STATE OF CALIFORNIA
DEPARTMENT OF INDUSTRIAL RELATIONS
INDUSTRIAL WELFARE COMMISSION
May 3, 2002
State Capitol, Room 112
P A R T I C I P A N T S
Industrial Welfare Commission
BILL DOMBROWSKI, Chair
LESLEE COLEMAN (arrived 10:31 a.m.)
BRIDGET BANE, Executive Officer
DOUG McCONKIE, Analyst
MARGUERITE STRICKLIN, Legal Counsel
I N D E X
Public Hearing: Adequacy of Minimum Wage and
Petition to Review and Index Minimum Wage 5
ZAGROS MADJD-SADJADI, Ph.D. Division of Labor 5
Statistics and Research
JEFFREY G. WOODS, Ph.D., Division of Labor 8
Statistics and Research
PETER COOPER, California Labor Federation 23
JEAN ROSS, California Budget Project 24
ELIZABETH SHOLES, California Council of Churches 32
TIM BROWN, Loaves and Fishes 37
MICHAEL MORENO, United Farm Workers of America 40
JOSE LUIS VILLAGRAN, Sacramento Valley Organizing 42
ALICIA GUERRAS, ACORN 43
LARRY LATTIMORE, Living Wage Coalition 46
BRUCE ALLISON, Living Wage of San Francisco 48
CAROLYN NEGRETE, Older Women's League 49
BILL POWERS, Congress of California Seniors, 50
Alliance for Retired Americans
LINDA ROBERTS, Gray Panthers 51
BILL CAMP, Sacramento Central Labor Council, 52
DANIEL McCARTHY, trucking industry 53
RICHARD GILBERT, Employers Group 54
PATRICIA BRESLIN, Golden Gate Restaurant 58
INDEX (Continued) Page
JULIANNE BROYLES, California Chamber of 63
JON ROSS, California Restaurant Association 67
MIKE WEBB, Western Growers Association 71
Certificate of Reporter/Transcriber 75
P R O C E E D I N G S
(Time noted: 10:20 a.m.)
COMMISSIONER DOMBROWSKI: Why don't we get started?
COMMISSIONER DOMBROWSKI: Sorry about the delay.
I want to call the public hearing of the Industrial Welfare Commission to order -- hearing and meeting -- on the adequacy of the minimum wage and the petition to raise and index the minimum wage.
Just a little housekeeping beforehand. We have Commissioners Cremins, Bosco, and Dombrowski. We've been informed that Commissioner Rose is ill today and will not be here, and I believe that Commissioner Coleman is on her way driving over here.
The first panel is our panel from the Department of Industrial Relations. And as those of you who follow the IWC know, I often butcher names, so I apologize in advance. We have Mr. Zagros Madjd-Sadjadi and Mr. Jeffrey G. Woods to give us a report on their analysis of the most recent minimum wage increases and that its impact has been on the economy of California.
DR. MADJD-SADJADI: We would like to thank the commissioners of the Industrial Welfare Commission for allowing us the opportunity to speak and hope that the remarks that we have prepared, along with this report that we have brought, will assist the IWC to make an informed decision on whether or not to convene a wage board concerning the minimum wage.
The Division of Labor Statistics and Research, DLSR, of the Department of Industrial Relations has recently re-established is Research Reports Unit in order to fulfill its mandate under Labor Code Section 150 to "collect, compile and present facts and statistics relating to the condition of labor in the state."
My name is Dr. Zagros Madjd-Sadjadi. I am the research manager of the unit. And Dr. Jeffrey Woods, who's sitting next to me, who will be speaking to you shortly regarding DLSR's report on the minimum wage, is an economist with my unit.
I am, as I said, the research manager for the California Department of Industrial Relations, in the Division of Labor Statistics and Research. I currently oversee and direct policy-oriented research in labor and regional economics within the State of California. And I've published articles in the areas of international trade, banking, and labor economics in internationally recognized journals. My work has been read into the Congressional Record on NAFTA and on the repeal of the Glass-Steagal Act of 1933. And I was a Fulbright Scholar to Canada.
I hold a Ph.D. from the University of Southern California, and I currently teach economics for Golden Gate University and San Francisco State University in addition to my position at DIR.
Dr. Woods is a research economist for our department. He currently conducts policy-related research in labor and regional economics within the State of California. He has published articles in the areas of labor economics and macroeconomic fluctuations in internationally recognized journals. His teaching career, prior to coming to DIR, spanned eighteen years and included both undergraduate and graduate economics courses, and he also currently teaches at local area colleges, including California State University at Hayward, the University of California at Berkeley Extension, Golden Gate University, and Diablo Valley College. He holds a Ph.D. in economics from the Southern Illinois University at Carbondale.
Dr. Woods examined the research findings of economists to see if there was any work relating to the 2001 or 2002 California minimum wage increase that levied by this Commission in the year 2000. The only complete examination that Dr. Woods found was performed by David Macpherson of Florida State University, which I understand that you -- the Commission has copies of that report. Dr. Macpherson, writing in the year 2000, projected what the impact would be of the 2001 and 2002 California minimum wage increases using 1997 to 1999 data and did not have the benefit of the more recent data from the year 2000 that Dr. Woods used. Dr. Macpherson's projections concerning job losses in California are somewhat different. Following Dr. Woods' report, I will highlight the differences between these two reports and then try to explain why they come up with differences.
I will now turn over the microphone to Dr. Jeffrey Woods, who will elaborate on the DLSR study.
By the way, we will be glad to answer any questions at the end of my presentation, after he's concluded. He will provide you information on the demographic characteristics of minimum wage workers, the economic impact, and some salient information about minimum wage enforcement.
DR. WOODS: Good morning. Again, my name is Jeffrey Woods. And as Dr. Sadjadi said, I am a research economist with the California Department of Industrial Relations, within the Division of Labor Statistics and Research.
My remarks highlight and will be confined to the major results of a study I conducted assessing the economic impact of the 2001 California state-mandated minimum wage increase.
On January 1st, 2001, the minimum wage in California was raised from $5.75 to $6.25 per hour. More recently, on January 1st, 2002, it was raised again from $6.25 to $6.75 per hour. Approximately 1,053,000 workers that represent 6.1 percent of California's labor force are affected by increases in the minimum wage.
One might ask, "Who is the typical minimum wage earner in California?" The low-wage worker is likely to be female and a teenage, foreign-born Hispanic without U.S. citizenship. Having never been married, she has, at most, a high-school education. She is not likely to be a member of a labor union, and her total family income is less than $20,000 per year. Her work schedule exceeds 35 hours per week in retail trade, and she lives in Los Angeles County.
While teenage and young adult workers age 20 to 24 comprise only 15.9 percent of California's labor force, they account for 37.4 percent of the minimum wage population. While only 28 percent of California's labor force is Hispanic, 55.5 percent of minimum wage workers claim Hispanic origin. Females compose 45.6 percent of California's labor force, but comprise 53.4 percent of the minimum wage population. Less than half, or 43.4 percent of minimum wage workers, are foreign-born individuals without U.S. citizenship. The majority, or 52.5 percent of the state's working population, is married with spouse present. However, only 35.6 percent of minimum wage workers are married with spouse at home. Twenty-five percent of minimum wage workers completed no more than the ninth grade and have likely dropped out of school.
