BILL ANALYSIS �
AB 196
Page 1
Date of Hearing: January 4, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 196 (Alejo) - As Amended: January 4, 2012
SUBJECT : Minimum wage indexing.
SUMMARY : This bill increases the state's minimum wage from
$8.00 per hour to $8.50 per hour and requires the minimum wage
to automatically adjust annually based on the California
Consumer Price Index (CPI). Specifically, this bill :
1)Increases California's minimum wage from $8.00 per hour to
$8.50 per hour on January 1, 2013.
2)Requires the minimum wage, beginning January 1, 2014, and on
January 1st of each year thereafter, to automatically adjust
based on the percentage of inflation, as specified.
a) Requires the minimum wage be calculated annually by
multiplying the minimum wage in effect on December 31 of
the previous year by the percentage of inflation, as
defined, that occurred during that year and adding the
produce to the wage in effect during that year.
b) Requires the total to be rounded off to the nearest five
cents ($0.05).
3)Requires the Industrial Welfare Commission (IWC) to publicize
the adjusted minimum wage.
4)Defines "percentage of inflation" as the percentage of
inflation specified in the California Consumer Price Index
(CPI-U) for All Urban Consumers, as published by the
Department of Industrial Relations, Division of Labor
Statistics.
5)Defines "previous year" as the 12 -month period that ends
August 31 of the Calendar year prior to the adjustment.
6)Permits the IWC to increase the minimum wage to an amount that
is greater than the rate calculated by this measure.
7)Prohibits the IWC from adjusting the minimum wage if the
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average percentage of inflation is negative.
8)Prohibits the IWC from reducing the minimum wage according to
the formula prescribed above.
EXISTING FEDERAL LAW :
1)Establishes the Fair Labor Standards Act (FLSA), which sets
provisions for the federal minimum wage.
2)Sets the current federal minimum wage for covered nonexempt
employees at $7.25 per hour.
EXISTING STATE LAW :
1)Sets the state minimum wage at $8.00 per hour.
2)Requires all employers in California who are subject to both
the federal and state laws to pay the state minimum wage rate,
unless their employees are exempt under California law.
3)Establishes the IWC to, among other duties, review the
adequacy of the minimum wage at least once every two years.
FISCAL EFFECT : Unknown
COMMENTS : According to the author, minimum wage workers have
not been given a raise in four years. The author writes that
the purchasing power of minimum wage workers declines on an
annual basis while the cost of goods and services increase every
year. In addition, the author notes that the current minimum
wage is inadequate to support a single adult and grossly
inadequate to support a family. The author also states that
economists agree that raising the minimum wage will help the
economy by generating consumer spending.
Research indicates that state minimum wages reduce family income
inequality by raising overall wages. A study titled "Minimum
Wages and Income Inequality in the American States, 1960-2000"
suggests that the state minimum wage is important because family
income primarily consists of wage income and not all workers are
covered by the federal minimum wage. In addition, a 2007 study
from the University of California Berkeley, titled "Minimum Wage
Effects Across State Borders: Estimates Using Contiguous
Counties" (UC Study), found that minimum wage increases raise
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the overall earnings of low income workers.
According to a 2006 issue brief released by the California
Budget Project (CBP), the purchasing power of the minimum wage
was 33.1 percent lower than it was in 1968 and provides less
income than would be needed to support a single adult. The CBP
also notes that indexing the state's minimum wage would ensure
that the purchasing power of the minimum wage remains the same
over time. In addition, CBP writes that when the minimum wage
is not indexed to inflation, it loses purchasing power as the
cost of basic necessities increases.
The CBP brief also noted that, of the 1.4 million workers that
earned within one dollar per hour of the state's minimum wage,
59.7 percent were 25 years or older and 59.1 percent worked
full-time. The CBP estimates that a full-time, full-year single
working adult needs to earn $12.44 per hour to cover the cost of
basic necessities and a single parent with two children needs to
earn $25.96 per hour. CBP acknowledges that $25.96 per hour is
not a starting wage, yet the report notes that this number
highlights the disparity between California's minimum wage and
the earnings needed to support a family.
