BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: SB 3 Hearing Date: April 8,
2015
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|Author: |Leno |
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|Version: |March 11, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Deanna Ping |
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Subject: Minimum wage: adjustment
KEY ISSUE
Should the Legislature approve two annual minimum wage
increases, from $11 an hour in 2016 to $13 an hour in 2017?
Should the Legislature approve an annual adjustment based on the
Consumer Price Index to the minimum wage starting in 2019?
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 $9.00 an hour.
(Labor Code §1182.12)
Existing law states that on January 1, 2016, the minimum wage in
California will increase to $10.00 an hour. (Labor Code
§1182.12)
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This Bill increases the state's minimum wage in two increments
over two years then ties the wage increases to inflation
annually. Specifically, this bill :
1) Increases the minimum wage to $11 an hour beginning on
January 1, 2016
2) Increases the minimum wage to $13 an hour beginning July
1, 2017
3) Automatically indexes the minimum wage to inflation
annually beginning January 1, 2019
4) Requires the minimum wage to be calculated annually by
multiplying the minimum wage in effect on December 31 of
the previous year by the percentage of inflation that
occurred during that year and adding that product to the
minimum wage.
5) Also states that the minimum wage applies to all
industries, including public and private employment.
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. According to the National Conference of State
Legislatures, as of February 24, 2015, 29 states and D.C. have
minimum wages above the federal minimum wage of $7.25.
Additionally, 15 states, plus the District of Columbia, index
their minimum wage to rise automatically with cost of living.
Ten states currently index minimum wage increases each year:
Arizona, Colorado, Florida, Missouri, Montana, Nevada, New
Jersey, Ohio, Oregon, and Washington. Five more states, plus
the District of Columbia, will index minimum wage increases
annually beginning in future years: Alaska (2017), Michigan
(2019), Minnesota (2018), South Dakota (2016) and Vermont
(2019). California's first minimum wage increase in five
years, AB 10 (Alejo), increased the minimum wage to $9.00 an
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hour on July 1, 2014 and will increase the wage to $10.00 an
hour on January 1, 2016.
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
authors also compared employment, wages, and prices at stores
before and after the wage increase in both states and found no
evidence that the rise in New Jersey's minimum wage reduced
employment at fast-food restaurants in the state.
A more recent economic study published in 2010 by Arindrajit
Dube, T. William Lester, and Michael Reich entitled, "Minimum
Wage Effects Across State Borders: Estimates Using Contiguous
Counties," evaluated minimum wage by studying paired
neighboring counties across state-lines with differential
minimum wages. The authors concluded that increasing the
minimum wage resulted in strong earnings effects with no
effect on employment and 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 as
deindustrialization, technological change, or other causes
unrelated to the increased minimum wage.
In 2012 the same authors looked at the effects of minimum
wages on employment flows in the U.S. labor market in "Minimum
Wage Shocks, Employment Flows and Labor Market Frictions."
They used nationally representative data to provide the
minimum wage elasticities of earnings as well as employment
flows and stocks for teens and the restaurant industry. Dube,
Lester, and Reich concluded that minimum wage increases can
reduce the turnover that characterizes the low-wage segment of
the labor market and even allows for the possibility of
improving the structure and functioning of the low wage labor
market without substantially affecting employment.
A Center on Wage and Employment Dynamics policy brief from the
Institute for Research on Labor and Employment at University
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of California, Berkeley compared the effects of state minimum
wage increases in California, specifically the effects of $10,
AB 10 (Alejo 2013) and $13 minimum wage SB 935 (Leno 2014).
Entitled "Ten Dollars or Thirteen Dollars? Comparing the
Effects of State Minimum Wage Increases in California," the
report found that while AB 10 restores some of the lost ground
in recent years, it maintains the inflation-adjusted minimum
wage at about the same level as in 1988. The authors found
that an increase to $13 goes farther, raising the real minimum
wage to just about the peak value obtained in 1968. The
authors concluded that California businesses are likely to
absorb the increased labor costs of an increase in the minimum
wage with offsets from increased worker productivity, declines
in recruitment and retention costs, and with small price
increases in the restaurant industry.