Sixteen percent of California workers are unionized, but only 4.8 percent of minimum wage workers belong to a labor union. Across the United States, 75 percent of minimum wage workers work less than 20 hours per week. However, in California, the majority of these workers work at least 35 hours per week.
I found that slightly over 20 percent of minimum wage workers reside in families that make no more than 115 percent of the poverty threshold of $17,463 for a family of four. In 1991, 41 percent of minimum wage workers across the U.S. lived in families that earned above the median household income. However, for California in the year 2000, only about 23 percent of the minimum wage population lived in households that earned above a median income of $46,543.
Using a prediction model, I estimated job loss resulting from the increase in the minimum wage for 1,375 minimum wage workers, or 0.38 percent of affected workers living in households below the poverty level, and 1,878 workers living above the poverty level, or 0.32 percent of affected workers.
Job loss of an estimated 4,700 workers statewide was predicting from raising the minimum wage. No statistically significant job loss was predicted statewide for teenagers. Assuming a 40-hour workweek, the minimum wage population was predicted to lose no more than an average of 0.25 hours per week from the minimum wage increase. However, for teenagers, the predicted reduction in average hours increase to 0.55 hours.
The predicted net increase in affected worker gross wage income was estimated to be approximately $615 million, or $580 per employed minimum wage worker, which represents about a 5.8 percent increase in nominal income.
Over 50 percent of minimum wage workers are employed in the service and sales occupations. An estimated 1,800 service workers, or 0.5 percent, were predicted to lose their jobs as a result of an increase in the minimum wage. I found no evidence of job loss for teenage service workers.
A 40-hour-per-week service worker was predicted to lose an average of 0.3 hours per week. For all affected sales workers, I found no evidence of job loss or hours decline in response to the minimum wage.
Almost 40 percent of California's affected workers work in the retail trade industry. A predicted 1,600 jobs could be eliminated in response to the higher minimum wage. The predicted increase in gross wage income for employed retail workers was estimated to be about $250 million, or about 40 percent of the general increase in income for all affected workers.
For available counties, no significant job loss was predicted for counties with above- or below-average statewide unemployment rates. However, statistically significant work hour loss was predicted for high- and low-unemployment counties of 0.5 hours for a typical 40-hour-per-week worker.
Data from available counties indicate that most fell within a range of average compliance with minimum wage law. Counties with below-average compliance rates included Marin, Butte, Placer, and Santa Barbara. Above-average compliance rates were found in San Mateo, Santa Clara, Sonoma, and Ventura Counties.
Industries such as nondurable goods manufacturing, retail trade, private household, personal services, entertainment, and recreation services were more susceptible to minimum wage violations.
Now I'll turn the microphone back over to Dr. Sadjadi.
DR. MADJD-SADJADI: Thank you.
I have been asked to highlight the differences between the report by Dr. Macpherson and the DLSR report presented by Dr. Woods. My remarks will be confined to a discussion of these differences.
Dr. Macpherson comes up with a job loss figure that is substantially higher than that found in the report by Dr. Woods. There are two major methodological differences, or reasons for this difference. I believe that after I explain these differences, you will find that the DLSR report is more likely to accurately reflect the situation here in California with the minimum wage increase at the beginning of 2001.
First, Dr. Macpherson uses an elasticity of demand that is over three times higher than that used in our study. The relevance of this difference is that Dr. Macpherson finds that for every 10 percent increase in the minimum wage, there is an employment loss of 2.2 percent of the affected population. On the other hand, Dr. Woods finds an employment loss of only 0.7 percent in the affected population for a similar increase in the minimum wage.
The reason for this difference is that Dr. Macpherson borrows an elasticity of demand from a study conducted by David Newmark of Michigan State University and William Wascher of the Federal Reserve System. The Newmark and Wascher study examines the impact of the minimum wage increase on teenage employment in New Jersey and Philadelphia in the fast food industry in 1992. Dr. Macpherson then uses this elasticity to estimate job loss in California in the year 2001 for all minimum wage workers in all industries. On the other hand, Dr. Woods re-estimates the elasticity of labor demand using information on all employees in all industries affected by the minimum wage in California during the year prior to the increase. Thus, Dr. Woods uses a more appropriate elasticity that takes into account the unique labor market here in California at the present time and accounts for all workers who are affected.
More importantly, the Newmark and Wascher estimates of labor demand elasticity have recently been partially recanted by Newmark and Wascher in a December, 2000, American Economic Review article that appeared after the study by Dr. Macpherson, in which they use a sensitivity analysis to demonstrate that their initial estimate is on the high end of a range of estimates that could be generated from their research study.
Second, Dr. Macpherson looks at both the 2001 and 2002 minimum wage increases at the same time and estimates these as though the increases occurred contemporaneously. In other words, Dr. Macpherson assumes that the job loss would be identical if we raised the minimum wage all at once or if we raised it in two separate steps, one year apart. Dr. Woods makes no comment on the 2002 minimum wage increase, as that is a separate event from the 2001 minimum wage increase and should be examined separately.
Thank you very much for your time. And we will be more than happy to answer any questions that you may now have.
COMMISSIONER DOMBROWSKI: Mr. Woods, could you comment on -- I mean, your study was on the 2001 increase, the first step -- is there anything that you're comfortable commenting on considering the second step, January 1st, and where we're at today?
DR. WOODS: Mr. Dombrowski, I can say that my study was conducted over the year 2000, with 2000 data. And my estimates were predictions as to what would likely happen in the year 2001. And as I mentioned in my report, this study was conducted over a period of the business cycle where the economy was still relatively strong in the United States and California as well. So what I can say generally is that the job loss, or any predicted job loss as a result of a given change in the minimum wage, is likely to be smaller during periods of economic expansion vis-à-vis periods of economic contraction like we are currently experiencing.
I cannot give you a definitive, numerical estimate of what that would be. However, I can say, based on economic theory, that the amount of job loss or loss in work schedule hours would likely be greater.
COMMISSIONER DOMBROWSKI: Thank you.
COMMISSIONER BOSCO: Thank you both for your testimony.
I read Dr. Macpherson's report and I appreciate some of the clarification as to the divergence between Dr. Woods' report and that.
But, Dr. Woods, I wanted to read you a sentence from a letter that we just received from Tom Rankin, who is the president of the California Labor Federation, because it appears to contain information that doesn't square with yours. And one of the jobs that we always have is trying to sort through information and facts and come up with some amalgamation of it that helps us make an important decision like this one.
The sentence says: "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. Eighty-five percent of those workers are age 20 or older, and 63 percent are full-time workers." That doesn't square with your testimony, I don't think. But I'd like you to comment on that.
DR. WOODS: Well, as I -- as I mentioned in my testimony, California is a little different from the United States as a whole, where most minimum wage workers across the United States are, in fact, part-time workers, or work less than 20 hours per week. However, in California, we find a substantial portion of those workers are, in fact, working 35 hours a week or more. So, in the sense that they are more strongly attached to the labor force in California relative to the United States, I would say yes, in the sense that they are working a full-time schedule or close to a full-time schedule compared to the national average.
DR. MADJD-SADJADI: Mr. Bosco, I would like to refer you to the actual text of the minimum wage paper that we have presented. And you will find that what Dr. Woods has found is that almost 80 percent -- we're showing about 78.9 percent -- are 20 or older.
COMMISSIONER DOMBROWSKI: Which page are you on?
