)Permits the IWC to increase the minimum wage to an amount that
is greater than the rate calculated by this measure.
EXISTING FEDERAL LAW :
1)Establishes the Fair Labor Standards Act (FLSA), which sets
provisions for the federal minimum wage.
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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, California has one of the
widest income gaps in the nation. The author states that
raising the minimum wage is the most direct way to put money in
the pockets of people who will spend it the fastest.
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 that minimum wage increases raise
the overall earnings of low income workers.
According to a 2011 report from the California Budget Project
(CBP) titled "A Generation of Widening Inequality," the 2010
purchasing power of California's minimum wage was 26.5 percent
below its 1698 value of $10.88 per hour (in 2010 dollars). The
CBP states that if the purchasing power of the state's minimum
wage had remained constant since 1968, full-time, year-round
workers earning the minimum wage would make nearly $6,000 more
per year than they do now, which is approximately $22,630
compared to the current $16, 640. 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
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indexed to inflation, it loses purchasing power as the cost of
basic necessities increases.
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 eight states -
Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and
Washington - increased on January 1, 2012.
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
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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 USDOL. 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
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.
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ARGUMENTS IN SUPPORT :
In a letter expressing support of this bill, the American
Federation of State, County and Municipal Employees (AFSCME)
writes that today, more than ever, minimum wage earners are
feeling the pinch with soaring housing, health care and gasoline
costs. AFSCME states that increasing the minimum wage now would
help hard-pressed families pay for basic necessities, including
groceries and rent. In addition, AFSCME writes that raising the
minimum wage benefits local businesses because workers living
paycheck to paycheck are the first to spend money when they get
it and thus put money back into the local economy. In their
letter of support, the California Catholic Conference (CCC)
writes that a single adult must earn an annual income of
$30,445, equivalent to an hourly wage of $14.64, in order to
support a modest standard of living. They note that an hourly
wage needed to earn the basic family budget for families with
children is three to four times the state's minimum wage of
$8.00 per hour. CCC writes that the small step proposed by this
bill is a small positive step forward to give many of
California's low-income population a boost.
ARGUMENTS IN OPPOSITON :
Writing in opposition to this bill, the California Chamber of
Commerce (CalChamber) and a coalition of employer organizations,
states that an annual automatic rise in the minimum wage would
have a significant impact on businesses. According to the
CalChamber, placing the increase in minimum wage on auto-pilot
is inappropriate when California has a full-time Legislature
available and responsible for reviewing whether any adjustment
in wages in proper given the state of the economy at a specific
point. CalChamber writes that an increase in the minimum wage
would increase hourly employees' wages and increase that of
"exempt" employees and potentially increase the workers
compensation costs. Finally, CalChamber states that this bill
will increase cost of doing business, and therefore discourage
new businesses from locating to California and encourage
existing businesses to relocate outside of the state.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
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California Catholic Conference, Inc.
California Employment Lawyers Association
California Rural Legal Assistance Foundation
Laborers' International Union of North America, Locals 777 & 792
National Association of Social Workers, California Chapter
Older Women's League of California
Opposition
Building Owners and Managers Association of California
California Association of Bed & Breakfast Inns
California Association of Health Facilities
California Business Properties Association
California Chamber of Commerce
California Farm Bureau Federation
California Grocers Association
California Hotel & Lodging Association
California Independent Grocers Association
California League of Food Processors
California Restaurant Association
California Retailers Association
International Council of Shopping Centers
NAIOP of California, the Commercial Real Estate Development
Association
National Federation of Independent Business
Western Growers Association
Analysis Prepared by : Shannon McKinley / L. & E. / (916)
319-2091