BILL ANALYSIS Ó
AB 10
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Date of Hearing: April 24, 2013
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernandez, Chair
AB 10 (Alejo) - As Introduced: December 3, 2012
SUBJECT : Minimum wage.
SUMMARY : Increases the state's minimum wage in three separate
increments over the next three years. Thereafter, this bill
requires the minimum wage to adjust annually for inflation based
on the California Consumer Price Index. Specifically, this
bill :
1)Increases California's minimum wage from $8.00 per hour to not
less than $8.25 per hour on January 1, 2014.
2)Increases California's minimum wage from $8.25 per hour to not
less than $8.75 per hour on January 1, 2015.
3)Increases California's minimum wage from $8.75 per hour to not
less than $9.25 per hour on January 1, 2016.
4)Requires the minimum wage, commencing on January 1, 2017 and
annually thereafter, to be adjusted by the rate of inflation
that occurred during the previous year to maintain employee
purchasing power.
a) Requires the minimum wage to be calculated annually
by multiplying the minimum wage in effect on December
31of the previous year by the percentage of inflation
that occurred during that year and adding that product to
the minimum wage in effect during that year.
b) Requires the resulting total to be rounded off to
the nearest five cents ($0.05).
5)Requires the Industrial Welfare Commission (IWC) to publicize
the adjusted minimum wage.
6)Defines "Percentage of inflation" as the percentage of
inflation specified in the California Consumer Price Index for
All Urban Consumers, as published by the Department of
Industrial Relations (DIR), Division of Labor Statistics and
Research, or its successor index.
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7)Permits the IWC to increase the minimum wage in an amount that
is greater than the rate calculated pursuant to this measure.
8)Prohibits the IWC from adjusting the minimum wage if the
average percentage of inflation for the previous year was
negative.
9)Prohibits the IWC from reducing the minimum wage prescribed by
the measure.
EXISTING FEDERAL LAW :
1)Establishes the Fair Labor Standards Act (FLSA), which sets
provisions for the federal minimum wage.
2)Requires employers to pay their employees a minimum wage of
not less than $7.25 per hour if the employees are not exempt
from the FLSA's provisions.
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
federal and state laws to pay the state minimum wage rate,
unless their employees are exempt under California law.
3)Requires the IWC to, among other duties, conduct a full review
of the adequacy of the minimum wage at least once every two
years.
FISCAL EFFECT : Unknown
COMMENTS :
Current Minimum Wage Has Not Kept Pace with Inflation and
Productivity
According to the author, minimum wages have not kept pace with
the cost of living and has equated to a decrease in purchasing
power. The author states that while the cost of goods and
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services increase every year, the purchasing power of minimum
wage workers declines on an annual basis. According to the
author, "we have created a system where we pay workers less but
need them to spend more. That causes middle class families to
fall down the economic ladder. It's the reason our middle class
is shrinking and our income gap is now wider than ever."
At a recent 2013 U.S. Senate committee hearing entitled,
"Keeping up with a Changing Economy: Indexing the Minimum Wage,"
Arindrajit Dube, Ph.D., an assistant professor of economics at
Amherst, Massachusetts, testified that for much of the past
three decades, the U.S. has seen a sharp rise in income
inequality-fueled by both a rising dispersion in wages, as well
as a reduction in labor's share of income. When adjusted for
inflation, the real minimum wage has fallen from a high of
$10.60 in 1968 to $7.25 in today's dollars. According to Mr.
Dube, the bottom of the labor market has failed to keep up with
overall economic gains. He stated that had the minimum wage
kept up with overall economic productivity, it would have been
$22 per hour in 2011; and had it kept up with the growth in
income going to the top 1 percent, it would have been even
higher, at $24 per hour. Although acknowledging that evidence
does not suggest that the minimum wage should be increased to
$22 or $24 per hour, Mr. Dube stated that it does demonstrate
how different the growth rates have been for incomes going to
those at the bottom of the labor market as compared to the
economy as a whole, and to those at the top end of the
distribution. In summary, Mr. Dube testified that the decline
in the real minimum wage has played an important role in
increasing inequality in the bottom half of the wage
distribution, especially for women, who tend to be lower-paid.