DR. MADJD-SADJADI: This on Page 5.
The remarks, of course, included both the young teenagers and the young adult workers, and those between ages 20 and 24 were found to be 21.9 percent of all minimum wage workers.
With regard to the question of full-time, as Dr. Woods has also pointed out, full-time workers typically are considered to be those working over 35 hours or more. And at least in our study, we found over half of them to be working more than 35 hours.
I should point out that the information that we gather can -- is limited by the fact that it's from a survey called the current population survey that's conducted by the Bureau of Labor Statistics. And the respondents -- therefore, we're going to generate the data from -- you know, based on those respondents.
COMMISSIONER BOSCO: But Dr. Woods, when you said -- you described the typical minimum wage earner, and it didn't seem to me that it was an adult who was permanently attached to the labor force. I thought you said it was a Hispanic woman that was under the age of 20 and not a main breadwinner for his or her family, but rather than that, a single woman.
DR. WOODS: Well, this was a general, overall characteristic of -- you know, an average type of minimum wage worker, not specifically taking into account different levels of disaggregation. In our study, we looked at the impact of the minimum wage on employment based on all sorts of different criteria, whether it was by industry or whether it was by occupation or whether it was by county or whether it was by high or low unemployment county. And because of the differences in aggregation or disaggregation, and because the sample sizes will vary depending on the unit of analysis you're looking at, you are likely to get some inconsistencies in the data.
And given that this particular survey only samples about 5,000 households in the State of California, when you break down your sample into a specific component, you're likely to lose a lot of information that you might not have, say, in a different level of aggregation.
DR. MADJD-SADJADI: And, Mr. Bosco, I also -- I can only say that what we found was that 51.6 percent of the people, at least in the survey, were never married who were earning the minimum wage. So we don't have any evidence of that part of it. But when you talk about typical, what we were looking at was how does this reflect compared to the rest of the population. So, when we say that someone is without U.S. citizenship, that does not mean that actually 50 percent of the people lack U.S. citizenship. In fact, it was some figure that was slightly below that. However, these were disproportionate to the general population. So, disproportionately, the minimum wage workers were women, Hispanic, non-U.S. citizens. That does not mean that they actually reached the 50 percent threshold.
COMMISSIONER BOSCO: Well, I -- you know, I'm probably a little slower than everybody else, but I'd have to say I'm a little confused right now as to -- I think it is important who the -- who we're talking about here, you know. This Commission has the power to raise the minimum wage, which will have an effect, I'm sure, on any number of people. But I'm confused as to who we're really talking about out there, who is the --
DR. WOODS: Well, that's a reasonable thing to say, because California is an extremely diverse economy, both in terms of the distribution of income and in terms of race and ethnicity. And the more diversity you have in the labor force, the less definitive you can be on any sort of empirical estimate. And about the best we can do is make our estimates on the data that's available. And we feel that that's at least better than not having anything. But because we do not live in a homogeneous type of labor force, you're going to get this kind of conflicting result, depending on the subpopulation within the minimum wage group that you're looking at. And that's really to be expected, unless you're doing, you know, a national study where you're not concerned about the demographic characteristics of the typical worker, you're just trying to look at kind of an overall picture.
But, yes, we do know that certain groups will, you know, disproportionately receive the brunt of any change in the minimum wage compared to other groups. And in California, it's a little more problematic because of the diversity of the labor force.
COMMISSIONER BOSCO: Okay. Well, I -- I've already taken up more time than I should have.
I wonder -- Mr. Rankin typically testifies and almost always, in my opinion, gives us very excellent testimony. And I wondered if maybe you'd be willing to take his letter, look at it, and just like you did with Dr. Macpherson's, tell us where you agree and where you disagree.
DR. WOODS: I'd be very happy to do that and provide all of the members written copies.
COMMISSIONER BOSCO: Thank you.
DR. WOODS: Any other questions?
MS. BANE: Yes. Dr. Woods, I was actually going to ask the same question in regard to how you would go about commenting on the figures that Mr. Rankin has, unless and until you would be able to examine the source of his information, whether it was a national study or a California study, when it was done, what information was inputted into that analysis, and what standards were used to measure it. I would assume that you couldn't really -- even though you were trying to give us a general overview, I would assume that you would be much more comfortable if you could take a look at all those factors.
DR. WOODS: That's very correct, Ms. Bane, because when you don't have the study in front of you, if you haven't read it, you're more likely to give general answers or tend to speculate. And that doesn't really give the Commission the kinds of information they need. So, I think by having the opportunity to look at the study itself and look at the differences, then we can come to a more definitive conclusion as to why there might be those differences, for some of the very reasons you suggest.
MS. BANE: Thank you. And in addition, I heard you -- and actually, I heard Zagros indicate that there was a large difference in number between the Macpherson study estimate of the number of unemployed or jobs that might be lost and the number in your study. I recall that the number in your study was somewhere around 4,500.
DR. WOODS: Right.
MS. BANE: What was the number, if you know, in Mr. Macpherson's study?
DR. MADJD-SADJADI: It was about 32,000.
MS. BANE: And that pretty much ends my ability to compare, because I don't understand how the elasticity measure that Dr. Macpherson used of 2.2 versus your elasticity measure of 0.7 would result in that difference. However, I'm not asking.
COMMISSIONER BOSCO: Have to get out my statistics book.
COMMISSIONER DOMBROWSKI: Any other questions?
COMMISSIONER DOMBROWSKI: Thank you both.
DR. WOODS: Thank you very much.
DR. MADJD-SADJADI: Thank you very much.
COMMISSIONER DOMBROWSKI: Before we go on, let me -- just so everybody knows what's happening -- you noticed we were scrambling around a little bit. With Commissioner Rose missing, I'm going to suggest that -- and we're -- and the fact that we're probably going to lose our quorum in about 35 or 40 minutes, that we will take testimony from whoever wishes to give testimony today. I've directed staff to then determine when would be the next appropriate date to schedule a -- and I hate to say this -- is it a hearing or a meeting?
MS. STRICKLIN: It's a meeting.
COMMISSIONER DOMBROWSKI: A meeting. And just so that commissioners -- we've done the back-of-the-envelope analysis -- we have about 180 days between now and November 1st, which is the deadline if we were going to take action. And to do that, we need 90 days. So there is flexibility in terms of getting that done.
So, having said that, I would ask Mr. Cooper to please come forward. I have a lot of cards here. I don't know who's going to choose to still testify or who's not.
MR. COOPER: Thank you, Chairman Dombrowski. Peter Cooper, California Labor Federation.
And we do have a number of -- we do have a number of workers and worker representatives and advocates that have come from different parts of northern California. And I'd appreciate your giving them a chance to speak today.
COMMISSIONER DOMBROWSKI: Peter, before -- I just want to -- I just want to make it clear, if someone's handed in a card, obviously, and they choose not to speak today, you can speak at the next meeting. This is -- we're not shutting the door on anybody here.
MR. COOPER: The California Labor Federation petitioned the IWC nearly half a year ago, on November 20th, the form a wage board. And we believe it's high time to move this process forward and to take action. We believe there have been enough studies and testimony concerning the adequacy of the minimum wage, or, I should say, the inadequacy of the minimum wage, to more than warrant the creation of a wage board.
The IWC's standard for forming a wage board is if you find the minimum wage may be -- may be insufficient. This standard has been met. We ask that you move forward with the process and not delay, because this is important for millions of California workers.
