BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Senator Ben Hueso, Chair
Date of Hearing: March 26, 2014 2013-2014 Regular
Session
Consultant: Deanna D. Ping Fiscal:Yes
Urgency: No
Bill No: SB 935
Author: Leno
As Amended: March 18, 2014
SUBJECT
Minimum wage: annual adjustment.
KEY ISSUE
Should the Legislature approve a series of annual minimum wage
increases between 2015 and 2017?
Should the Legislature approve an annual adjustment based on the
Consumer Price Index to the minimum wage starting in 2018?
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 law states that when state and federal laws differ, one
must comply with the more restrictive requirement. In
California, the minimum wage is $8.00 an hour.
(Labor Code �1182.12)
Existing law states that on July 1, 2014, the minimum wage in
California will increase to $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
�1182.12)
This bill increases the state's minimum wage in three separate
increments over the next three years. Specifically, this bill :
1) Increases California's minimum wage to not less than $11
per hour for all industries on January 1, 2015.
2) Increases California's minimum wage to not less than $12
per hour for all industries on January 1, 2016.
3) Increases California's minimum wage to not less than $13
per hour for all industries on January 1, 2017.
4) Automatically indexes the minimum wage to inflation
annually on January 1st of each year commencing on January
1, 2018.
5) 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.
6) Also states that the minimum wage applies to all
industries, including public and private employment.
COMMENTS
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. On January 1, 2013, the minimum wage increased in
ten states - Arizona, Colorado, Florida, Missouri, Montana,
Ohio, Oregon, Rhode Island, Vermont, and Washington. These
states, except for Rhode Island, all adopted an annual
adjustment to their minimum wage. The legislatures in four
states, California, Connecticut, New York, and Rhode Island,
enacted bills providing for a minimum wage increase starting
in 2014. California's first minimum wage increase in five
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Senate Committee on Labor and Industrial Relations
years, AB 10 (Alejo), will increase the minimum wage to $9.00
an hour on July 1, 2014 and $10.00 an hour on January 1, 2016
respectively.
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
study analyzed the experiences of 410 fast-food restaurants in
New Jersey and Pennsylvania following New Jersey's increase in
minimum wage. The authors also compared employment, wages, and
prices at stores before and after the wage increase in both
states as well. Card and Krueger 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," also evaluated whether minimum wages had any impact
on earnings and employment. The study paired contiguous
counties across state-lines with differential minimum wages
and examined differences between the pairs in terms of the
number of jobs and pay for workers over a 16 year span
(1990-2006), primarily focusing on workers in the restaurant
industry. The authors of the study concluded that increasing
the minimum wage resulted in strong earnings effects with no
effect on employment. The study also 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 a failure to account for these factors has
led some researchers to mistakenly attribute the low growth in
employment in some states to higher minimum wages instead of
the real cause, which could be deindustrialization,
technological change, or other causes unrelated to the
increased minimum wage.
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A 2012 study from the same authors looked at the effects of
minimum wages on employment flows in the U.S. labor market.
The study, "Minimum Wage Shocks, Employment Flows and Labor
Market Frictions," 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. After studying the labor market separation,
accession and turnover rates of these two high-impact
demographic and industry groups, the authors found that
average separations, hires, and turnover rates decline
significantly among teen and restaurant establishments. 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.
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 increases in the minimum wage will occur. 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. SB 935 will address California's
historic income gap, which is one of the largest in the
nation, by increasing the state minimum wage over a three year
period to $13.00 an hour in 2017 and eventually indexing the
minimum wage to inflation in 2018.
4. Minimum Wage and Public Employees
Although in existing law the public sector is not explicitly
included in California's minimum wage statute, the Division of
Labor Standards Enforcement (DLSE) Enforcement Manual, which
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summarizes the policies and interpretations used to administer
and enforce the labor statutes and regulations of the State of
California, states:
43.3 Overtime Requirements Of IWC Orders Do Not Apply To
Some Employees.
The IWC's orders apply to employees in private industry,
including those of non-profit organizations. Public
employees are expressly excluded from most of the
provisions of the Orders. (Note, however, that Order 14
contains no exclusion for public entities.) MW-2001,
extends minimum wage coverage to most public employees.
The 2001 Industrial Welfare Commission's Minimum Wage Order
(MW-2001) notes the change for "employees of the State or
local governments and any political division thereof," in its
Summary of Actions.
5. Proponent Arguments :
According to proponents, millions of working-class
Californians are left behind trying to sustain themselves and
their families on an income that has not commensurately kept
pace with the increase in inflation. They contend that while
the costs of goods, services, and inflation have increased
over the years, the minimum wage in comparison continues to
remain relatively low - resulting in the purchasing power of
the working-class wallet to decline. Proponents note that the
purchasing power of the minimum wage fell 28% between 1968 and
2013, with almost a quarter of that decline occurring since
2008. Proponents bring attention to a recently published
report from the Center for Economic Policy Research finding
that if the federal minimum wage had kept pace with
productivity growth it would be around 16 dollars.
Proponents argue that small minimum wage hikes do not harm
employment figures but instead boost economic activity.
Specifically, proponents point to the Center for American
Progress' comparison of states' minimum wages to job growth
figures over a 21 year period, which found no evidence that
minimum wage increases cost jobs. Proponents contend that
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numerous studies have come to a similar conclusion.