According to the United States Department of Labor (USDOL),
there are ten states that have minimum wages that are linked to
a CPI. In an attempt to preserve the purchasing power of
low-wage workers, states have tied their minimum wage to the
CPI. According to the California Department of Industrial
Relations (DIR), the CPI measures the average change over time
in the prices paid by urban consumers for goods and services.
The CPI provides a way to compare the costs of goods and
services costs at a specific point month what the same goods and
services at a prior point in time (e.g. a month or a year
prior). According to DIR, as inflation erodes consumers'
purchasing power, the CPI is used to adjust consumers' income
payments, such as Social Security; to adjust income eligibility
levels for government assistance; and to automatically provide
cost-of-living wage adjustments to millions of American workers.
As a result of this linkage, the minimum wages in eight states -
Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and
Washington - will increase on January 1, 2012.
A 2004 study released by the Economic Policy Institute (EPI
Study) titled "Employment and the Minimum Wage - Evidence from
Recent State Labor Market Trends" reviewed the impact of minimum
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wage increases in Washington State and Oregon and found that
increases in their respective state minimum wages did not
increase job losses. In addition, the EPI Study notes that
their research has not shown a causal link between minimum wage
increases and unemployment. The EPI Study asserts that
economists have recently suggested that an increase in the
minimum wage may not have substantial impact on employment
because workers are being paid less than what they are really
worth economically to their employer. The EPI study suggests
that rather than job loss, minimum wage increases can correct a
market imbalance by forcing employers to pay a fair wage. In
addition, by decreasing recruitment, training and supervision
costs, increases to the minimum wage may not have a substantial
impact on the cost of doing business for employers.
Oregon
The State of Oregon indexed its minimum wage in 2004. According
to Oregon Revised Statutes (ORS), the state's minimum wage is
adjusted annually for inflation, and is calculated by the
state's Commissioner of the Bureau of Labor and Industries based
upon the increase from the August of the preceding year to the
August of the year in which the calculation is made in the U.S.
City Average Consumer Price Index for all Urban Consumers
(CPI-U) for All Items as prepared by the Bureau of Labor
Statistics of the USDL. ORS also requires the minimum wage
amount to be rounded to the nearest five cents (ORS 653.025(b)).
Washington
The State of Washington began indexing its minimum wage in
September of 2000. The Revised Code of Washington (RCW)
requires the state minimum wage to be calculated and adjusted
annually using the CPI for urban wage earners and clerical
workers for the twelve months prior to each September 1st as
calculated by the USDOL. In addition, the RCW states that the
minimum wage rate is calculated and adjusted annually "to
maintain employee purchasing power by increasing the minimum
wage rate by the rate of inflation" (RCW 49.46.020 (b)).
In 2010 a Coalition of Washington business groups, including the
Washington Farm Bureau, the Washington Restaurant Association
and the Washington Retail Association, filed a lawsuit to halt a
12-cent minimum wage increase that was to take effect in January
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2011. The Coalition argued that the minimum wage could not be
increased in 2011 because the CPI had not reflected a net
increase in the cost of living since 2008. Kittitas County
Superior Judge Scott Sparks ruled against the summary judgment
request made by the Coalition, and the 12-cent wage increase
took place on January 1, 2011.
Colorado
Colorado's State Constitution (Article XVIII, Section 15)
requires the Colorado minimum wage to be adjusted annually for
inflation, as measured by the CPI-U. On January 1, 2010, the
state's minimum wage was set to decrease from $7.28 per hour to
$7.24 per hour. This was the first time that one of the ten
states that have a minimum wage tied to inflation saw the
minimum wage decrease. However, the state's minimum wage for
most low-wage workers only decreased by three cents, to $7.25
per hour because Colorado state law prohibits most businesses
from paying below the federal minimum wage.
ARGUMENTS IN SUPPORT :
In a letter of support for this bill, the California Labor
Federation (CLF) writes that minimum wage laws reflect a belief
that no one who works should live in poverty. CLF notes that
those at the bottom of the wage scale are mired in poverty and
have less purchasing power due to inflation. They write that ten
states tie their minimum wage to a relevant consumer price index
because they recognize that inflation is to blame for the
collapse of the real value of workers' earnings. CLF states that
this bill will kick start the lagging economy in 2013 by adding
an additional $1,040 in annual pay to the 2,246,000 Californians
likely to benefit from a minimum wage increase and an extra
$2.34 billion of consumer spending in the state. In their letter
of support, the American Federation of State, County and
Municipal Employees (AFSCME), AFL-CIO, writes that this bill
will provide relief for California's working families and help
to alleviate some of the exorbitant increases in costs of the
past several years. They note that an increase in the minimum
wage is good for workers and the state, which can profit from
their ability to spend more. AFSCME writes that increasing the
minimum wage is an important step in California's economic
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recovery.