I would ask Jean Ross, from the California Budget Project, to speak now.
MS. ROSS: And I'll try to speak briefly. And I think I can also address some of Mr. Bosco's comments as well.
Thank you to the chair and the members of the Commission. And I'd like to address some of the same issues that were addressed by the staff of the Department of Industrial Relations, and, I think, some of the reasons why you shouldn't consider a minimum wage that will probably come in in testimony to follow.
We have looked, over the past several years, at the impact of the increases in the minimum wage, both enacted by Proposition 210 and those mandated by the federal increase. And we've also examined recent employment data in California that I think portrays, in fact, a very positive picture of what's happened in the California economy.
And if you look at the set of charts that I've asked your staff to hand out, you'll see that over the past several years, California's job growth has far exceeded that of the nation. Even in the recent downturn between March of 2001 and March of 2002, our job loss, which is certainly not a good thing, has been smaller than that in percentage terms than that of the nation as a whole.
In fact, if you look -- and it's particularly markedly so -- over the periods in which there have been successive minimum wage increases in California, California's share of national job growth has increased. Last year, in fact -- and I think this is really quite stunning -- California had 46 percent of the national job growth, despite the fact that California's share of employment is only 11 percent. And I think this was one of the things that certainly came out last year. And I think that certainly speaks quite well of the vitality of the California economy.
Typically, some of the primary opponents of a minimum wage increase have come from the retail sector, and in particular, the restaurant industry. And again, this is a case where both of those industries have out-performed job growth in California as a whole. We actually started looking at the industry employment trends last fall, to try -- sort of in a different context, to look at the impact of the September 11th terrorist attack on the California economy, what did that mean for different industries.
And one of the things that was quite surprising to us is the fact that restaurant employment has actually increased over the past year. We've had a net job decrease in California, but a net increase in the restaurant industry and a net increase in the retail industry overall. And for sort of purposes -- employment purposes, eating and drinking establishments are a subset of retail employment in California.
I think that the --
COMMISSIONER DOMBROWSKI: I have to -- no, not about the retail, but the restaurant side, because I also sit on the Travel and Tourism Commission, and we're hearing -- I'll have to get you together with them, because we're hearing the complete opposite of that. And I'm curious to find out where it's coming from.
MS. ROSS: This is -- this is the data that I downloaded from the EDD Website yesterday. I mean, that's, you know, full disclosure in terms of sources. It's the industry employment data collected by the Employment Development Department's Labor Market Information Service.
And I think what's going on -- and I've had a lot of conversations over the past six months on this issue -- is that different segments -- and I will -- hotel employment is down. And I think what's happening is there's sort of the -- and I've read this in the business press -- is that people who aren't traveling further are eating closer to home. And so it's probably a sort of shift within the restaurant sector, out of some of the big hotel-linked restaurants into, you know, my neighborhood restaurants on J Street or whatever.
But again, if you believe what the official employment counters for the State of California are collecting, over the past year you've actually seen an increase in that industry, which I think --
COMMISSIONER BOSCO: Pizza delivery?
MS. ROSS: It probably does include pizza delivery services, and it certainly -- and what people have said is, you know, people are afraid to go on vacation, so they're spending their discretionary dollars closer to home. But I think it speaks well, again, for the vitality of that industry in California, and for the fact that the recent minimum wage increases haven't caused job loss, because if the economy -- if the employment sector is shrinking overall but that industry is growing, it certainly says a lot to the fact that the industry has been able to cope with the increase in the minimum wage.
Our research -- and we did a study that is somewhat analogous to the one that the Department of Industrial Relations staff discussed -- we looked at the impact of the 1997 and '98 minimum wage increases. And we haven't gone back and done it of the last round of increases -- we will, once we have enough data to do it. And we found that workers who disproportionately work for low wages were not harmed by the recent minimum wage increases. Teenagers, Latinos, adult workers without a high school degree actually experienced higher employment growth following the minimum wage hikes than in the two years prior to those increases. And moreover, their rate of increased employment exceeded that for the workforce as a whole.
But despite all of these good things -- and I think, certainly, the strength of the economy during the late 1990's, which has slowed -- and despite the increases that you approved in the minimum wage -- excuse me -- we find that the purchasing power of California's minimum wage is still 25 percent less than it was in 1968. In a report that we released last fall that you also have copies of, we estimated that a single adult in California needs to earn $9.86 an hour to pay for basic necessities if he or she works full-time. Even with the recent increases, California's minimum wage is approximately two thirds of that.
And again, I've passed out some data which shows that during the late 1990's, we saw tightening labor markets. We didn't see substantial wage gains at the low end of the wage spectrum. And, in fact, between 1989 and 2000, the purchasing power of low-wage workers' wages fell by about 5 percent.
I think another issue that's often raised is that minimum wage workers and minimum wage jobs are an entry point in the economy and people soon move on and earn more, and so we don't really need to worry. The Employment Development Department recently released a really interesting report which followed individual workers. And they could do this because they have the employment -- unemployment insurance reports, and they can follow people by Social Security numbers over time. And they looked at earnings mobility of individuals from 1988 to 2000. So, again, these are people who over that time had twelve years of experience in the workforce. They looked at people who only worked -- and they had some mid-point years -- they looked in '88, '92, '96, 2000. They only looked at people who worked all four quarters in each of those four years. So these are people who are really attached to the labor force.
And again, I think it's sort of a good news-bad news story. They found that for the bottom fifth of the workforce, who earned, on average, $15,323 a year in 2000, 21 percent of California's workforce stayed at the bottom over twelve years, despite the fact that they'd been working that whole time. And what that tells me is while 80 percent did move ahead, we have a lot of workers who work -- work continuously and still earn low wages.
Finally, in terms of who is the typical minimum wage worker in California -- and I'm actually going to use the Macpherson study because -- we all use the same data, and I think Mr. Rankin's data actually comes from some work that my organization has done, and so all of us, Macpherson, DIR, my organization, we all use the current population survey, and we all come up -- we should come up with the same results, or we're in trouble.
Who is sort of the typical minimum wage worker in California? Sixty percent are over the age of 25. Eighty-one percent are 20 or older. Fifty-four percent are Latino. Fifty-one percent are women. Forty-three percent have kids. And I think one of the things -- and it's interesting, because Macpherson sort of says, "Well, 26 percent of minimum wage workers live with their parents." If you match up with only 19 percent of minimum wage workers are teenagers, what that tells me is you've got a lot of young adults who are living with their parents because they can't afford to live on their own. And I think most of us know somebody who's got their kids who have moved back home with them because they can't afford to live on their own. And that's -- I think it's purely because they're not able to make ends meet.
Seventy-five percent of minimum wage workers are in families earning under $30,000 a year in California. And I think all of us understand how hard it is to support a household on $30,000 or less.
On the question of full-time work, and sort of are these people who are well attached to the labor market, again, the Employment Policies Institute says 61 percent are full-time workers. And the average hours of work per week are 32.6. And so, even for the ones that aren't working full-time, they're working a lot -- actually, 32.6, which is almost identical to the average workweek in the retail sector. And so, they are working what is the standard workweek in their industry.
And so, I think, in sum, thee are people that need their income to live. They're barely making ends meet. And we think it would be appropriate for you to undertake your statutory duty to examine California's minimum wage by establishing a wage board.
