AB 48 (Lieber) – Restoring a Fair Minimum Wage

Recent minimum wage increases are insufficient to stop the growth of the ranks of working poor.  AB 48 (Lieber) is intended to raise the wage to a level that lifts working Californians out of poverty and, by providing for Cost of Living Adjustments, ensure that the wage maintains its value.  AB 48 (Lieber) would increase the state minimum wage from $6.75 to $7.75 over two years and then index it to the California Consumer Price Index.

Who are Minimum Wage Workers?
2.9 million working Californians earned $7.00 or less per hour.  The majority of minimum wage workers are adult primary breadwinners in their families and many are immigrants.  The typical worker at or near the minimum wage is an adult who is permanently attached to the labor force, and who is the main breadwinner for his or her family -- 85% of these workers are age 20 or older, and 63% are full-time workers.  Women and immigrants make up the bulk of minimum wage workers in our state.  According to a 2002 report by the California Department of Industrial Relations, “though 28 percent of California’s labor force is Hispanic, 55 percent of affected workers claim Hispanic origin”.  Similarly, 45 percent of California’s labor force are female while 53 percent of the population affected by the 2001 minimum wage increase are female.  Minimum wage workers perform some of the most important jobs in our society.  They are homecare workers, nursing home workers, child care workers, farm workers, restaurant workers, recycling center workers, salespersons, cooks, and many other professions.

 What is the Recent History of the Minimum Wage in California?

The minimum wage was increased by initiative in 1996 from $4.25 per hour to $5.75 per hour over a two-year period. The state’s Industrial Welfare Commission (IWC) acted in 2000 to increase the minimum wage from $5.75 to $6.25, effective on January 1, 2001 and to $6.75 on January 1, 2002.  The IWC has subsequently failed to raise the minimum wage, despite significant  efforts by advocates.  The Governor's Reorganization Plan calls for the IWC to be absorbed into the Labor and Economic Development Agency.   Last year, the Governor vetoed AB 2832 (Lieber) despite widespread public support for raising the minimum wage.

The Minimum Wage is Failing to Retain Purchasing Power

The high cost of living in California seriously erodes gains that we have made in providing a decent base level of compensation.  In 1968, California's minimum wage stood at $1.65 an hour. In 2003, the University of California estimated that, for the minimum wage to match the purchasing power it had in 1968, it would have to be $8.92 per hour.  Adjusting for inflation, that figure is now well above $9.00 per hour and if the wage had kept up with productivity gains, it would be over $25.00 today. 

This stagnation in the purchasing power of the California minimum wage has made it very difficult for workers to afford basic necessities such as housing and healthcare.  One proxy for the cost of living is the cost of housing, since housing makes up a large and growing portion of workers personal budgets.  The National Low-Income Housing Coalition annually publishes housing costs for all U.S. states.  According to the 2004 study, the California’s minimum wage only covers 34% of the cost of a two-bedroom apartment, Oregon’s wage covers 51%, Washington’s covers 51%, and Alaska’s covers 42%.

California is Falling Behind West Coast Standards

California once led the West Coast states by having the highest minimum wage.  Now, California is falling further behind West Coast standards.  California's minimum wage remains the lowest on the West Coast and below Connecticut’s rate of $7.10.

·         A ballot initiative in Oregon in 2002 boosted that state's minimum wage to $7.25 an hour in 2005 with indexing annually.

·         A ballot initiative in Washington in 1998 raised that state’s minimum wage to $7.35 an hour in 2005 with indexing annually.

·         After a ballot initiative was initiated, Alaska's Legislature decided to raise their wage to $7.15 per hour effective January 2003.  There is no indexing in Alaska.

·         Nevada residents last year voted to raise their minimum wage to $6.15 and index it to inflation.

