BILL ANALYSIS Ó
SB 3
Page 1
Date of Hearing: July 8, 2015
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
SB
3 (Leno) - As Amended March 11, 2015
SENATE VOTE: 23-15
SUBJECT: Minimum wage: adjustment.
SUMMARY: 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)Indexes automatically 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
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previous year by the percentage of inflation that occurred
during that year and adding that product to the minimum wage.
5)States that the minimum wage applies to all industries,
including public and private employment.
EXISTING LAW:
1)Set minimum wage at $7.25 an hour under federal law. (Fair
Labor Standards Act of 1938, 29 U.S.C. Chapter 8)
2)States under state law 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)
3)States under state law that on January 1, 2016, the minimum
wage in California will increase to $10.00 an hour. (Labor
Code §1182.12)
FISCAL EFFECT: According to the Senate Appropriations
Committee:
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.
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
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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.
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).
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.
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. 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
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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.
There are 16 states including District of Columbia that have
adopted an automatic indexing system to determining minimum
wages. According to National Conference on State Legislatures
June 1, 2015 web posting titled "State Minimum Wages: 2015
Minimum Wage by State," of the 16 automatically indexing minimum
wage states, 7 states use the Consumer Price Index ("CPI") as is
proposed in this bill. Furthermore, the states who do not use
the CPI, instead use cost of living or another form of annual
indexing.
A 2012 data brief by National Employment Law Project (NELP)
titled, "The Low-Wage Recovery and Growing Inequality," reports
there was a significant loss of jobs during the recession of
2007-2009 in mid-wage jobs, however there has been an increased
rate of employment in minimum wages jobs. Most of these jobs are
provided by service sector businesses like fast food, retail
stores, and home health care services. (NELP). One
interpretation is that a higher minimum wage will result in less
of a turn-over rate because of increased employee satisfaction
and because the cost to hire and re-train an employee will be
greater than the cost of keeping an existing employee.
ARGUMENTS IN SUPPORT
This bill is co-sponsored by the Service Employees International
Union - California State Council, the United Food and Commercial
Workers Union, and the Western Center on Law and Poverty. They
argue that this bill will help lift Californians out of poverty
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by increasing the state's minimum wage in two steps and,
beginning in 2019, would adjust the minimum wage annually to the
rate of inflation. They argue that it is essential that
California increase the speed with which boosts in the minimum
wage will occur, and it is essential that future increases be
indexed in order to protect low-wage employees' purchasing
power.
The Western Center on Law and Poverty (WCLP) particularly notes
this bill's potential to help lift individuals and families out
of poverty. It cites research by Greg Duncan and Katherine
Magnuson of Stanford University that suggests that children are
hindered in school and their earnings as adults shrink due to
poverty at a young age. For example, it reports that children
are less likely to finish high school, more likely to be poor,
less likely to be working as a young adult, and that the longer
children are poor during their early years, the worse are the
adult outcomes. WCLP contends that this bill reduces poverty now
and poverty in the future when young children become adults.
Additionally, evidence suggests that an increase in household
income has a positive impact of health. A Health Impact Partners
(HIP) report on SB 935 (Leno), a minimum wage bill that failed
passage in 2014, and its health effects suggests that minimum
wages have a direct relationship with employees' poor health
relative to employees at three times the poverty level. Such
health outcomes include exercise, smoking rates, and mental
health. An increase in minimum wages may improve health and
well-being by the fulfillment of material needs, living
conditions, access to health care, and interpersonal
relationships. (HIP). According to predictions by the federal
Congressional Budget Office in 2014 regarding the impacts of
raising federal minimum wage, the majority of low-wage workers
would have higher wages and a greater family income as a result
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of such an increase. Overall, according to the CBO predictions
cited in the HIP report, net incomes would increase for families
with incomes less than six times the poverty threshold.
Supporters also argue that raising the minimum wage will benefit
the state by reducing state spending on health care through
moving individuals' eligibility from Medi-Cal to Covered
California. According to a recent study by UC Berkeley
economists Sylvia Allegretto and Michael Reich, and Rachel West
of the Center for American Progress, state health care spending
is projected to be reduced as a result of an increased minimum
wage. This study contends that because of increased wages,
there will be a lifting of individuals from Medi-Cal coverage to
qualify for Affordable Care Act's (ACA) Covered California.
Those using Covered California as a vehicle to have health
insurance at lower costs, where more than three-quarters of
current enrollees (77%) pay less than $150 per month, do so by
receiving premium federal subsidies meant to keep health care
affordable. They argue that the state may benefit from workers
using Medi-Cal, paid by the state and federal government, now
being eligible for subsidized private coverage through Covered
California. In addition, parents in some households affected
by wage increases will remain eligible for Medi-Cal but will
shift from a pre-ACA category where state and federal government
split the costs to a "newly eligible" category under the ACA
that's almost entirely federally-funded.