COMMISSIONER DOMBROWSKI: Any questions?
COMMISSIONER DOMBROWSKI: Thank you.
MR. COOPER: So, if I could ask Elizabeth Sholes and the representative from Loaves and Fishes to come forward, and then, I guess, after that, somebody from the farm workers and from the Sacramento Valley Organizing Community.
COMMISSIONER DOMBROWSKI: Welcome. Please identify yourself for the transcript.
MS. SHOLES: I am Elizabeth Sholes. I'm the public policy coordinator for the California Church Impact, which is the legislative arm of the California Council of Churches. Prior to joining the Council, I spent twenty years writing and teaching about American labor and social history, especially with reference to business and the economy. I taught labor history and capital and labor mobility for Cornell University's School of Industrial and Labor Relations, and I've published fairly broadly on issues of labor, business history, and the mobility of capital.
I have been also a small business owner and a member of various chambers of commerce. My research, however, has provided me with ample opportunities to examine the impact of changing wage standards on our society and its economic well-being.
Now, I can in no way compete with Jean Ross in terms of data and statistics, but I'd like to try to place some of what you're going to hear today in a larger context. The argument against minimum wage is exactly the same argument that's been leveled against all wage increases for labor historically. Conventional belief posits that increased wages are a hardship for business and the economy, that wages, when they're increased, take away from the profits of business. But if we look with a commonsense examination of U.S. history, it's revealed that exactly the opposite is true.
Since the rise of the industrial capitalism, which you can mark pretty much at the end of the Revolutionary War, through the whole of the 19th century into the 20th century, workers have had two very critical roles: they produce the goods and services that are sold on the market, but they also consume the goods and services that are produced. Even in the post-industrial world of the global marketplace, that doesn't change. And without adequate consumption, we find that the business cycle cannot endure. Obviously, the most overwhelming impact of that was seen in the Great Depression. But the effect has been present for most of our industrial history.
The restriction of wages to their lowest common denominator, therefore, has had a rather chilling effect on the U.S. economy. At the end of the 19th century, in what was an incredibly rapid industrial and economic growth, wages were consciously deflated by capital to maximize corporate profits. But even within this period of what was then capital production more than consumer good production, the U.S. was visited about every three to five years with major depressions. And in part, that was due -- in no insignificant part, that was due to the inability of the ordinary workers, who comprised the largest part of the population, to serve the market end of their function by purchasing the necessities of life. Without large-scale consumption of food, shelter, clothing, and services, the rapid expansion in that period of steel mills, coal mines, railroads, agriculture simply couldn't drive the economy alone or reliably.
The human suffering that accrued during this time, during the depression of wages at the turn of the century, was marked by vast inequities of wealth. In New York City alone, one half of one percent of the population was very wealthy. That was the Carnegies, the Fricks, the Rockefellers, the people who were what we characterize as robber barons. Seven percent of that population was middle class, and the remaining 92.5 percent were desperately poor. The status was mirrored in city after city and state after state. Wages were constantly depressed for the bottom rungs of the production scale, sweat labor, home workers, and even children. Living conditions were abysmal. Diseases were just rampant, including plagues. Filth and squalor were the lot of the majority. And working for pennies a day, people had no means to protect themselves from dire consequences of poverty, much less to build a stable society through the basics of home ownership, reliable work, education, and improved nutrition. The overall economy stagnated from these impacts.
Massive political unrest was also the order of the day. Between the 1880's and 1910, there were over 80,000 strikes, many of them bloody. In the face of this turmoil, by the turn of the century the more enlightened capitalists began to see that stability and a reliable market were essential to their well-being. Consequently, the more enlightened members of the capitalist class formed a group called the National Civic Federation, and it consisted of the leading capitalists of the day. It began about -- I think it was 1901 or 1902. And they consciously began voluntarily improving conditions, including raising wages. And the results were very dramatic.
It is at that point that we begin to see the burgeoning middle class, we begin to see the development of a true consumer economy, more stable cities, civic reform, and a new civic environment with better educated participants, who were coming out of the working class. This progressive era -- excuse me -- this progressive era gave rise to reform and also to economic abundance. Now, all of this was consistent with the increase in higher wages that all of the naysayers said would depress the economy. The opposite was proving to be true.
The story you've all heard in high school about Henry Ford's $5 a day is absolutely accurate. He paid above the existing wage and discovered in the process that he sold more cars because his workers were his best market.
Now, we contrast this with the Great Depression, and we contrast the Depression, the depths of the Depression, with the end of the 1930's and the war years, when we had both unionization and the start of the minimum wage.
By 1937, unions had secured higher wages through collective bargaining. And we can document that it was among those industries that had the higher wages that the first rapid and sustained recovery from the Depression began, in advance of the war impact. That began in 1936. Following the introduction of the minimum wage in 1938, the recovery continued, despite all of the naysayers, and again, in advance of the war impact.
During World War II when -- okay -- we just -- during World War II, the rate of wages were higher than they have ever been relative to the sales dollar, and they need to -- we need to pay attention to these consequences.
We know that, from our own observations of the impact of the post-war economy, that well paid workers tend to fuel the economy. And we're consequently really asking that we look to the minimum wage as part of the recovery of our current economic crisis.
COMMISSIONER DOMBROWSKI: Questions?
COMMISSIONER BOSCO: Could we get a copy of your testimony?
MS. SHOLES: Yes. Yes, I can certainly provide that to you.
MR. BROWN: Commission members, my name is Tim Brown. I'm executive director of Loaves and Fishes, here in Sacramento, California. Loaves and Fishes is a faith-based nonprofit organization that serves homeless and very low-income people here in Sacramento. And my comments are focused not so much on the economic statistics, but on my experience working with homeless and very low-income people in Sacramento County.
As you may know if you live locally, our housing costs, particularly rental housing costs, have increased about 35 percent in the last four years in Sacramento, about 10 percent a year for the past three years and about another 5 percent this year. That housing -- that very steep increase over three or four years in housing costs has increased the numbers of homeless people that we're seeing.
We have a housing referral service at Loaves and Fishes that's been operating for about five years that works with either homeless people or people at very high risk of homelessness, being evicted or having to move for one reason or another. And about three years ago, about -- they see about 300 people a month for housing referral assistance. And three years ago, about 20 percent of the people we were seeing were working full- or part-time. And this past year, it's jumped up to 30 percent and more. So we've seen about a 50 percent increase, just in our housing referral program, in the last three years, of people who are actually working and cannot find or afford housing in the community.
And a very similar statistic has come up just recently with our winter overflow shelter of homeless people here in Sacramento, where we saw, again, about a 50 percent increase, just in the last year or two, in the numbers of working people who are staying at homeless shelters in Sacramento County.
The Loaves and Fishes board of directors has strongly supported increasing the minimum wage. We believe that the minimum wage is still not high enough to support people and to afford housing in the community, even the lowest end of the housing market, and even shared housing. People tend to spend about 50 percent of their income, even for shared housing, in many instances.
And I also wanted to add that Loaves and Fishes is, in many ways, a small business. We hire, or we -- our staff consists of about fifty FTE equivalent positions, and we hire about thirty homeless people every month to do temporary part-time employment.
