Assembly Committee on Labor and Employment
AB 196
Page 1
Date of Hearing: January 4, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
ABPCA Bill Id: AB 196 (Author:Alejo) – As Amended: Ver: 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 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 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 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 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 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.
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