BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Tony Mendoza, Chair
                                2015 - 2016  Regular 

          Bill No:               SB 3         Hearing Date:    April 8,  
          |Author:    |Leno                                                 |
          |Version:   |March 11, 2015                                       |
          |Urgency:   |No                     |Fiscal:    |Yes              |
          |Consultant:|Deanna Ping                                          |
          |           |                                                     |
                         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?

          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  


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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. 

          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  

            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  

            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  

            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.

          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
          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
          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

          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  
          Culver City Chamber of Commerce
          El Dorado Hills Chamber of Commerce and California Welcome  
          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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