And our board of directors has always been committed to keeping our entry-level wage a dollar above the minimum wage, even though we, as an agency, do not seek or accept government funds and are completely reliant on private donations in the community. And in recessionary times, not only the number of people we see increases, but the donations that we receive tend to decrease. And -- but even with that, we are committed to struggle to make sure that we can pay at least a little bit higher than the minimum wage and something approaching a more livable wage. And we believe if we can do it, other small businesses can do it.
Thank you very much.
COMMISSIONER DOMBROWSKI: Questions?
COMMISSIONER DOMBROWSKI: Thank you.
MR. MORENO: Good morning, Mr. Chairman, members. I'll be brief. Michael Moreno, United Farm Workers of America.
For us, it's unique because we have situations in the workers that we represent that -- those that we can have sign a union contract -- and I'll give you an example -- we partnershipped with an employer who's willing to move in an agricultural area that has an unemployment rate of 35 percent. With the agricultural land retirement coming in a couple years, it's going to retire over 250,000 acres of agricultural land, which would move that unemployment rate in this particular area of the San Joaquin Valley up to about 42 percent. We were able to partner with that employer to expand them into this town and pay their workers $9.50 to $12.50 an hour, with complete medical benefits -- only under a union contract. Otherwise, they would be, you know, at 42 percent, fighting over what little jobs were left after the land retirements came in.
So, for us, trying to negotiate contracts with the problems that we've had -- we've had over 400 elections, and we've only been able to sign 185 contracts, and we've had problems with the fact that we go to the table, and we have some employers who have gone to the table with us for up to nineteen years, and we still can't be able to get them to agree, after employees have voted and the Agricultural Labor Relations Board has certified -- has certified that election and has put those individuals together to try to negotiate a contract.
It's important -- I think, also, the testimony that you heard this morning with respect to the employees from the Department of Industrial Relations, where they used information that they got from California, not from Texas and New Jersey. That information is relevant, whether it's elastic or not, or whatever you use, the percentage. The fact is that we have California numbers, information, and that's what we should use to make determinations, in terms of whether these costs of these minimum wage increases that we've had over the last couple years have made a negative effect on. And I think we need to trust the fact that the EDD Department --
Oh, I can't believe this -- I get a phone call right in the middle of this.
But anyway, I think we should trust the fact that, you know, we have --
COMMISSIONER DOMBROWSKI: You're lucky we know you, you know?
MR. MORENO: -- that we do have expert people. I think the two gentlemen that testified this morning are very qualified.
And with that, thank you for your time.
COMMISSIONER BOSCO: Are you going to answer the telephone now?
MR. MORENO: Yeah, I will.
COMMISSIONER DOMBROWSKI: Thank you.
MR. VILLAGRAN: Good morning. My name is Jose Luis Villagran. I work for Sacramento Valley Organizing Community, which is an organization that has been for seven years in Sacramento. We work with immigrants, and we meet them in churches and non-institution -- nontraditional institutions where -- because we have known that the workers come there. So we meet them, we have meetings, one-to-one meetings. We listen to them. We train them to become leaders in their own communities so they can be leaders with all their people. And our main goal is organize the power and train them to let them know what are their rights.
But also, in these meetings we have with them, we have realized that most of them have the minimum wage at work. They work, sometimes, overtime and don't get paid. And they have kids, and they live more than one family in one house. And they need more money.
And that's it, all I have to say.
COMMISSIONER DOMBROWSKI: Thank you.
MS. GUERRAS: Hello to the board. Hello, everybody. My name is Alicia Guerras, and I am a member of ACORN and a member of the Sacramento community.
I have all my life worked for minimum wage, and I've raised three children. And sometimes I had to hold two or three jobs part-time, because that's all I was offered, and -- to be able to do it. And I know many, many families that have struggled that way.
And things were not that bad in housing then, as it is now. And the only thing that I always look at, at the economy, that everything was going up but the wages. This is a problem that has been going on for too many years.
I'd like to -- I'd like to mention that the local California Labor Federation and other groups push for a proposal to raise the minimum wage to $8.00 over three years. We succeeded in convincing the body and the public at large, at least, to raise it up to $6.75 in two steps. But there's a lot of -- a lot of room there to be worked toward.
I'm suggesting that there should be a board that oversees and looks and stays on top of moving people, organizing people in order to be able to get a raise and keep getting a raise in minimum wage until we've reached a livable wage, which -- a minimum wage is not a livable wage any more, not for us, for the ones that we work for the minimum wage. We're asking for a living wage, which -- it's $10, give or take -- actually, not to be rich, but just -- just to make it in the market of this California.
And so, I also want to mention before I say something that there's a city, the City of New Orleans. It is not a town known for progressive labor laws, and voters came out 2-to-1, overwhelming, in favor of the raising of the city's minimum wage by $1.00. And here in Sacramento, I'm hoping to lead a labor-community alliance that is promoting a living wage of $10, like I mentioned before, plus health insurance, which is very, very important.
I feel that all the city-contracted employees that are paid by city and taxpayers' money, they should at least earn the minimum of $10. Not too long -- not too long ago, over 500 of my neighbors came out, we were out here, for a rally for the living wage. I don't know if you remember that, but anyway, we were out here.
And the purpose of this is for working Americans, working Californians. We need a living wage, not a minimum wage. And we all know that our economy does too. Now is the time to form a wage board to take action to get us from where we are here to where we need to be.
And thank you so much for your time.
COMMISSIONER BOSCO: I have a question.
MS. GUERRAS: Yes.
COMMISSIONER BOSCO: First of all, thank you very much for your testimony.
MS. GUERRAS: Thank you.
COMMISSIONER BOSCO: We did raise the minimum wage over the last two years, and we're now halfway into the year 2002.
MS. GUERRAS: Yes.
COMMISSIONER BOSCO: Well, you heard all the experts talk and --
MS. GUERRAS: Yes.
COMMISSIONER BOSCO: But I'm curious, in your own life -- you've raised three children and you've always worked at the minimum wage -- can you describe how the increase the we did in the minimum wage affected your own life over the last couple years? That might be an unfair question at short notice, but I'm kind of curious. How did it improve your life?
MS. GUERRAS: It improved my life some. But I feel -- yeah, I'm very grateful for that. I'm very happy that, you know, that was done. But it still is -- $6.75 is not, you know, getting me there, out of -- not even into the poverty level. But it's still into a situation where we just -- we've just been able to afford just the minimum. Sometimes we have to do a lot, you know, without.
And I know that my family is not very large, but I can see, for other families that are larger, I'm sure everybody is happy about the raises and they're always welcome. But if we can just reach that level and make it, you know, close to $10, I think that we'd just barely be doing it, with the housing especially, the housing and the food and everything.
Can't afford health insurance, for many reasons, because for health problems, we don't qualify. The rate will be too high. And that's another -- that's another subject that one day we've got to bring up, but, you know
-- but it has helped very, very much, but it's still not there.
COMMISSIONER BOSCO: Thank you.
MS. GUERRAS: Thank you.
COMMISSIONER BOSCO: Please identify yourself.
MR. LATTIMORE: My name is Larry Lattimore, and I'm here with the Living Wage Coalition.
I also want to thank the Commission for holding this hearing. But once again, the people who are going to be mostly affected by what you decide are not here. They're busy trying to make enough money to make all their ends meet.
And I am the exception, because I live on a very bare minimum, but I'm also an activist. I think that in order to make a change, you have to be able to sacrifice. And so there will be a sacrifice from me, because there will be a part of whatever I could have earned that I won't be able to earn today.