The author also states that raising the minimum wage and
indexing it to the California Consumer Price Index (CPI) will
result in an increase of purchasing power. Echoing this
statement is a 2011 study by the Federal Reserve Bank of Chicago
entitled, "The Spending and Debt Responses to Minimum Wage
Increases." The economic study found that a $1 minimum wage
hike increases household income by roughly $250 and spending by
approximately $700 per quarter in the year following the minimum
wage hike. These findings were corroborated by independent data
showing that debt rises substantially after a minimum wage
increase and that the majority of the additional spending
resulting from a minimum wage increase is in durable goods,
particularly vehicles.
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Tying the Minimum Wage to a Consumer Price Index
The CPI is a measure of the average change over time in the
prices paid by urban consumers for a fixed market basket of
goods and services. The California DIR states the CPI "is the
most widely used measure of inflation and is sometimes viewed as
an indicator of the effectiveness of government economic
policy." As inflation erodes consumer's purchasing power, the
CPI is often used to adjust consumers' income payments, for
example, Social Security; to adjust income eligibility levels
for government assistance; and to automatically provide
cost-of-living wage adjustments to millions of American workers.
Currently, the Federal Department of Labor states there are ten
states (AZ, CO, FL, MO, MT, NV, OH, OR, VT, and WA) that have
minimum wages linked to a CPI. As a result of this linkage, the
minimum wages in these states are normally increased each year,
generally around January 1st. On January 1, 2013, nine of the
ten states increased their respective minimum wages (The
exception was Nevada, which adjusts it minimum wage in the month
of July each year). Of those nine states, five states increased
their minimum wage by fifteen cents ($0.15), the highest net
change.
Oregon: A Case Study For Indexing the Minimum Wage
In 2002, Oregon voters passed legislation into law that indexed
the state's minimum wage. The Oregon measure directs the Labor
and Industries Commissioner (LIC) to adjust the minimum wage for
inflation every September, rounded to the nearest five cents.
The adjustment accounts for inflation as measured by the CPI.
In 2013, Oregon's minimum wage rate increased to $8.95 per hour,
which equates to a 1.7% increase in the CPI from August 2011.
At the same United States Senate committee hearing cited above,
the Oregon LIC, Brad Avakian, testified that after more than ten
years of implementation, evidence shows Oregon's minimum wage
law has been good for its workers and businesses. By indexing
the minimum wage to inflation, he stated Oregon has made sure
that workers don't lose ground as the costs of everyday goods
increase. He also testified that Oregons minimum wage system
provides employers with greater certainty and predictability for
payroll expenses over time and that Oregon has not seen major
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spikes or steep wage increases yeartoyear. To this end, Mr.
Avakian stated that in the decade since voters enacted Oregons
minimum wage law, the largest wage increase was a modest $.45 in
2008, a, sixpercent increase. Mr. Avakian also testified that
virtually every dime that comes from a minimum wage increase is
reinvested in the local economy when the worker buys groceries,
gas, clothes, school supplies and other essentials. He stressed
that the success of Oregon's local business are dependent on
seeing customers' wages keeping pace with the cost of living.
Recent Legislation Regarding Minimum Wage Increases In Other
States
On March 28, 2013, the New York Legislature passed a measure to
incrementally increase the state's minimum wage from $7.25 per
hour to $9.00 per hour over a period of three years. Pursuant to
this measure, the minimum wage will hold at $7.25 per hour until
December 31, 2013, when it will increase to $8.00 per hour. On
December 31, 2014, the minimum hourly rate will again increase
to $8.75 per hour, and on December 31, 2015, the rate will
further increase to $9.00 per hour. The New York measure does
not index future increases in the minimum wage to inflation.
On January 28, 2013, Governor Christie conditionally vetoed a
bill passed by the New Jersey General Assembly, which would have
increased New Jersey's minimum wage to $8.50 per hour from its
current rate of $7.25 per hour, while also tying future
increases to the CPI. The proposed minimum wage increase will
now appear on the next general election ballot as a proposed
amendment to the New Jersey State Constitution in November.
This ballot measure will ask voters if they "approve of amending
the State Constitution to set a minimum wage rate of at least
$8.25 per hour," while informing voters that "the amendment also
requires annual increases in that rate if there are annual
increases in the cost of living." If the proposed ballot
measure passes with a simple majority, New Jersey's minimum wage
will increase to $8.25 per hour in 2014 and indexed to the CPI
the following year.