In addition, the California Labor Federation, AFL-CIO is in
support of this bill and presents evidence of how many persons
will be affected positively by a minimum wage increase and
annual indexing as well as why this bill will not cause lost
jobs. It cites an Economic Policy Institute from June 30, 2013
entitled, "The demographics of workers who would be affected by
a federal minimum wage increase state-by-state." This study
states that 92% of workers affected by a minimum wage increase
are over 20 years old and that 25% of all children live in a
house with at least one minimum wage earning parent. This
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amounts to around 2.4 million California children who would
benefit from this raise. Lastly, it cites a Center for American
Progress study that compared minimum wages with job growth
figures and found no correlation between minimum wage increases
and job losses.
Finally, the California Catholic Conference of Bishops supports
this bill, quoting Pope Francis as follows: "For it is through
free, creative, participatory and mutually supportive labor that
human beings express and enhance the dignity of their lives. A
just wage enables them to have adequate access to all other
goods which are destined for our common use."
ARGUMENTS IN OPPOSITION
Opponents, including the California Chamber of Commerce, argue
that this bill 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
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.
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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. Therefore, a result in a net job loss could
be caused by a limitation to business operations from raising
minimum wage and potential that an employer may no longer be
able to employ as many individuals due to limited resources.
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 this bill passes, 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 this bill. For example, where an
employer has employees working at the minimum wage and just
above it, it may be liable to raise the pay for each of those
employees. Therefore some business interests argue that an
increased minimum wage is not only an additional cost but also a
burden on doing business.
The California Restaurant Association (CRA) also opposes this
bill, arguing that the restaurant industry has been struggling
for the last several years to cope with one of the worst
economies since the great depression. CRA contends that the
minimum wage is a starting wage - not a forever wage. Minimum
wage increases often have a perverse effect on the restaurant
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industry. CRA argues that wage increases typically benefit those
who are the best paid individuals - minimum wage earners that
are often tipped well above and beyond minimum wage. A minimum
wage increase would ultimately hurt those it intends to help -
hardworking non-tipped employees who are paid an hourly wage
greater than the minimum wage, but are still at the lower end of
the pay scale. Tipped employees earn substantially more than
the state minimum wage. The added cost pressure from the
mandatory annual wage increase for the employees already earning
the most takes the finite labor dollars an operator may have and
reduces, if not eliminates, their ability to provide non-tipped
employees with a wage increase. CRA notes that, to help lessen
this negative effect, 43 other states acknowledge tips to offset
the unintended detrimental effects of a minimum wage increase.
However, California is one of just a few states that lack such a
provision. In addition, CRA argues that arbitrarily increased
minimum wage rates eliminate jobs for young workers, and cites a
2014 Brookings Institution report that states that California is
home to six of the nation's ten worst regions for teen
employment.
A number of groups, including the California School Funding
Coalition and the California School Boards Association, oppose
this bill and/or express concerns regarding the impact it will
have on public school districts in California. First, they
argue that the proposed timeline for implementation will have
significant short and long term fiscal impacts on school
districts' operating budgets. Second, they note that increasing
the minimum wage will impact school districts' entire salary
schedules, given that the minimum wage establishes the baseline
for the wages of all other employees. Third, they argue that
combined with other "new "costs, the "erosion" of the Local
Control Funding Formula growth dollars will be accelerated. In
addition, they contend that this bill further erodes the
principle of local control by mandating wages rather than
allowing for collaborative agreements between school employees
and school boards. They conclude that, unless schools are
provided funding to pay for the significant new costs associated
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with this bill, school districts will be forced to either make
cuts in other programs or reduce staffing.
OPPOSE UNLESS AMENDED
A number of organizations that support individuals with
intellectual and developmental disabilities in a wide variety of
programs throughout the state oppose this bill unless amended.
These organizations include, but are not limited to, The
Alliance, The Arc & United Cerebral Palsy California
Collaboration, the California Disability Services Association,
the California Respite Association, and Easter Seals.
They argue that direct service workers supporting people with
intellectual and developmental disabilities are among the lowest
paid workers in the state. However, they note that their
agencies are forced to pay these low wages because the state,
for the past two decades, has either cut or frozen rates and
funding to these programs. Increasing the minimum wage without
providing adequate funding will further push these organizations
toward insolvency and collapse.
They state that while recent budget proposals would have
included language to provide payment to such organizations for
such costs, the budget that was ultimately signed by the
Governor did not contain such language. Instead, they state
that the only relevant budget language requires the Department
of Developmental Services to report back to the Legislature
during the 2016-17 budget process, "long after the dramatic
impact of this bill would be felt by our community."