But the fact of the matter is that we talked about some of the -- we all heard some statistics and -- and the reports. And there was a challenge, it sounded like, whether it was a male over 25 or a female under 20. The fact of the matter is, both of those people actually need to have more money in order to purchase some of the things that it is that they need to survive. Now, once you take that into consideration, you must also realize that you are their only vehicle to attain that.
And so, we must do whatever it is necessary that is going to impress this Commission to deliver exactly what it is we need. I want to inspire you to do the very best you can. And then I also want to let you know that no matter how high you raise this minimum wage, there will still be a need that will go unfulfilled.
I'm feeling rather personally sad, myself. I had a very personal -- a friend who died, basically, because he couldn't get his needs met, and he was a very hard worker. He died yesterday, and I'm still being -- still suffering a very personal loss here.
But there are other people just like him, who go to work every day, and people who are earning minimum wage and still falling short of what it is that they need to survive, or working two jobs, or working three. So what you're doing is, if you raised the wage, it might reduce the -- their job load from two jobs to one job, or maybe from three jobs to two jobs.
It is very necessary that you find it within all the reports that you fill, today in the future, that there's a need for a living wage. There's an actual need for more money than you will allot, should you choose to do that.
And that's basically all I have to tell you.
COMMISSIONER DOMBROWSKI: Okay. Questions?
COMMISSIONER DOMBROWSKI: Thank you.
MR. ALLISON: My name is Bruce Allison. I'm representing the Living Wage of San Francisco, former home care worker. I have seen my wages go up to a steady amount, from minimum to $10 an hour. I am not doing home care because my back went out.
Presently, I live in a shelter. And there are workers that work a 40-hour shift and live in a shelter. And I think the increase of the minimum wage would put a stop to that because that is also putting a burden onto the taxpayers. And the ones with the -- the home care workers, the retention, they are now down from -- up from 50 percent up to 80 percent job retention, staying at the -- at post. And it also saves the taxpayers money.
That's all I would like to say. I'm willing to answer any questions.
COMMISSIONER DOMBROWSKI: Thank you.
COMMISSIONER DOMBROWSKI: One moment. Just let the transcript show that Commissioner Bosco has left. And I don't know if we -- I failed, I think, to mention when Commissioner Coleman arrived. Did you? I don't know if you -- you noted it? Okay.
MS. NEGRETE: My name is Carolyn Negrete, and I'm representing the Older Women's League. We support the creation of a minimum wage board.
Almost every issue that we deal with in the Older Women's League is a reverberation of low wages for women. Health problems, economic security, quality of life, are the areas that we look at. And almost all of those can go back the kinds of wages that women have made over the years of their life. It does make a difference.
Also, the -- many of the people we depend on as we get older to help us out as we can't get up and down the stairs or get out of bed are minimum wage earners. And it would be better if they were making a better living, more secure living.
COMMISSIONER DOMBROWSKI: Okay.
MR. POWERS: Mr. Chairman and members, Bill Powers. I'm here representing the Congress of California Seniors and also speaking on behalf of Howard Owens, who is the regional director of the Alliance for Retired Americans, the new AFL-CIO retiree organization.
We're here to support the need for an increase, a significant increase in the minimum wage, as well as an indexing of that. The indexing would help to take care of problems that arise between the time that the wages are raised and consideration is given to an increase by this board.
Health care costs in this state have risen dramatically. Seven million Californians are not covered by health care, and the majority of those are working Americans, like some of the folks you heard described earlier in testimony. If there's one thing that can come out -- an important thing that can come out of a significant increase in those wages, is the ability for these folks to get health care coverage. We're going to pay the cost one way or the other. We pay the cost through illness, where these folks have to go into emergency care for health care, or we're going to give them a decent wage so that they can buy health care insurance.
People who work should not have to live in poverty. And we think that's the best reason that we can cite for folks to have a decent wage. And we strongly urge that you help to increase the minimum wage in this state.
Thank you very much.
COMMISSIONER DOMBROWSKI: Thank you, Bill.
MS. ROBERTS: Linda Roberts, speaking for Gray Panthers.
We support the increase in the minimum wage. We will all eventually be retirees. I just retired last year. And can we never forget that our retirement income is based on what we made when we worked. So imagine retiring from a minimum wage job. We must increase it.
COMMISSIONER DOMBROWSKI: Thank you.
MR. CAMP: Mr. Chairman, my name is Bill Camp. I'm here as the executive secretary of the Sacramento Central Labor Council of the AFL-CIO. We represent 120,000 families here in the Sacramento region.
We're here to ask that you move the process forward as fast as possible. We understand that there's some time, but our experience has been in the past that the sooner we address this, the sooner you give some sense of courage to those who are trying to make work make a living. We find that we've had the greatest increase in productivity by the American labor force in the history of this nation. Since 1995, the amount of products that we're producing has gone up dramatically. The minimum wage has not. And we see this moving the process forward some recognition that those of us who go out and work every day, abide by the rules, are respected by this agency and this government to say, "We understand that this is good policy, it makes good sense, the evidence supports it." And it's a recognition of that increase in productivity that we're providing that creates economic growth in this community and in this state.
So, speaking on behalf of all workers in California, we would appreciate any effort to move this forward as fast as possible.
COMMISSIONER DOMBROWSKI: Thank you.
Did I -- is anyone else in support that handed in a card? I don't think I have any others.
All right. Daniel McCarthy.
And I guess I would also ask Richard Gilbert to come up at this point.
MR. McCARTHY: Good morning, Mr. Chairman, commissioners. I'm here representing some trucking industry clients. And as you probably know, the trucking industry is not a minimum wage industry. Truck drivers, mechanics, loaders, et cetera, are paid well above the minimum wage.
The problem we have is that a lot of the sectors of the trucking industry are seasonal, and during the seasonal highs, they add additional dispatchers and additional mechanics. Now, these mechanics aren't heavy-duty journeyman truck mechanics; they're basically parts changers. Well, the dispatcher exemption under the current wage orders is now tied to twice the minimum wage. A quote, "mechanic that supplies his or her own tools" is also tied to twice the minimum wage. So, any impact on changing the minimum wage and indexing the minimum wage will affect these two categories of employees, shoving the rates up.
We would ask that if you do convene a wage board, that you take these two exemptions into account and see if they can be detached from the minimum wage. In the case of dispatchers, prior to the current wage orders, they were tied to a specific dollar amount. We would ask that you take into consideration doing -- tying to a specific dollar amount mechanics and the dispatchers.
COMMISSIONER DOMBROWSKI: Thank you.
MR. GILBERT: Thank you, commissioners, for hearing my testimony. I represent Employers Group, formerly Merchants and Manufacturers Association and Federated Employers of the Bay Area. We're an employers association who has membership of 5,000 member companies in the State of California. And our members come from all industries and all sizes.
They are also grappling with the uncertain business climate. Today, California's economy continues to be battered by the effects of September 11th, the near-collapse of the dot-com industry, and the national recession. Our estimated state deficit of $22 billion suggests that we are not yet participating in the emerging national recovery.
