BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
William W. Monning, Chair
Date of Hearing: June 26, 2013 2013-2014 Regular
Session
Consultant: Deanna D. Ping Fiscal:Yes
Urgency: No
Bill No: AB 10
Author: Alejo
As Introduced/Amended: June 19, 2013
SUBJECT
Minimum wage: annual adjustment
KEY ISSUE
Should the Legislature approve a series of annual minimum wage
increases between 2014 and 2018?
ANALYSIS
Existing federal law sets the minimum wage at $7.25 an hour.
(Fair Labor Standards Act of 1938, 29 U.S.C. Chapter 8)
Existing law states that when state and federal laws differ, one
must comply with the more restrictive requirement. In
California, the minimum wage is $8.00 an hour.
(Labor Code §1182.12)
This bill increases the state's minimum wage in five separate
increments over the next five years. 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) Increases California's minimum wage from $9.25 per hour
to not less than $9.50 per hour on January 1, 2017.
5) Increases California's minimum wage from $9.50 per hour
to not less than $10.00 per hour on January 1, 2018.
COMMENTS
1. Background on Minimum Wage Federally and in Other States
In 1938, the Fair Labor Standards Act established a national
minimum wage for workers in the United States. On a federal
level, the minimum wage has been periodically raised.
Beginning in the 1980s and 1990s, the federal minimum wage saw
few significant increases which led to more than half of the
states to enact higher state-level minimum wages, including
California. On January 1, 2013, the minimum wage increased in
ten states - Arizona, Colorado, Florida, Missouri, Montana,
Ohio, Oregon, Rhode Island, Vermont, and Washington. These
states, except for Rhode Island, all adopted an annual
adjustment to their minimum wage. California's minimum wage on
the other hand, has remained at $8.00 an hour since 2008.
2. Impact of Minimum Wage on Employment: Research Findings
Conventional economic theory would predict that a rise in
minimum wage leads perfectly competitive employers to reduce
their workforce. David Card and Alan Krueger authored a
minimum wage study in 1992 entitled "Minimum Wages and
Employment: A Case Study of the Fast-Food Industry in New
Jersey and Pennsylvania" which evaluated the effects of New
Jersey and Pennsylvania's minimum wage on employment. The
study analyzed the experiences of 410 fast-food restaurants in
New Jersey and Pennsylvania following New Jersey's increase in
minimum wage. The authors also compared employment, wages, and
prices at stores before and after the wage increase in both
states as well. Card and Krueger found no evidence that the
rise in New Jersey's minimum wage reduced employment at
fast-food restaurants in the state.
One economic study published in 2010 by Arindrajit Dube, T.
William Lester, and Michael Reich entitled, "Minimum Wage
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Effects Across State Borders: Estimates Using Contiguous
Counties," also 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. 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 that
researchers have sometimes found a negative effect on jobs
from minimum wage increases because previous studies have
failed to take into account regional differences in states'
economies. Such a failure to account for these factors has
led some 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.
3. Need for this bill?
According to the author, AB 10 will address California's
historic income gap, which is one of the largest in the
nation, by increasing the state minimum wage over a five year
period from $8.00 to $10.00. The current federal minimum wage
is $7.25 and in California the minimum wage is $8.00. Over the
last 30 years Congress has increased the minimum wage 3 times
while California has not had a minimum wage increase since
2008. If the federal minimum wage had kept up with inflation
over the past 40 years it would be around $10.69. According to
a national poll conducted by Lake Research Partners, nearly
three out of four likely voters (73%) in the U.S. support
increasing the minimum wage to $10 per hour and indexing it to
inflation. In its original version, AB 10 would have indexed
the minimum wage on an annual basis according to the rate of
inflation following the set step increases described - this
was amended out of the bill before it reached the Senate Labor
Committee hearing.
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4. Proponent Arguments :
Supporters argue that this bill will strengthen and
depoliticize California's minimum wage by providing a modest
increase to millions of struggling Californians. According to
proponents, over recent decades workers at the bottom of the
wage scale have been struggled while the real value of their
earnings has collapsed. In support of this, proponents cite
that the California Budget Project has calculated that between
1968 and 2008, the purchasing power of California's minimum
wage fell by 24.8%. Proponents also bring attention to the
Public Policy Institute of California's findings that
California is experiencing the largest income gap in at least
30 years which is exacerbated by the fact that California's
current minimum wage, when adjusted for inflation, is less
than the minimum wage workers earned in 1979.