Raising the Minimum Wage and its Impact on Jobs
Opponents of minimum wage have argued increasing the minimum
wage causes job losses. As a result, many economic studies have
examined whether increasing the minimum wage actually does lead
to job losses.
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A highly regarded economic study entitled, "Minimum Wage Effects
Across State Borders: Estimates Using Contiguous Counties,"<1>
evaluated whether minimum wages had any impact on earnings and
employment. The study paired contiguous counties across
state-lines with differential minimum wages and examined
differences between the pairs in terms of the number of jobs and
pay for workers over a 16 year span (1990-2006), primarily
focusing on workers in the restaurant industry because of its
high usage of low-wage workers. After crunching the data from
the contiguous counties, the authors of the study concluded that
increasing the minimum wage resulted in strong earnings effects
with no effect on employment. The study also explained why
researchers have sometimes found a negative effect on jobs from
minimum wage increases. According to the study, previous studies
have failed to take into account regional differences in states'
economies. Failure to account for these factors have lead
researchers to mistakenly attribute the low growth in employment
in some states to higher minimum wages instead of the real
cause, which could be deindustrialization, technological change,
or other causes unrelated to the increased minimum wage.
A 2007 study from the University of California, Berkeley
Institute for Research on Labor and Employment entitled, "The
Economic Effects of a Citywide Minimum Wage,"<2> measured the
economic effects of San Francisco's adoption of an indexed
minimum wage. To do this, the study compared the growth between
low-wage industries subjected to San Francisco's minimum wage
law with low-wage industries in the surrounding Bay Area. The
results of the study showed that San Francisco's adoption of an
indexed minimum wage had no measureable effect on employment
growth while having a strong impact in raising the purchasing
power of low wage workers. The study did however acknowledge
that San Francisco restaurants in the study increased their
prices by roughly 2.8% relative to their counterparts in the
East Bay; however, the study stated the price difference was not
statistically significant.
Another study entitled, "The Facts on Raising the Minimum Wage
When Unemployment Is High: Increasing the minimum wage during
---------------------------
<1> Arindrajit Dube, Lester, and Reich, Minimum Wage Effects
Across Sate Borders: Estimates Using Contiguous Counties, The
Review of Economics and Statistics (Nov. 2010).
<2> Arindrajit Dube, Naidu, and Reich, The Economic Effects of a
Citywide Minimum Wage, Industrial & Labor Relations Review, Vol.
60, Issue 4 (2007).
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rough economic times does not kill jobs,"<3> did a simple
analysis that provided supporting evidence that raising the
minimum wage does not result in job losses, even during tough
economic times. It examined the rate of job creation for states
that increased its minimum wage with an unemployment rate above
8 percent. It then compared those states' rate of job creation
over the next 12 months to the national average. The analysis
concluded that while some of the states that raised its minimum
wage experienced worse employment outcomes than the national
average, on the whole, states that increased its minimum wage
had a 12 month job growth that mirrored the national average,
with most states doing slightly better than the national average
and some well outperforming the national average.
ARGUMENTS IN SUPPORT :
Writing in support, California Labor Federation (CLF) states
this bill will strengthen and depoliticize California's minimum
wage. According to CLF, "not only are those at the bottom of
the wage scale mired in poverty, over recent decades the real
value of their earnings has collapsed," leaving workers worse
off today. In support of this, CLF cites that the California
Budget Project has calculated that between 1968 and 2008, the
purchasing power of California's minimum wage fell 24.8%. CLF
supports indexing the minimum wage, starting that inflation is
in large part to blame for this crisis and why ten states have
already indexed their minimum wage. According to the CLF,
"rather than abandon low wage workers to the whims of
legislators, these states recognized the wisdom in allowing the
market to dictate what the minimum wage should be."
CFL also believes the bill will kick start our lagging economy
over the next three years with predictable increases to the
minimum wage. Just the $.25 wage increase in 2014, according to
CFL, is estimated to provide two million Californians an
additional $520 annually and a billion additional dollars in
consumer spending in 2014 alone. The CFL states that "this is
the kind of job creation effort California cannot afford to
ignore."
Lastly, CFL believes the current method of determining
California's minimum wage rate is unconscionable because workers
---------------------------
<3> T. William Lester, Madland, and Bunker, "The Facts on
Raising the Minimum Wage When Unemployment Is High," Center for
American Progress (June 20, 2012).
