It was a different scene this week. The last two legislative sessions saw minimum wage efforts attempting to reach $13 by 2021 stall. Now, in less than a week’s time, both houses of the legislature passed minimum wage hikes along essentially party-line votes and now await the expected signature by Governor Brown on Monday.
SEIU (Service Employees International Union) Local 2015, which qualified a measure for the November ballot, has vowed to pull back on the ballot initiative once the bill passes.
President Laphonza Butler said, “The credit for making history today belongs to the workers who spoke out and risked it all, the labor unions and community organizations who supported them, and elected leaders here in California who listened. As a result, millions of Californians are on the path out of poverty.”
Under the bill, wage hikes would begin in 2017 at $10.50 for those businesses with 26 or more employees, with it increasing to $11 in 2018 and another dollar each year thereafter.
Once the wage hits $15, the wages will rise annually with inflation, with smaller businesses being given an additional year to implement each annual bump.
But the measure doesn’t come without its critics. The Department of Finance believes the hike would cost California about $4 billion a year.
“The Department of Finance is opposed to this bill because it results in significant, unbudgeted costs to the General Fund,” said a report issued for a legislative hearing held last summer. “Further, Finance notes the net impact of an increased minimum wage on California’s economy and state budget is likely to be negative.”
Governor Brown has been guarded on the minimum wage hike. He argued that it must be done carefully, noting the huge potential costs to employers and the state, but once the measure qualified for the ballot with strong public support, he negotiated with unions and other advocates to protect the state in case of a downturn in the economy.
The legislation was jointly authored by Senators Mark Leno, Kevin de León and Connie M. Leyva.
“No one who is working full time in California should live in poverty due to a low wage,” said Senator Leno, D-San Francisco. “SB 3 respects and rewards work, reduces turnover, and increases productivity and consumer spending, thereby stimulating economic growth while helping low-wage workers end their dependence on public assistance. The bill takes a thoughtful approach to raising the minimum wage by giving small businesses more time to adjust to higher wages and policy makers the flexibility to respond to economic uncertainties in our future.”
“California’s minimum wage must also be a living wage,” said Senate President pro Tempore Kevin de León. “Anyone who thinks $15 an hour is too much should try living on it.”
California has the highest poverty rate in the nation. The U.S. Census Bureau reports that nearly a quarter of the state’s 38 million residents live in poverty. An employee working full time earning $10 an hour brings home just over $20,000 annually before taxes, which is just 86 percent of the federal poverty line for a family of four. As a result, many cities have taken the matter into their own hands, raising local minimum wages either by government action or at the ballot box.
“As a lifelong advocate for workers, I have always believed that everyone deserves to make a living wage that allows them to pay their bills, put food on the table and a roof over their head,” said Senator Leyva, D-Chino. “By increasing the state’s minimum wage through SB 3, California now stands poised to lead the nation in finally putting a serious dent in poverty wages that hurt workers, families and communities.”
Women are especially impacted by the minimum wage. About six in 10 minimum wage workers in California are women, according to the National Women’s Law Center.
“SB 3, which raises the minimum wage to $15 per hour, is the most important anti-poverty measure in at least 40 years,” said Michael Herald, legislative advocate with the Western Center on Law & Poverty.
SB 3 is co-sponsored by the Western Center on Law & Poverty, United Food and Commercial Workers (UFCW) and the SEIU California State Council. The bill is also supported by a long list of organizations and government leaders, including the Women’s Foundation of California, California Teachers Association, Children’s Defense Fund of California, California Association of Food Banks and California Catholic Conference of Bishops.
“UFCW is proud to stand with working families across the state struggling to make ends meet on the current minimum wage,” said Jim Araby, executive director of UFCW Western States Council. “We join many who are fighting to end income inequality and put the working poor on a pathway to livable wages.”
The large majority of employees who would be impacted by SB 3 are adults, not teens, according to the UC-Berkeley Labor Center. Just 4 percent of the workers who would benefit from the minimum wage increase are under 20 years old, and 37 percent have children.
The question is now what the impact will be. Republicans who opposed the legislation, such as Assemblymember Jay Obernolte, said during the hearing of the Assembly Appropriations Committee, “Almost invariably, the effect (of raising the minimum wage) is a rise in unemployment.”
However, an analysis by the Sacramento Bee found, “There is no clear evidence that raising the wage ‘almost invariably’ drives up unemployment. The record is mixed.”
Assemblymember Obernolte’s office, like many critics, pointed to a 2006 paper by two economists for the National Bureau of Economic Research. They concluded that there is “a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages,” though they acknowledged “a lack of consensus” about a potential link.
The Bee, wading through the voluminous body of research, concluded that “other researchers have drawn different conclusions, including a number finding little or no effect of wage increases on employment rates.”
They write, “An oft-cited study of fast food restaurants in New Jersey and Pennsylvania, conducted by two Princeton University economists – one subsequently was elected to the American Academy of Arts and Sciences and the other later chaired President Barack Obama’s Council of Economic Advisers – found no employment decrease when New Jersey raised its wage in 1992.”
The Legislative Analyst’s Office last year analyzed the measure and concluded, “The nature and magnitude of this measure’s economic effects are highly uncertain. These effects would depend on how households and businesses respond to the higher minimum wage.”
Their analysis finds, “The higher minimum wage likely would (1) encourage more people to enter the labor force, (2) affect workers’ decisions to change jobs, and (3) allow workers to spend more money.”
On the downside it would lead some businesses to move away from low-wage workers, passing on added costs to their customers. They find, “Overall, the price increases resulting from the measure likely would lead to a cumulative increase in the level of the CA CPI [Consumer Price Index] ranging from a few tenths of a percent to roughly 1 percent.”
They find that “likely would reduce the number of jobs in the California economy. The magnitude of this effect is highly uncertain. The net effect on employment could be close to neutral, or it could be as large as several percent of total statewide employment.”
The question is what the cumulative effect is, and that’s not clear. They write, “Change in annual state and local tax revenues potentially ranging from a loss of hundreds of millions of dollars to a gain of more than $1 billion. Changes in state revenues would affect required state budget reserves, debt payments, and funding for schools and community colleges.”
The Bee notes, “Since Seattle first started raising its minimum wage en route to $15 an hour, the unemployment rate in the Seattle area has fluctuated. It sat at 4.3 percent in April 2015, when the first pay raise kicked in, dropped to 3.6 percent in September, and rose to 5 percent in February 2016. While Obernolte cited the Seattle example as a cautionary tale, some economists say it is too early to draw firm conclusions.
Moreover, they add, “California has lifted its minimum wage twice since 2014, from $8 an hour to its current level of $10 an hour, as the state and national economies have strengthened. When the California rate rose to $9 in July 2014, the state unemployment rate was 7.4 percent. It dropped in each subsequent month of that year, finishing the year at 6.9 percent. When the minimum wage ascended to $10 in January 2016, 5.7 percent of Californians were unemployed; in February, that rate fell to 5.5 percent.”
What does that mean for the current measure? It is hard to know.
—David M. Greenwald reporting