Therefore, they request that the bill be amended to fully fund
specified budget items, including all direct and indirect costs
increases associated with raising the minimum wage, address wage
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scale compaction, and cover minimum wage increases that occur at
the state or local level.
REGISTERED SUPPORT / OPPOSITION:
Support
9to5 California, National Association of Working Women
ACLU
AFSCME
Alliance of Californians for Community Empowerment
American Academy of Pediatrics, California
American Association of University Women, CA
CA Child Care Resource and Referral Network
CA School Employees Association
California Alliance for Retired Americans
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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
California Employment Lawyers Association
California Federation of Teachers
California Hunger Action Coalition
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California Nonprofits
California Partnership
California Rural Legal Assistance Foundation
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California School Employees Association
California Teachers Association
California Teamsters Public Affairs Council
California Women's Law Center
California Work and Family Coalition
Californians United for a Responsible Budget
Career Ladders Project
Child Care Law Center
Children's Defense Fund-California
Cities Association of Board of Directors, Santa Clara County
Cities of Long Beach, Los Angeles, Mountain View, Santa Ana,
Oakland and San Jose
City and County of San Francisco
City of Sunnyvale
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Coalition of California Welfare Rights Organizations, Inc.
Consumer Federation of California
County of Napa
County Welfare Directors Association of California
Courage Campaign
Engineers and Scientists of CA, IFPTE Local 20, AFL-CIO
Equal Rights Advocates
Family Economic Security Partnership
Friends Committee on Legislation
International Longshore and Warehouse Union
LIUNA Locals 777 & 792
Long Beach Mayor Robert Garcia
Lutheran Office of Public Policy - California
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Mayor Eric Garcetti, Los Angeles
Mujeres Unidas Y Activas
Napa County Board of Supervisors
National Association of Social Workers, California Chapter
National Council of Jewish Women
National Domestic Workers Alliance
National Employment Law Project
Oakland Mayor Libby Shaaf
Older Women's League Sacramento Capitol
Organization of SMUD Employees,
Organize Sacramento
Parent Voices
Peace and Freedom Party of California
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Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Raising California Together
Roots of Change
Sacramento Central Labor Council, AFL-CIO
San Bernardino Public Employees Association
San Diego County Court Employees Association
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
SEIU-California State Council (co-sponsor)
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Some Individuals
The Center for Popular Democracy
The Women's Foundation of California
TradesWomen Inc.
Ultra Violet
United Domestic Workers of America/AFSCME Local 3930
United Food and Commercial Workers (co-sponsor)
UNITE-HERE, AFL-CIO
Utility Workers Union of America
Ventura County Board of Supervisors
Western Center on Law and Poverty (co-sponsor)
Western Regional Advocacy Project
Young Invincibles
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Oppose Unless Amended
California Respite Association
California Supported Living Network
Easter Seals Superior California
Harmony Home, Associated
New Advances for People with Disabilities
Pleasantview Industries
ResCoalition
Strategies to Empower People
The Alliance
The Arc California and United Cerebral Palsy CA Collaboration
Vocation Plus Services, Inc.
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Opposition
Agricultural Council of California
Air Conditioning Trade Association
Alhambra Chamber of Commerce
American Pistachio Growers
Auburn Chamber of Commerce
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 Association of School Business Officials (Concerns)
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California Association of Winegrape Growers
California Attractions and Parks Association
California Autobody Association
California Automotive Business Association
California Business Properties Association
California Chamber of Commerce
California Citrus Mutual
California Cotton Ginners Association
California Cotton Growers Association
California Dairies, Inc.
California Delivery Association
California Disability Services Association
California Farm Bureau Federation
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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 School Boards Association
California School Funding Coalition
California Taxpayers Association
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California Travel Association
Camarillo Recycling, Inc
CAWA - Representing the Automotive Parts Industry
Chamber of Commerce Alliance of Ventura and Santa Barbara
Counties
Compass
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
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Howard Jarvis Taxpayers Association
InHome Care Solutions
Innovative Healthcare Consultants
Irvine Chamber of Commerce
Long Beach Area Chamber of Commerce
National Federation of Independent Business
Nisei Farmers League
Numerous Individuals
Official Police Garages Association of Los Angeles
Orange County Business Council
Oxnard Chamber of Commerce
Pleasantview Industries, Inc.
Plumbing-Heating-Cooling Contractors Association of California
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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
Valley Industry & Commerce Association
Western Agricultural Processors Association
Western Carwash Association
Western Electrical Contractors Association
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Western Growers Association
Western United Dairymen
Zia's Italian Caffe & Gelato Bar
Analysis Prepared by:Diego Vera / Ben Ebbink / L. & E. / (916)
319-2091