Minimum Wage Job Killer Goes to Governor

The Legislature yesterday passed SB 3 (Leno; D-San Francisco), a job killer bill that will increase the minimum wage in California to $15 per hour by 2022 (2023 for companies employing 25 or fewer people since there is a one-year implementation delay for small business). The Governor has announced he will sign the bill on Monday.

“This is too much too fast,” said CalChamber President and CEO Allan Zaremberg.  “It is unfortunate the Legislature didn’t take advantage of the opportunity to address the issue in a more balanced manner.”

SB 3 calls for an increase of $.50 per hour beginning January 1, 2017 and an increase of $.50 per hour in January 2018.  The rate would increase $1 per year thereafter until 2022. Small business would not be required to begin the scheduled increases until 2018.

Once the minimum wage reaches $15, it will be adjusted annually according to national inflation rates without any real ability to suspend the increases.

Until the time it reaches $15, the Governor has discretionary authority to suspend increases based on current economic conditions. However, these “offramps” are discretionary and would come into play only if there are declining state revenues from sales tax, a decline in the labor market or if there is a budget deficit (this offramp is permitted to occur only twice).

Opponents of the measure expressed doubt that these suspensions would ever be used.  In addition, they objected to the fact that the bill provides no “offramps” if the economy is struggling or businesses are suffering from other increased cumulative costs.

Impact Beyond Hourly Workers

Not only does the measure increase pay for minimum wage workers, but it also impacts salaried employees’ compensation. In order for employees to qualify as “exempt” under any of the six exemptions in California, they must meet the salary-basis test, which is two times the monthly minimum wage. Under SB 3 as proposed, that amount in January 2022 will rise from the current annual salary of $41,600 to at least $62,400, which is an increased cost to employers of $20,800 per exempt employee.

An increase in minimum wage will also drive up workers’ compensation costs, uniform/tool reimbursements, overtime, and consumer prices. These additional costs will significantly burden those companies that may not ordinarily pay minimum wage, yet will suffer a negative impact as a result of the proposed increase

SB 3 was tagged a job killer by the CalChamber because it has the potential to increase the minimum wage by 50% over the next six years for employers with more than 25 employees and actually amounts to an 87% increase in the minimum wage in just eight years when combined with the most recent minimum wage increase that was fully implemented in January 2016.  This unprecedented increase in the minimum wage will overwhelm many businesses that already are struggling with the current minimum wage increase and will limit job growth in this state.

At a March 28 news conference announcing the agreement on SB 3, the Governor cited the union-backed minimum wage hike currently qualified to appear on the November ballot as a factor in the discussions. Supporters of the initiative have until the end of June to decide whether to withdraw their measure from the ballot.

Joining the CalChamber in opposing SB 3 was a broad coalition of employer groups, industry associations and local chambers of commerce. Their concerns included:

  • Not All Regions of California Can Absorb an 87% Increase in the Minimum Wage. Not all areas of California are enjoying the economic recovery. While California’s overall unemployment rate is at 5.7%, there are still many regions of the state (more than one dozen counties) where the unemployment rate is 10% or higher. Imposing such a significant increase in the minimum wage on employers in these areas that are still trying to recover from the “Great Recession” will further inhibit job growth. If employers are not able to produce jobs under the current minimum wage of $10 an hour, they will not be able to afford to create jobs at a minimum wage of $15 an hour.
  • The “Offramps” to Suspend the Scheduled Minimum Wage Increases are Discretionary and Limited
  • Raising the Minimum Wage Creates Job Loss for Untrained Workers and Those Who Are New to the Job Market. A study published in January 2015 by Professor Jonathan Meer from Texas A&M and Jeremy West from MIT found that “increasing the minimum wage actually reduces the number of jobs available. Higher minimum wages lead to lower rates of job growth. Indeed, a ten percent increase in the minimum wage causes roughly half a percent point reduction in the rate of job growth, a very large effect.” Professor Joseph J. Sabia echoed this conclusion in his article summarizing the study he conducted in September 2013, titled “Minimum Wages, Cash Wages, and Poverty:  New Evidence from the Great Recession Years,” and found that minimum wage increases are likely to hurt low-skilled workers as the increases eliminate these jobs first.
  • Recent Study Suggests Increasing the Minimum Wage Does Not Target Those in Actual Need. In his report, Professor Sabia also concludes that increasing the minimum wage does not actually target those individuals who are living in poverty. Based upon data received from the Census Survey of Income and Program Participation, Sabia found that only 13% of employees targeted by the proposed federal minimum wage increase lived in poverty. “[N]early two-thirds live in households with incomes over twice the poverty line, and over 40 percent live in households with income over three times the poverty line.” Accordingly, increasing the minimum wage does not assist those actually living in poverty and could potentially harm them further if low-wage jobs are reduced due to the increased cost on businesses.

