BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: SB 3 Hearing Date: April 8, 2015 ----------------------------------------------------------------- |Author: |Leno | |-----------+-----------------------------------------------------| |Version: |March 11, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Deanna Ping | | | | ----------------------------------------------------------------- Subject: Minimum wage: adjustment KEY ISSUE Should the Legislature approve two annual minimum wage increases, from $11 an hour in 2016 to $13 an hour in 2017? Should the Legislature approve an annual adjustment based on the Consumer Price Index to the minimum wage starting in 2019? 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 $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) SB 3 (Leno) Page 2 of ? 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. 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. 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. Ten states currently index minimum wage increases each year: 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), increased the minimum wage to $9.00 an SB 3 (Leno) Page 3 of ? 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. 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," evaluated minimum wage by studying paired neighboring counties across state-lines with differential minimum wages. The authors concluded that increasing the minimum wage resulted in strong earnings effects with no effect on employment and 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 as deindustrialization, technological change, or other causes unrelated to the increased minimum wage. In 2012 the same authors 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 SB 3 (Leno) Page 4 of ? 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 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. 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 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 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. 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. 5. Proponent Arguments : According to 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 SB 3 (Leno) Page 5 of ? eradicate poverty by uplifting California's low-wage workers. Proponents also argue that SB 3 indexes the minimum wage, thereby depoliticizing the issue and finally allowing workers and employers the predictability offered by small but reliable raises. 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 $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 ten 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. SB 3 (Leno) Page 6 of ? 6. Opponent Arguments : 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 Prop 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. 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. SB 3 (Leno) Page 7 of ? Lastly, opponents in industries where employees receive tips argue that tipped employees earn substantially more than the state minimum wage. Such opponents contend that an increase in the minimum wage ignores this fact as California does not have a provision establishing a 'tipped wage or credit.' 7. Prior Legislation : SB 935 (Leno) of 2014 would have increased the minimum wage to $11 an hour in 2015, $12 an hour in 2016, and $13 an hour in 2017. It also would have indexed the minimum wage to inflation in 2018. The bill was held in the Assembly Labor and Employment Committee. 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 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 SB 3 (Leno) Page 8 of ? $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 Western Center on Law and Poverty (Co-Sponsor) The California State Council of the Service Employees International Union (SEIU) (Co-Sponsor) American Civil Liberties Union of California California Alliance for Retired Americans California Catholic Conference California Communities United Institute California Conference Board of Amalgamated Transit Union California Conference of Machinists California Employment Lawyers Association California Hunger Action Coalition California Immigrant Policy Center California Labor Federation AFL-CIO California Rural Legal Assistance Foundation California School Employees Association California Teamsters Public Affairs Council California United for a Responsible Budget CalNonProfits Children's Defense Fund-California City and County of San Francisco City of Long Beach, Office of the Mayor City of Los Angeles, Office of the Mayor City of Oakland, Office of the Mayor City of San Jose, Office of the Mayor City of Santa Ana, Office of the Mayor Coalition of California Welfare Rights Organizations, Inc. Engineers and Scientists of California, IFPTE Local 20, AFL-CIO Family Economic Security Partnership Friends Committee on Legislation of California International Longshore and Warehouse Union National Association of Social Workers-California Chapter National Employment Law Project Organization of SMUD Employees SB 3 (Leno) Page 9 of ? 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 Court Employees Association San Diego Hunger Coalition San Francisco Unified School District San Luis Obispo County Employees Association The American Federation of State, County and Municipal Employees The California Federation of Teachers-AFT, AFL-CIO The California Labor Federation, AFL-CIO The Glendale City Employees Association The Peace and Freedom Party of California UNITE HERE, AFL-CIO United Domestic Workers of America/AFSCME Local 3930, AFL-CIO Utility Workers Union of America Western Regional Advocacy Project Young Invincibles 9to5 California, National Association of Working Women OPPOSITION Agricultural Council of California American Pistachio Growers 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 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 SB 3 (Leno) Page 10 of ? California League of Food Processors California Manufacturers and Technology Association California Professional Association of Specialty Contractors California Restaurant Association California Retailers Association California Travel Association Chamber of Commerce Alliance of Ventura and Santa Barbara Counties Culver City Chamber of Commerce El Dorado Hills Chamber of Commerce and California Welcome Center 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 Redondo Beach Chamber of Commerce & Visitors Bureau 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 ARC and United Cerebral Palsy California Collaboration The California Restaurant Association The Greater Corona Valley Chamber of Commerce The Southwest California Legislative Council Torrance Area Chamber of Commerce Western Agricultural Processors Association Western Carwash Association Western Growers Association -- END --