Further, proponents believe the bill will kick start
California's lagging economy over the next five years with
predictable increases to the minimum wage. Just the $.25 wage
increase in 2014, according to proponents, is estimated to
provide two million Californians an additional $520 annually
and a billion additional dollars. Proponents argue that
raising the minimum wage would put more money in the pockets
of workers struggling to provide for their families, and when
workers have more money to spend, they spent it - generating
more consumer spending.
Proponents believe the current method of determining
California's minimum wage rate is unconscionable because
workers are forced to watch the minimum wage languish year
after year until legislators decided to act. Lastly,
proponents argue that AB 10 will address the current historic
income gap, help California's economy bounce back, and bring
the citizens of California back to prosperity.
5. Opponent Arguments :
Opponents argue that AB 10 is unprecedented as it locks in an
automatic 25% increase in the minimum wage over the next five
years, regardless of any other economic factors or costs that
employers may face, and exceeds any historical average rate of
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inflation (an average of 2.5% rate a year for California).
They contend that given the unpredictability of the economy,
the duration and amount of the minimum wage increase fails to
take into consideration other economic factors of cumulative
costs to which employers may be subjected.
Opponents state 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.
Opponents argue 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, could 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.
Lastly, opponents bring attention to a study conducted by the
National Federation of Independent Business (NFIB) which found
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. Opponents note that 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.
6. Prior Legislation :
AB 1439 (Alejo) of 2012 would have increased the minimum wage
to $8.50 per hour and provided for the automatic adjustment of
the wage each year by the rate of inflation as measured by the
California Consumer Price Index for all Urban Consumers. The
bill was held in the Assembly Appropriations Committee.
AB 196 (Alejo) of 2011 would have increased the minimum wage
to $8.50 per hour and provided for the automatic adjustment of
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the wage each year by the rate of inflation as measured by the
California Consumer Price Index for all Urban Consumers. The
bill was held in the Assembly Labor and Employment Committee.
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 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.
SUPPORT
American Federation of State, County and Municipal Employees,
AFL-CIO
California Applicants' Attorneys Association
California Catholic Conference of Bishops
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Federation of Teachers, AFL-CIO
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California National Organization for Women
California Nurses Association
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California Public Defenders Association
California Rural Legal Assistance Foundation
California State Association of Electrical Workers
California State Pipe Trades Council
California Teamsters, Public Affairs Council
City of Berkeley
City of Lathrop
Congress of California Seniors
Engineers and Scientists of California
Glendale City Employees Association
International Longshore and Warehouse Union
Laborers' International Union of North America Locals 777 and
792
Legal Aid Association of California
Mexican American Legal Defense and Educational Fund
National Association of Social Workers - California Chapter
Organization of SMUD Employees
Peace & Freedom Part of California
Professional & Technical Engineers, Local 21
Restaurant Opportunities Center of Los Angeles
San Bernardino Public Employees Association
San Diego Court Employees Association
San Luis Obispo County Employees Association
San Mateo County Central Labor Council, AFL-CIO
Santa Rosa City Employees Association
Service Employees International Union
Services, Immigrant Rights and Education Network
St. Anthony Foundation
UNITE HERE
United Auto Workers, Local 5810
United Domestic Workers of America, AFSCME Local 3930
United Food and Commercial Workers Union, Western States Council
Utility Workers Union of America, Local 132
Western Center on Law and Poverty
Western States Council of Sheet Metal Workers
OPPOSITION
Acclamation Insurance Management Services
Air Conditioning Trade Association
Allied Managed Care
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Brea Chamber of Commerce
California Agricultural Aircraft Association
California Association of Collectors
California Association for Health Services at Home
California Association of Health Facilities
California Association of Nurseries and Garden Centers
California Association of Wheat Growers
California Association of Winegrape Growers
California Bean Shippers Association
California Chamber of Commerce
California Citrus Mutual
California Cherry Export Association
California Cotton Ginners Association
California Cotton Growers Association
California Dairies, Inc.
California Farm Bureau Federation
California Framing Contractors Association
California Grain and Feed Association
California Grape & Tree Fruit League
California Grocers Association
California Hotel and Lodging Association
California Independent Grocers 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
Gilroy Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Grater San Fernando Valley Chamber of Commerce
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National Federation of Independent Business
Orange County Business Council
Oxnard Chamber of Commerce
Pacific Egg and Poultry Association
Rancho Cordova Chamber of Commerce
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 Electrical Contractors Association
Western Growers Association
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