3. Need for this bill?
According to the author, although California took an important
and much needed first step in 2013 with the passage of AB 10
(Alejo), it is essential that California increase the speed
with which boosts in the minimum wage will occur, and it is
equally essential that future annual increases be automatic
and tied to the rate of inflation in order to protect low wage
employees' purchasing power. The current federal minimum wage
is $7.25 and has only experienced three increases in the last
30 years. According to the Congressional Research Service, the
purchasing power of the federal minimum wage has decreased
steadily since 1968 when it was equal to about $10.77 in
today's dollars. Under current law, California will reach a
minimum wage of $10 in 2016, still below the inflation
purchasing power of the federal minimum wage in 1968. The
author contends that SB 3 will reduce the state's level of
income inequality while boosting the economy by increasing the
minimum wage to $11 per hour in January 2016 and $13 per hour
in July 2017. Beginning in January 2019, the statewide minimum
wage would be increased annually based on inflation.
5. Proponent Arguments :
According to proponents, the enactment of AB 10 (Alejo) to
increase the minimum wage to $10 in 2016 took a critical step
towards lifting the state's lowest wage workers out of poverty
and public assistance - and the raises in SB 3 build on this
initial victory to truly strengthen the middle class and
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eradicate poverty by uplifting California's low-wage workers.
Proponents also argue that SB 3 indexes the minimum wage,
thereby depoliticizing the issue and finally allowing workers
and employers the predictability offered by small but reliable
raises.
Proponents note that over recent decades the real value of
worker earnings has collapsed as the purchasing power of the
California minimum wage fell 29% between 1968 and 2014, with
over a third of that decline occurring since 2008. Proponents
argue that this has resulted in workers having to take
multiple jobs to make ends meet as a full-time minimum wage
worker in California earns $18,720 per year -well below the
$19,790 poverty line for a family of three. Proponents argue
that SB 3 will reduce the use of public assistance such as
CalWORKS as such public assistance increases or decreases
based on the income of the family. Proponents note that as
income increases due to minimum wage increasing families will
more quickly reach the exit point of CalWorks and the number
of families on assistance will decline - saving the state
money.
Further, proponents argue that an increase in the minimum wage
does not solely help workers. Rather, proponents contend that
such an increase will stimulate consumer spending,
specifically pointing to a finding from the Chicago Federal
Reserve Bank. A 2011 study by the Chicago Federal Reserve Bank
found that every dollar increase for a minimum wage worker
results in $2,800 of new consumer spending by his or her
household over the following year. Proponents also contend
that SB 3 reflects the proven economic principle that small
minimum wage hikes do not harm employment figures, but
actually boost economic activity. Proponents note that
numerous studies comparing minimum wage increases have no
evidence that increases cost jobs, and that states that raised
their minimum wage outperformed states that did not.
Lastly, proponents argue that inflation is in large part to
blame for California's growing income inequality and contend
that is why ten states currently tie their minimum wage
standards to a relevant consumer price index. Proponents argue
that rather than depending on wage increases from the
legislature, these states recognize the importance in allowing
the market to dictate what the wage should be.
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6. Opponent Arguments :
Opponents argue that that SB 3 will overwhelm many businesses
that are already struggling with the current minimum wage
increase under AB 10 and will result in job loss. Opponents
contend that indexing the minimum wage to inflation has always
been troubling to the business community because it fails to
take into account other economic factors or cumulative costs
to which employers may be subjected to including higher taxes
under Prop 30, paid sick leave, and increased costs associated
with the implementation of the Affordable Healthcare Act.
Additionally, opponents argue that another increase in the
minimum wage will negatively impact any economic recovery
either by limiting available jobs or creating further job
loss, pointing to various articles and studies. Opponents
point to an article, "Minimum Wages: A Poor Way to Reduce
Poverty" (Joseph Sabia) as well as a January 2015 study from
Professor Jonathan Meer from Texas A&M and Jeremey West from
MIT that reached similar conclusions: increasing the minimum
wage reduces the number of jobs available, most likely harming
low-wage workers. Opponents note the findings in these reports
that increasing the minimum wage could potentially harm those
living in poverty if low-wage jobs are reduced due to the
increase cost on businesses. Opponents also bring attention to
a Congressional Budget Office report from February 2014
regarding the impact of a $10.10 federal minimum wage which
concluded that while low-wage workers would receive a higher
income through the increase, other low wage jobs would
probably be eliminated, resulting in the income of most
workers who became jobless to fall substantially.
Further, opponents contend that an increase in the minimum
wage would not only increase hourly employees' wages, but also
salaried employees' compensation as well. They note that for
employees to qualify as "exempt" they must pass the
salary-basis test, which is two times the monthly minimum
wage. Opponents contend that if SB 3 passes that then in
January 2017 the "exempt" salary amount will rise from $34,560
to $49,920 - which is an increased cost to employers of over
$15,000 per exempt employee. Opponents argue that such an
increase will significantly burden companies that may not pay
the minimum wage, yet will suffer a negative impact as a
result of SB 3.