Lastly, proponents argue that while the $2.00 increase from AB
10 (Alejo) took a critical first step towards lifting
California's lowest wage workers out of poverty and public
assistance, the further increases and indexing to inflation in
SB 935 moves the state closer to truly strengthening the
middle class. Proponents contend that current law will never
push families of three or four beyond the federal poverty line
because by 2016 the minimum wage under AB 10 will have lost
ground because there is no increase in the base or a COLA
provided. Proponents note that under SB 935, families of three
would be lifted out of poverty starting in 2015 and would rise
to 127% of the federal poverty level by 2017 while families of
four would gain ground each year on the poverty level and by
2017 would be at 105% of the federal poverty level. Proponents
maintain that by 2017, SB 935 could have the effect of lifting
hundreds of thousands of Californians out of poverty as well
as depoliticizing the issue and allowing workerss and
employers the predictability offered by small but reliable
raises.
6. Opponent Arguments :
The California Chamber of Commerce along with a coalition of
organizations writes in opposition, labeling this bill as a
job killer. They argue SB 935 would overwhelm many businesses
that are already struggling with the current minimum wage
increase and other cumulative costs imposed in California,
creating job loss. Opponents argue that indexing the minimum
wage to inflation would be troubling to the business community
because it fails to take into consideration other economic
factors of cumulative costs to which employers may be
subjected. Opponents bring attention to various cost increases
that will impact employers over the next few years including,
higher taxes under Proposition 30, increased worker's
compensation rates, loss of federal unemployment insurance
credit, increased energy costs, as well as increased costs
associated with the Affordable Care Act, coupled with SB 935
they contend that it will create concern and uncertainty for
businesses.
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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. Specifically, opponents bring attention to a
Congressional Budget Office (CBO) report from February 2014
regarding the impact of the proposal to raise the federal
minimum wage to $10.10. The opposition notes the report's
conclusion that although some 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.
Lastly, opponents argue 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 935 passes that then in
January 2017 the "exempt" salary amount will rise from $33,280
to $49,920 - which is an increased cost to employers of over
$15,000 per exempt employee.
7. Prior Legislation :
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
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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
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.
SUPPORT
California State Council of Service Employees International
Union (Co-Sponsor)
The Women's Foundation of California (Co-Sponsor)
Western Center on Law and Poverty (Co-Sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Applicant Attorneys Association
California Association of Food Banks
California Conference of Machinists
California Conference of the Amalgamated Transit Union
California Food Policy Advocates
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California Nurses Association
California Public Defenders Association
California School Employees Association, AFL-CIO
California Teamsters Public Affairs Council
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California Welfare Directors Association of California
Children's Defense Fund-California
City and County of San Francisco
Consumer Federation of California
East Bay Alliance for a Sustainable Economy
Engineers & Scientists, IFPTE Local 20
Equal Rights Advocates
Glendale City Employees Association
International Longshore and Warehouse Union, Coast Division
Laborers' International Union of North America, Locals 777 & 792
Mujeres Unidas Y Activas
National Association of Social Workers, California Chapter
Organization of SMUD Employees
PICO California
Professional & Technical Engineers, IFPTE Local 21
Restaurant Opportunities Centers United
Saint Anthony Foundation
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
The California Public Defenders Association
The Women's Foundation of California
UNITE HERE
United Domestic Workers of America- AFSCME Local 3930/AFL-CIO
United Food & Commercial Workers Union
Utility Workers Union of America, Local 132
9to5
1-individual
OPPOSITION
California Chamber of Commerce
Associated Builders and Contractors - San Diego Chapter
Agricultural Council of California
Air Conditioning Trade Association
Anaheim Chamber of Commerce
Brawley Chamber of Commerce
Brea Chamber of Commerce
California Association for Health Services at Home
California Association of Health Facilities
California Association of Licensed Security Agencies, Guards and
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Associates
California Association of Winegrape Growers
California Attractions and Parks Association
California Business Properties Association
California Farm Bureau Federation
California Grocers Association
California Independent Grocers 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 Trucking Association
Chambers of Commerce Alliance of Ventura & Santa Barbara
Counties
Desert Hot Springs Chamber of Commerce & Visitors Center
El Centro Chamber of Commerce & Visitors Bureau
El Dorado County Chamber of Commerce
Folsom Chamber of Commerce
Fullerton Chamber of Commerce
Greater Bakersfield Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Huntington Beach Chamber of Commerce
Long Beach Area Chamber of Commerce
Oxnard Chamber of Commerce
Palm Desert Area Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
Porterville Chamber of Commerce
Redondo Beach Chamber of Commerce
San Jose Silicon Valley Chamber of Commerce
Santa Clara Silicon Valley Central Chamber of Commerce &
Convention-Visitors Bureau
Southwest California Legislative Council
The Greater Corona Valley Chamber of Commerce
Torrance Area Chamber of Commerce
Valley Industry and Commerce Association
Victor Valley Chamber of Commerce
Western Electrical Contractors Association, Inc.
Western Growers Association
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Senate Committee on Labor and Industrial Relations
Hearing Date: March 26, 2014 SB 935
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Senate Committee on Labor and Industrial Relations