A Poverty-level Wage in One of the Richest Countries in the World

An employee working full-time at the current minimum wage of $6.75 per hour would receive only $14,040 per year, from which social security and other taxes would be deducted.  This is below the federal poverty level for a family of three and not nearly enough to lift them out of poverty.  In 2005, according to the federal guidelines, a family of three earning an annual income of $15,670 lived in poverty.  In other words, anyone earning $7.84 an hour or less who is supporting a family of three officially lives in poverty.

The California Budget Project estimates that, using the IWC’s own methodology, the hourly wage necessary for a full-time single worker to maintain a minimally adequate standard of living is $8.27.  Their calculations assume 51 weeks of work per year at 40 hours per week, and rental of a studio apartment.

Impact of Increase on Businesses, Employment and Prices 

Every time the increase in the minimum wage is considered, employers cry that the sky is falling and threaten increased unemployment.  Recent studies by the Department of Industrial Relations and by the University of California show that previous increases in the minimum wage have had no significant impact on unemployment or price levels.  On August 8, 2004, over 50 of California’s top economists signed a statement in support of raising the minimum wage.  They argued that “The evidence indicates that the proposed increase of the minimum wage would alleviate poverty, would not hurt the state’s employment and would benefit the state budget.”  This finding is consistent with the experiences of other states, where moderate minimum wage increases have not led to job losses.  Additionally, workers hourly wages tend to go directly back into their local community as they pay for life’s necessities.  It should always be remembered that the first federal minimum wage  was implemented in the Depression.

New studies show that raising the minimum wage does not hurt employment or small businesses.  According to a May 2004 study by the Economic Policy Institute, recent experience has proven the state minimum wages can be raised without fear of negative economic consequences.

Opponents of state-level minimum wage increases claim that these increases are the cause of weak labor markets, especially in the form of high unemployment rates.

That argument, however, rests on the simplistic observation that some of the states with high minimum wages also have high unemployment rates.  Without more examination, this observation is as useful in understanding state job markets as noting that joblessness has been on the rise in New York since the last time the Yankees won the World Series.  It might be true, but it doesn’t mean one is causing the other.

The argument that state minimum wages have had a substantially negative effect on a state’s labor market is an extreme repackaging of the perennial claim that minimum wages do more harm than good because they cause many low-wage workers to lose their jobs.   While this argument was once prevalent among economists, recent studies with improved methodologies have reached the opposite conclusion.  In general, there is no valid, research-based rationale for believing that state minimum wages cause measurable job losses.  Making the extreme case that the job losses are severe enough to show up in a noticeably elevated state unemployment rate is a wild extension of a largely unfounded theory.

High Minimum wage states are doing well

An April 2004 study by the New York state Fiscal Policy Institute compares the labor market performance of high minimum wage states with all other states. Concluding:  “State minimum wages higher than the federal minimum wages have not adversely effected employment growth.  Total employment in the higher minimum wages states increased by 6.2 percent from January 1998 to January 2004, 50 percent greater than the combined job growth of 4.1 percent in the other states where the federal minimum wage prevailed.”   The findings were similar for small business, finding that “In the under 50 employee size range across all industries, the number of establishments increased 3.1 percent for the higher minimum wage states compared to a 1.6 percent increase for the balance of the states.

A recent UC Berkley study shows that most working poor are not employed in sectors that face competition from low-wage states or countries.  The increase in the number of jobs in the service sector is a prime example:  If the price of a Big Mac increases by 10 cents, then the typical consumer is not going to cross state lines to get a cheaper meal.

Impact on the State Budget: Increased Sales Taxes, Public Sector Expenditures and Savings

Raising the minimum wage is an economic stimulus as workers spend their new disposable income on taxable merchandise and services.  The money is circulated locally and increased taxes are passed back to the state budget.

The costs to the state of increased wages will be offset by newly generated tax revenue and decreased use of public assistance programs.  A recent study by the UC Berkley looked at the cost to the public of public assistance by low-wage workers.  It argues that there would be a State savings of $2.7 billion if the minimum wage is increased to $8.00.