Assembly Vote

The Assembly voted 48-26 to pass SB 3 on March 31:

Ayes: Alejo (D-Salinas), Atkins (D-San Diego), Bloom (D-Santa Monica), Bonilla (D-Concord), Bonta (D-Oakland), Brown (D-San Bernardino), Burke (D-Inglewood), Calderon (D-Whittier), Campos (D-San Jose), Chau (D-Monterey Park), Chiu (D-San Francisco), Chu (D-San Jose), Cooley (D-Rancho Cordova), Cooper (D-Elk Grove), Dababneh (D-Encino), Dodd (D-Napa), Eggman (D-Stockton), Frazier (D-Oakley) C. Garcia (D-Bell Gardens), E. Garcia (D-Coachella), Gatto (D-Glendale), Gipson (D-Carson), Gomez (D-Los Angeles), Gonzalez (D-San Diego), Gordon (D-Menlo Park), R. Hernández (D-West Covina), Holden (D-Pasadena), Irwin (D-Thousand Oaks), Jones-Sawyer (D-South Los Angeles), Levine (D-San Rafael), Lopez (D-San Fernando), Low (D-Campbell), McCarty (D-Sacramento), Medina (D-Riverside), Mullin (D-South San Francisco), Nazarian (D-Sherman Oaks), O’Donnell (D-Long Beach), Quirk (D-Hayward), Rendon (D-Lakewood), Ridley-Thomas (D-Los Angeles), Rodriguez (D-Pomona), Santiago (D-Los Angeles), M. Stone (D-Scotts Valley), Thurmond (D-Richmond), Ting (D-San Francisco), Weber (D-San Diego), Williams (D-Carpinteria), Wood (D-Healdsburg).

Noes: Achadjian (R-San Luis Obispo), T. Allen (R-Huntington Beach), Baker (R-San Ramon), Brough (R-Dana Point), Chang (R-Diamond Bar), Chávez (R-Oceanside), Dahle (R-Bieber), Daly (D-Anaheim), B. Gaines (R-El Dorado Hills), Gallagher (R-Yuba City), Gray (D-Merced), Hadley (R-Torrance), Jones (R-Santee), Kim (R-Fullerton), Lackey (R-Palmdale), Maienschein (R-San Diego), Mathis (R-Visalia), Mayes (R-Yucca Valley), Melendez (R-Lake Elsinore), Obernolte (R-Big Bear Lake), Olsen (R-Modesto), Patterson (R-Fresno), Steinorth (R-Rancho Cucamonga), Wagner (R-Irvine), Waldron (R-Escondido), Wilk (R-Santa Clarita).

Absent/abstaining/not voting: Bigelow (R-O’Neals), Grove (R-Bakersfield), Harper (R-Huntington Beach), Linder (R-Corona), Salas (D-Bakersfield).

Senate Vote

The Senate concurred in Assembly amendments on SB 3 on March 31, 26-12:

Ayes: B. Allen (D-Santa Monica), Beall (D-San Jose), Block (D-San Diego), de León (D-Los Angeles), Galgiani (D-Stockton), Glazer (D-Contra Costa), Hall (D-Los Angeles), Hancock (D-Berkeley), E. Hernandez (D-West Covina), Hertzberg (D-Van Nuys), Hill (D-San Mateo), Hueso (D-San Diego), Jackson (D-Santa Barbara), Lara (D-Bell Gardens), Leno (D-San Francisco), Leyva (D-Chino), Liu (D-La Cañada Flintridge), McGuire (D-Healdsburg), Mendoza (D-Artesia), Mitchell (D-Los Angeles), Monning (D-Carmel), Pan (D-Sacramento), Pavley (D-Agoura Hills), Roth (D-Riverside), Wieckowski (D-Fremont), Wolk (D-Davis).

Noes: Anderson (R-Alpine), Bates (R-Laguna Niguel), Cannella (R-Ceres), Fuller (R-Bakersfield), T. Gaines (R-El Dorado Hills), Huff (R-San Dimas), Moorlach (R-Rancho Cucamonga), Morrell (R-Rancho Cucamonga), Nguyen (R-Garden Grove), Nielsen (R-Gerber), J. Stone (R-Temecula), Vidak (R-Hanford).

No vote recorded: Berryhill (R-Twain Harte), Runner (R-Antelope Valley).