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
bill.
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
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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
follows:
$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
example:
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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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
countries.
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.