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Lastly, opponents in industries where employees receive tips
argue that tipped employees earn substantially more than the
state minimum wage. Such opponents contend that an increase in
the minimum wage ignores this fact as California does not have
a provision establishing a 'tipped wage or credit.'
7. Prior Legislation :
SB 935 (Leno) of 2014 would have increased the minimum wage to
$11 an hour in 2015, $12 an hour in 2016, and $13 an hour in
2017. It also would have indexed the minimum wage to inflation
in 2018. The bill was held in the Assembly Labor and
Employment Committee.
AB 10 (Alejo), Chapter 351, Statutes of 2014 increased the
minimum wage to $9.00 an hour on July 1, 2014 and to $10.00 an
hour on January 1, 2016.
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.
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
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$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
Western Center on Law and Poverty (Co-Sponsor)
The California State Council of the Service Employees
International Union (SEIU) (Co-Sponsor)
American Civil Liberties Union of California
California Alliance for Retired Americans
California Catholic Conference
California Communities United Institute
California Conference Board of Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Hunger Action Coalition
California Immigrant Policy Center
California Labor Federation AFL-CIO
California Rural Legal Assistance Foundation
California School Employees Association
California Teamsters Public Affairs Council
California United for a Responsible Budget
CalNonProfits
Children's Defense Fund-California
City and County of San Francisco
City of Long Beach, Office of the Mayor
City of Los Angeles, Office of the Mayor
City of Oakland, Office of the Mayor
City of San Jose, Office of the Mayor
City of Santa Ana, Office of the Mayor
Coalition of California Welfare Rights Organizations, Inc.
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
Family Economic Security Partnership
Friends Committee on Legislation of California
International Longshore and Warehouse Union
National Association of Social Workers-California Chapter
National Employment Law Project
Organization of SMUD Employees
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Organize Sacramento
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Roots of Change
Sacramento Central Labor Council AFL-CIO
San Bernardino Public Employees Association
San Diego Court Employees Association
San Diego Hunger Coalition
San Francisco Unified School District
San Luis Obispo County Employees Association
The American Federation of State, County and Municipal Employees
The California Federation of Teachers-AFT, AFL-CIO
The California Labor Federation, AFL-CIO
The Glendale City Employees Association
The Peace and Freedom Party of California
UNITE HERE, AFL-CIO
United Domestic Workers of America/AFSCME Local 3930, AFL-CIO
Utility Workers Union of America
Western Regional Advocacy Project
Young Invincibles
9to5 California, National Association of Working Women
OPPOSITION
Agricultural Council of California
American Pistachio Growers
Automotive Service Councils of California
California Agricultural Aircraft Association
California Ambulance Association
California Association of Bed and Breakfast Inns
California Association of Health Services at Home
California Association of Nurseries and Garden Centers
California Attractions and Parks Association
California Autobody Association
California Business Properties Association
California Chamber of Commerce
California Citrus Mutual
California Cotton Ginners Association
California Cotton Growers Association
California Dairies, Inc.
California Farm Bureau Federation
California Fresh Fruit Association
California Golf Course Owners Association
California Grocers Association
California Hotel and Lodging Association
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California League of Food Processors
California Manufacturers and Technology Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Retailers Association
California Travel Association
Chamber of Commerce Alliance of Ventura and Santa Barbara
Counties
Culver City Chamber of Commerce
El Dorado Hills Chamber of Commerce and California Welcome
Center
Fullerton Chamber of Commerce
Greater Bakersfield Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Greater Riverside Chambers of Commerce
Irvine Chamber of Commerce
Long Beach Area Chamber of Commerce
National Federation of Independent Business
Nisei Farmers League
Orange County Business Council
Oxnard Chamber of Commerce
Redondo Beach Chamber of Commerce & Visitors Bureau
Sacramento Metropolitan Chamber of Commerce
San Diego Regional Chamber of Commerce
Santa Clara Chamber of Commerce & Convention/Visitors Bureau
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
The ARC and United Cerebral Palsy California Collaboration
The California Restaurant Association
The Greater Corona Valley Chamber of Commerce
The Southwest California Legislative Council
Torrance Area Chamber of Commerce
Western Agricultural Processors Association
Western Carwash Association
Western Growers Association
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