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are forced to watch the minimum wage languish year after year
until legislators decided to act. By indexing the minimum wage
to inflation, the CFL states it will depoliticizes the process
and avoid the legislative battles and attacks directed at the
state's lowest paid workers.
ARGUMENTS IN OPPOSITION :
The California Chamber of Commerce (Chamber) along with a
coalition of organizations writes in opposition, labeling this
bill as a job killer. The Chamber states that California's
economic recovery is still in the infancy stage and that an
increase in the minimum wage in 2014 will negatively impact any
economic recovery by either limiting available jobs, or worse,
creating further job loss. The Chamber states that although the
initial $0.25 increase may seem minimal, combined with the
unknown increased costs associated with the implementation of
the Affordable Care Act, the tax increases approved under
Proposition 30, and the partial reduction in federal tax credit
in 2014, it will impose a significant burden on California
employers. These cumulative increases, according to the
Chamber, will either force a struggling employer to reduce their
costs in other areas, such as labor, or pass such increased
costs onto the consumers through higher prices, undermining this
bill's stated purpose.
The Chamber equally opposes indexing the minimum wage to the
CPI. The Chamber states an automatic annual rise in the minimum
wage does not take into account competing economic factors or
conditions business may be facing financially as a result of a
recovering economy or increased costs. According to the
Chamber, placing minimum wage on auto-pilot is inappropriate
when California has a full time Legislature available and
responsible for reviewing whether any adjustment in wages is
proper given the state of the economy at that point.
Writing in opposition, the National Federation of Independent
Business (NFIB) conducted a study on this bill's potential
negative results. The study states that depending upon the rate
of inflation in future years, enacting this bill could result in
46,000 to 68,000 lost jobs in California by 2023, and a
reduction in real output somewhere between $4.7-$5.7 billion.
It also states that more than 63 percent of these potential job
losses would be in the small business sector of the economy.
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The NFIB study also claims that the increase in minimum wage
might cause employees currently earning above the minimum wage
to put pressure on their employer for a raise in order to
maintain the wage premium between them and the lowest-earning
individuals in the economy, causing this bill to have an
emulation effect with individuals earning near (just above) the
minimum wage.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
California Catholic Conference of Bishops
California Catholic Conference, Inc.
California Employment Lawyers Association
California Federation of Teachers
California Labor Federation, AFL-CIO
California Nurses Association
California Public Defenders Association
California Rural Legal Assistance Foundation
California State Association of Electrical Workers
California State Pipe Trades Council
Laborers' International Union of North America Locals 777 & 792
Legal Aid Association of California
Mexican American Legal Defense and Educational Fund
National Association of Social Workers, California Chapter
Restaurant Opportunities Center of Los Angeles
San Diego County Court Employees Association
Services, Immigrant Rights & Education Network
United Domestic Workers of America, Local 3930
Western States Council of Sheet Metal Workers
Concerns
California Association of Health Facilities
Opposition
Acclamation Insurance Management Services
Allied Managed Care
Brea Chamber of Commerce
California Agricultural Aircraft Association
California Association for Health Services at Home
California Association of Nurseries and Garden Centers
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California Association of Wheat Growers
California Association of Winegrape Growers
California Bean Shippers Association
California Chamber of Commerce
California Cherry Export Association
California Cotton Ginners Association
California Cotton Growers Association
California Dairies, Inc.
California Framing Contractors Association
California Grain and Feed Association
California Grape & Tree Fruit League
California Grocers Association
California Hotel and Lodging Association
California League of Food processors
California Lodging Industry Association
California Manufacturers and Technology Association
California Pear Growers Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Retailers Association
California Seed Association
California Spa & Pool Industry Education Council
California State Floral Association
California Tomato Growers Association
California Warehouse Association
Camarillo Chamber of Commerce
Culver City Chamber of Commerce
Far West Equipment Dealers Association
Fullerton Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
National Federation of Independent Business
Orange County Business Council
Pacific Egg and Poultry Association
Redondo Beach Chamber of Commerce
San Gabriel Valley Regional Chamber of Commerce
Santa Clara chamber of Commerce and Convention-Visitors Bureau
Simi Valley Chamber of Commerce
Southwest California Legislative Council
The Tulare Chamber of Commerce
Valley Industry and Commerce Association
Western Agricultural Processors Association
Western Growers Association
Analysis Prepared by : Timothy Lepore/ Benjamin Ebbink / L. &
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E. / (916) 319-2091