BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular
SB 3 (Leno) - Minimum wage: adjustment
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|Version: March 11, 2015 |Policy Vote: L. & I.R. 4 - 1 |
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|Urgency: No |Mandate: No |
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|Hearing Date: April 20, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: Under current law, the State's minimum wage will
be increased from $9.00 per hour to $10.00 per hour on January
1, 2016. This bill would instead set the minimum wage as
follows:
$11.00 per hour on January 1, 2016.
$13.00 per hour on July 1, 2017.
Beginning in 2019, increases to minimum wage would be
indexed annually to the change in the California Consumer
Price Index (CCPI), as specified.
Fiscal Impact:
The Department of Industrial Relations (DIR) would incur
costs (materials, printing and postage) of about $500,000
(General Fund) to issue new Minimum Wage Orders to
approximately 800,000 employers statewide each time the
minimum wage is adjusted pursuant to this bill.
State Controller's Office (SCO) data previously supplied
to this Committee indicated that state government employs
approximately 4,500 minimum wage workers, mostly student
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assistants and seasonal employees. Based on this figure, as
a direct employer, this bill would lead to an estimated
increase in the low tens of millions of dollars (General
Fund, and various special funds). Because of the bill's
annual inflation adjustment, state payroll costs would
continue to rise relative to current law in the out-years
and would be driven by future inflation rates.
Additionally, the State pays the minimum wage to private
individuals who provide certain services at the local level
(heath care, social services, after-school programs, etc.).
The related impact of this bill's raising the minimum wage
is unknown (and partially dependent on interactions with
the federal government), but likely to be in the hundreds
of millions of dollars annually (primarily General Fund and
federal funds).
The bill would result in cost pressures to increase
wages for state employees who at present earn slightly more
than the current minimum wage to avoid salary compaction.
See the Staff Comments section 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
when the federal minimum wage of $0.25 per hour was created in
1938. The California minimum wage has been increased 27 times
since its inception, and has been $9.00 per hour since mid-2014.
As noted above, under current law, the minimum wage will
increase to increase to $10.00 per hour on January 1, 2016.
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 replace the scheduled increase to
$10.00 per hour effective January 1 2016, and instead would (1)
increase the state's minimum wage to $13.00 per hour by 2017,
(2) provide for the automatic adjustment of the minimum wage
each year by the percentage change in the CCPI, beginning
January 1, 2019. Specifically, this bill would:
Increase the minimum wage to $11.00 beginning January 1,
2016, and to $13.00 per hour beginning July 1, 2017.
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Require the minimum wage adjustment to be made based on
the change in the CCPI, as specified. This measure also
would require the Industrial Welfare Commission (IWC) to
publicize the adjusted wage.
Prohibit the IWC from adjusting the minimum wage, if the
change in the CCPI is negative.
Define percentage of inflation as the percentage of
inflation specified in the CPI for All Urban Consumers
(CPI-U), as published the Department of Industrial
Relations (DIR), or its successor.
Define "previous year" as the 12-month period that ends
on August 31 of the calendar year prior to the adjustment.
Related Legislation: SB 935 (Leno, 2014), would have increased
the minimum wage in a similar pattern to this bill. SB 935
failed passage in the Assembly Labor and Employment Committee.
Staff Comments: Relative to the current-law level of $10.00 per
hour scheduled to occur in about 12 months, this measure would
raise California's minimum wage by 30 percent by 2017; this
amount is in addition to the $2 per hour increase implemented by
AB 10 (Alejo, 2013). Assuming an annual inflation rate of 3
percent, the indexing provisions of the bill would raise the
minimum wage by about 40 cents per year beginning in 2019.
The fiscal impacts of raising the minimum wage (nationally, in
California, and in other states) has become a source of much
debate. A myriad of studies from academia, private consultants
and the Congressional Budget Office present conflicting findings
with respect to the impact on employment levels, income levels,
and tax revenue.
Unclear though they are, much of the fiscal impacts 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. Consequently, they would spend more
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on goods and services, thereby generating certain increases
in economic activity.
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 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, but likely in
the hundreds of millions of dollars annually.
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
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hand, the measure's impact on business activity would increase
public assistance payments to some people who lose their jobs.
These costs would partially offset the public assistance savings
noted above.
The higher minimum wage could increase state and local
government costs in other ways. For instance, to the extent that
the measure results in a slight increase in inflation, the
public sector could incur added costs for expenses indexed for
inflation, such as building leases and welfare payments.
Additionally, a higher minimum wage would make the State incur
higher unemployment benefits paid out by the Employment
Development Department, as well as increased disability
insurance premiums. The amounts are unknown, but likely in the
low millions of dollars of annually.