BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 10 (Alejo) - Minimum Wage
          Amended: June 19, 2013          Policy Vote: L&IR 3-1
          Urgency: No                     Mandate: No
          Hearing Date: August 12, 2013                           
          Consultant: Robert Ingenito     
          This bill meets the criteria for referral to the Suspense File.

          Bill Summary: AB 10 would increase the state's minimum wage from  
          its current rate of $8.00 per hour to $10.00 per hour over a  
          five-year period. 

          Fiscal Impact: 

                 The Department of Industrial Relations (DIR) would incur  
               costs of about $400,000 (General Fund) to issue new Minimum  
               Wage Orders to approximately 815,000 employers in the state  
               each time the minimum wage is adjusted pursuant to this  

                 According to the State Controller's Office (SCO), state  
               government employs approximately 4,500 minimum wage  
               workers, mostly student assistants and seasonal employees.  
               Based on a 40-hour work week, this bill would result in  
               increased salary costs of $585,000 in 2013-14, rising to  
               $16.3 million in 2017-18 (General Fund and various special  
               funds). Payroll taxes would increase by $1.2 million in  
               2017-18 upon full implementation of the wage increase.   
               Additionally, there would likely be increased state budget  
               costs for workers currently paid between $8.01 per hour and  
               $10.00, the extent to which is unknown. Finally, the bill  
               would result in cost pressures to increase wages for state  
               employees who make more than $10.00 per hour.

                 See the Staff Comments for a general discussion of the  
               impact of this measure to the economy and revenues.

          Background: The California minimum wage was established at $0.16  
          per hour in 1916. The California minimum wage was $0.33 per hour  


          AB 10 (Alejo)
          Page 1

          when the federal minimum wage of $0.25 per hour was created in  
          1938. The California minimum wage has been increased 25 times  
          since its inception, and has been $8.00 per hour since 2008.  
          Because of increases in the overall cost of living, when the  
          minimum wage is unchanged for several years, its purchasing  
          power declines.

          Proposed Law: This bill would increase the state minimum wage as  

                 $8.25 per hour, beginning January 1, 2014. 
                 $8.75 per hour, beginning January 1, 2015. 
                 $9.25 per hour, beginning January 1, 2016.  
                 $9.50 per hour, beginning January 1, 2017.  
                 $10.00 per hour, beginning January 1, 2018.

          Related 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 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.

          Staff Comments: This measure would raise California's minimum  
          wage by 25 percent by 2018. Much of the fiscal impact of this  
          measure would be related to its various effects on the economy,  
          including changes in employment, prices, and profits. For  

                 Most employees earning less than the proposed minimum  
               wage would earn more. They would also spend more on goods  
               and services, thereby generating certain increases in  
               economic activity. 


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          Page 2

                 At the same time, however, employers would face higher  
               wage costs, which they would either absorb in the form of  
               lower profits or attempt to offset through a variety of  
               means. For instance, they may attempt to shift or "pass  
               along" the costs of the higher wages to consumers by  
               raising prices of the goods and services they sell.  
               Alternatively, some employers may offset the costs of the  
               increase in wages by automating, hiring fewer workers (or  
               reducing workers' hours), or limiting fringe benefits. Some  
               businesses that are not able to shift the effects of the  
               higher minimum wage may reduce economic activity in  
               California. This would most likely occur in industries that  
               have a large share of expenses for low-wage workers or that  
               are subject to competition from other states and other  

          The measure would have varying impacts on state and local  
          revenues. For instance, a reduction in business activity,  
          employment, and income in California would result in lower  
          income tax revenues. These declines could be offset, however, by  
          increased spending on goods subject to the sales tax. Higher  
          sales taxes would occur if businesses raised prices of taxed  
          goods in response to the increase in the minimum wage, and this  
          increase is not offset by reduced quantities of goods sold.  
          Sales taxes could also increase if those receiving the higher  
          minimum wage spent a relatively high portion of their new  
          earnings on goods subject to the sales tax. The net impact on  
          state and local revenues is unknown. 

          State and local governments provide various public services --  
          primarily in the health and welfare area -- that use low-wage,  
          private sector employees. The increase in the minimum wage would  
          directly raise these costs by an unknown amount. 

          Families with limited income currently qualify for public  
          assistance in California, with benefit levels generally being  
          phased out as a recipient's income rises. By raising the  
          earnings of some public assistance recipients, this measure  
          would result in reduced state costs. These savings, primarily in  
          the Medi-Cal and CalWORKs programs, are unknown. On the other  
          hand, the measure's impact on business activity would increase  
          public assistance payments to some people who lose their jobs.  


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          These costs would partially offset the public assistance savings  
          noted above.

          The higher minimum wage would increase state and local  
          government costs in other ways. For instance, to the extent that  
          the measure results in a slight increase in inflation-as many  
          studies suggest happens-the public sector could incur added  
          costs for expenses indexed for inflation, such as building  
          leases and welfare payments.