BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 3|
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THIRD READING
Bill No: SB 3
Author: Leno (D) and Leyva (D), et al.
Amended: 3/11/15
Vote: 21
SENATE LABOR & IND. REL. COMMITTEE: 4-1, 4/8/15
AYES: Mendoza, Jackson, Leno, Mitchell
NOES: Stone
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NOES: Bates, Nielsen
SUBJECT: Minimum wage: adjustment
SOURCE: SEIU-California State Council
United Food and Commercial Workers
Western Center on Law and Poverty
DIGEST: This bill increases the minimum wage to $11 per hour in
January 2016 and $13 per hour in July 2017. Beginning in January
2019, this bill requires the minimum wage to be increased
annually based on inflation.
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 state law states that when state and federal laws
differ, one must comply with the more restrictive requirement.
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In California, the minimum wage is $9.00 an hour. (Labor Code
§1182.12)
Existing state law states that on January 1, 2016, the minimum
wage in California will increase to $10.00 an hour. (Labor Code
§1182.12)
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.
Background
1.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.
10 states currently index minimum wage increases each year:
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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, Chapter 351, Statutes of 2013), increased
the minimum wage to $9.00 an 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.
In a more recent economic study published in 2012 by
Arindrajity Dube, T. William Lester, and Michael Reich 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
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
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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.
Comments
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
existing 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
1) The Department of Industrial Relations will 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.
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2) State Controller's Office data previously supplied to the
Senate Appropriations Committee indicated that state
government employs approximately 4,500 minimum wage workers,
mostly student assistants and seasonal employees. Based on
this figure, as a direct employer, this bill leads to an
estimated increase in the low tens of millions of dollars
(General Fund, and various special funds). Because of this
bill's annual inflation adjustment, state payroll costs would
continue to rise relative to existing law in the out-years and
will be driven by future inflation rates.
3) 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).
4) This bill will 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.
SUPPORT: (Verified5/29/15)
SEIU-California State Council (co-source)
United Food and Commercial Workers (co-source)
Western Center on Law and Poverty (co-source)
9to5 California, National Association of Working Women
ACLU
AFSCME, AFL-CIO
Alliance of Californians for Community Empowerment
American Academy of Pediatrics, California
CA School Employees Association
California Alliance for Retired Americans
California Association of Food Banks
California Catholic Conference of Bishops
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
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California Employment Lawyers Association
California Federation of Teachers
California Hunger Action Coalition
California Immigrant Policy Center
California Labor Federation
California Nonprofits
California Partnership
California Teachers Association
California Teamsters Public Affairs Council
Californians United for a Responsible Budget
Children's Defense Fund-California
Cities Association of Board of Directors
City and County of San Francisco
Cities of Long Beach, Los Angeles, Mountain View and San Jose
Coalition of California Welfare Rights Organizations, Inc.
Consumer Federation of California
County of Napa
County Welfare Directors Association of California
Engineers and Scientists of CA, IFPTE Local 20, AFL-CIO
Family Economic Security Partnership
Friends Committee on Legislation
Glendale City Employees Association
International Longshore and Warehouse Union
Long Beach Mayor Robert Garcia
Los Angeles Mayor Eric Garcetti
National Association of Social Workers, California Chapter
National Employment Law Project
Oakland Mayor Libby Shaaf
Older Women's League Sacramento Capitol
Organization of SMU Employees,
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 County Court Employees
San Diego Hunger Coalition
San Francisco Mayor Ed Lee
San Francisco Unified School District
San Jose Mayor Sam Liccardo
San Luis Obispo County Employees Association
Santa Ana Mayor Miguel Pulido
The Women's Foundation of California
United Domestic Workers of America AFSCME Local 3930
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UNITE-HERE, AFL-CIO
Utility Workers Union of America
Western Regional Advocacy Project
Young Invincibles
OPPOSITION: (Verified5/29/15)
Agricultural Council of California
Air Conditioning Trade Association
American Pistachio Growers
Auburn Chamber of Commerce
Automotive Service Councils of California
CAWA - Representing the Automotive Parts Industry
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 Association of Winegrape Growers
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
California Landscape Contractors Association
California League of Food Processors
California Manufacturers and Technology Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Retailers Association
California Taxpayers Association
California Travel Association
Chamber of Commerce Alliance of Ventura and Santa Barbara
Counties
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Culver City Chamber of Commerce
El Dorado Hills Chamber of Commerce and California Welcome
Center
Family Business Association
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
Plumbing-Heating-Cooling Contractors Association of California
Pleasantview Industries, Inc.
Redondo Beach Chamber of Commerce & Visitors Bureau
Roseville Chamber of Commerce
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 Greater Corona Valley Chamber of Commerce
Torrance Area Chamber of Commerce
Western Agricultural Processors Association
Western Carwash Association
Western Electrical Contractors Association
Western Growers Association
Western United Dairymen
ARGUMENTS IN SUPPORT: According to the 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 eradicate poverty by uplifting California's
low-wage workers. 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
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$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 10 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.
ARGUMENTS IN OPPOSITION: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 Proposition 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
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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.
Prepared by:Deanna Ping / L. & I.R. / (916) 651-1556
5/29/15 15:30:21
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