ARGUMENTS IN OPPOSITION :
Writing in opposition, the California Chamber of Commerce,
California Farm Bureau Federation, California Retailers
Association and other business groups (California Business
Groups) state that this bill will increase the cost of doing
business for employers in California by raising the minimum wage
to $8.50 per hour and then automatically indexing the wage rate
upwards every year thereafter. They write that an increase in
the minimum wage will place a huge burden on private employers
who are still struggling in this economy. California Business
Groups state that aside from employee wages, other employer
costs would also be adversely impacted due to the proposed
increase in the minimum wage, including workers' compensation
benefits. They write that of this bill is implemented, small
and large businesses will be forced to cut expenses, such as
additional labor, in order to absorb the increase. California
Business Groups also state that this increased cost of doing
business could discourage new businesses from locating to
California and encourage existing businesses to relocate. In a
letter opposing this bill, the California Restaurant Association
(CRA) writes that raising the minimum wage will force
restaurants and other small businesses to make unfortunate
operational decisions in order to afford the increased labor
costs. They state that restaurants have no choice but to adjust
their business plans and budgets, and as a result, employee
shifts will be cut, hours of work for all employees will be
decreased and prices will be raised affecting restaurants'
competitiveness and their customers.
RELATED AND PRIOR LEGISLATION:
AB 10 (Alejo) of 2011 is substantially similar to AB 196. The
bill 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 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.
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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 $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.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation
California School Employees Association
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Laborers' International Union of North America, Local 777, 792
Professional and Technical Engineers, Local 21
Restaurant Opportunities Center of Los Angeles
San Mateo County Central Labor Council
SCOPE, Laborers International Union of North America
Service Employees' International Union, Local 1000
South Bay Labor Council
Terry Lamphier, Nevada County Supervisor, 3rd District
UNITE HERE!
United Domestic Providers of America
United Food and Commercial Workers-Western States Conference
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Utility Workers Union of America, Local 132
Western Center on Law and Poverty
Opposition
Agricultural Council of California
American Pistachio Growers
Anaheim Chamber of Commerce
Applebee's
Automotive Aftermarket Services
Brawley Chamber of Commerce
California Association of Bed & Breakfast Inns
California Association of Health Facilities
California Attraction and Parks Association
California Chamber of Commerce
California Citrus Mutual
California Cotton Ginners and Growers Association
California Farm Bureau Federation
California Forestry Association
California Grape & Tree Fruit Processors
California Grocers Association
California Hotel and Lodging Association
California Independent Grocers Association
California Landscape Contractors Association
California League of Food Processors
California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
California Taxpayers Association
California Tomato Growers Association
California Tourism Industry Association
Chambers of Commerce Alliance of Ventura & Santa Barbara
Counties
Christensen and Giannini
El Centro Chamber of Commerce & Visitors Bureau
Gilroy Chamber of Commerce
Greater Corona Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Grower-Shipper Association of Central California
Hotel/Motel Lodging Industry Association
Lake Elsinore Valley Chamber of Commerce
Long Beach Area Chamber of Commerce
Monterey County Farm Bureau
Murrieta Chamber of Commerce
National Federation of Independent Business
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Redondo Beach Chamber of Commerce & Visitors Bureau
San Benito County Chamber of Commerce
San Jose Silicon Valley Chamber of Commerce
Sardine Factory Cocktail Lounge and Restaurant
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Temecula Valley Chamber of Commerce
The Californian.com
Valley Industry and Commerce Association
Western Agricultural Processors Association
Western Growers Association
Western Milk Producers
Western Pistachio Association
Wildomar Chamber of Commerce
Analysis Prepared by : Shannon McKinley / L. & E. / (916)
319-2091