It is in this environment that we're asked to examine the question of raising the minimum wage. We contend that especially in this economic context, increasing the minimum wage is not the way to build more jobs, especially for the hard-to-employ. Indexing the minimum wage in perpetuity, without considering -- consideration for the economic climate, would be even more devastating to employers and employees, especially when facing the reality of today's economics -- according to the Employment Development Department, March 2002, the sixth consecutive month in which more than one million Californians were unemployed.
A 1999 national study from the Employment Policy Foundation revealed that increasing the minimum wage will be an additional barrier to work for over 40 percent of the workers in the low income levels. Any minimum wage increase would increase their unemployment rate, thus denying an additional 217,000 jobs in the marketplace.
Such economic evidence still holds that an increased minimum wage keeps low-skill, low-productivity workers from the job market. We do not do anyone any favors by passing a law that says that someone cannot earn more than -- earn more -- if they cannot work, they cannot earn. And in effect, by increasing minimum wage, you prohibit employment opportunities for a large sector of California's potential workforce.
Raising the minimum wage deprives entry-level jobs to the people who are most eager to get them, individuals wanting the grasp the first rung of the economic opportunity ladder. And the overwhelming view of economists is that raising the minimum wage in effect saws of the bottom of the career ladder. Entry-level jobs give valuable rewards, such as skill acquisition, positive work attitudes, experience, and promotions. Advocates of a higher minimum wage forget that their words center on talk of the income needs of heads of families. They ignore the true significance of entry-level jobs, most of which are not held by primary family wage-earners. Indeed, increasing the minimum wage shifts the income problem: some benefit and some do not.
An Employment Policy Foundation survey revealed that fewer than 20 percent of the 4.4 million minimum wage earners live in poor families. And more than 40 percent of those at the minimum wage level live at home with their parents. The survey also found that half of all minimum wage earners live in families with incomes above $25,000 per year. Nearly one fifth live in families with incomes over $50,000. And fewer than one million of those earning the minimum wage live in working poor families, with one or more working parents and still living below the poverty level.
And what would be an employer reaction to the minimum wage hike? The raise will have a negative employment effect on service, food production, and retail employers of any size, but it will seriously threaten small, entrepreneurial employers, major employers for local communities and urban areas and an integral part of our state economy, already faced with a $22 billion deficit.
The EDD is already estimating occupational declines through 2008 throughout the state, and for many minimum wage and entry-level positions. So we're losing jobs at this level.
As the cost of doing business increases, not only will less hiring occur, but also a trickle-up effect of wages. Costs will be passed on to the consumer, so we'll all be paying more for the goods that we currently buy.
Present employees will see increased pressure to reduce their benefits. The availability of overtime work will also be curtailed. Smaller businesses may not only end up leaving the state for more business-friendly climates, but they're also faced with the possibility of going out of business. This would result in higher unemployment rates as well as lost job opportunities.
What this state and nation -- what this state and nation needs to cure poverty is not higher worker security programs, but more workers, workers that are better educated, more productive, and able to compete in the world market. The growing economy is the best way to ensure higher wages.
And an increased wage floor, in addition to negative employment, is detrimental to the perception of California as a growing economy. A wage hike would force firms in low-wage industries to lay off large numbers of workers and hurt California's competition with other states. Many jobs continue to flee California for other states perceived as more competitive, and labor cost is the key perception.
The combination of increased unemployment benefits, steadily increasing workers' compensation premiums, higher minimum wage payments presents an enormous challenge for many California businesses, both large and small. Additional increases in the minimum wage would prove crippling.
An economy that works is an economy that creates jobs and puts people to work. We recommend against the raise of the minimum wage -- against the review of the minimum wage.
COMMISSIONER DOMBROWSKI: Thank you.
I'd call Patricia Breslin and Mr. Jim Abrams.
MR. ABRAMS: Mr. Chairman, I'm going to defer my comments in deference to your schedule.
COMMISSIONER DOMBROWSKI: Okay.
MS. BRESLIN: Good morning. Patricia Breslin, executive director of the -- oh, I'm sorry -- were you calling -- okay -- executive director of the Golden Gate Restaurant Association. I was also a member of the Living
-- of the San Francisco Living Wage Task Force. I want to thank you for the opportunity of coming before you again.
First of all, just kind of a technical point -- and it could be my naïveté, but I need to bring it up --
I understand we're meeting today -- you're meeting today to consider a petition from the California Labor Federation requesting the Commission to conduct a minimum wage review to raise and index the minimum wage in California.
I was concerned that the item, as agendaed, appears that the goal of conducting the minimum wage review would be to raise and index the minimum wage, rather than to determine whether or not the minimum wage should be raised and indexed.
And I just respectfully request that, should a wage board be convened -- and I'm sorry I didn't -- this didn't come to my attention until today -- I just wanted to go on the record, but just to clarify the charge to reflect the original twofold petition that just requests a review of the adequacy of the minimum wage.
And then to go on -- and thank you -- secondly, I appreciated Dr. Woods' report. And I know he was unable to be more industry-specific. I would like to inform the Commission that in January of this year, the Golden Gate Restaurant Association commissioned a San Francisco restaurant industry study. Now, the objectives of the study were to compile reliable current data about the industry, describe its roles in the San Francisco economy, and analyze the impact of the changing economic conditions and public policy on the industry.
Now, this industry was independent from the Association. Two simultaneous industry surveys were conducted of the economics of the San Francisco restaurant industry. The first was a random sample survey of San Francisco table restaurants, with the random sample drawn from the San Francisco Tax Collector's list, and the second covered all of our members. While the study focused on one geographic area, the San Francisco area, the findings were measured to the National Restaurant Association findings from their study, so that we could get an index to what the national picture was.
I would like to share a few findings with you. And the study is due to be released in about two weeks, and I will make sure that each one of you gets a copy of this report.
Several of the findings were: Like national restaurants, San Francisco table restaurants operate on very low profit margins. In 2001, they converted only 5 percent of their gross sales to income before taxes. And since more than three quarters of them are organized as corporations, their after-tax income was only about 2� percent of gross sales. These low profit margins makes restaurants extremely vulnerable to small changes in costs, such as those arising from minimum wage increases.
San Francisco's hospitality industry was more adversely affected by the current recession and September 11th attacks than other parts of the country. Findings were even more so than New York City. The median income of San Francisco's table service restaurant plunged 40 percent last year. And in the six-month period between June and December of 2001, 228 more San Francisco restaurants closed than opened, reducing the total number of restaurants an unprecedented 6.8 percent.
Extremely narrow profit margins, both locally and nationally, make restaurants vulnerable to losses. Size matters. Small restaurants, those with less than $1 million in total sales, they're staying alive by just shaving their food costs and using more of their own families' labor. Large, high-volume restaurants are squeezing by on reduced volume, and mid-sized restaurants are getting killed. And they're the ones that are the independent-owned operators that are of the local culture of the city. They're getting killed because they have substantial fixed costs, like a large restaurant, but their reduced volume isn't covering the costs.
I would like to also say it was interesting to hear how optimistic a prior speaker was about the health of the restaurant industry. Our findings show that employment at eating and drinking places, that had averaged a 4.6 percent growth in each of the five preceding years, have declined a half percent in 2001. Restaurant employee recruitment advertising dropped 75 percent in the second half of the year. And at the same time, the number of applicants seeking work rose 50 percent.
I would perhaps point that the difference between our findings and the EDD statistics is that the unemployment statistics at the Department have not caught up with what is actually going on at this time. The restaurant industry has been hard hit.
I have submitted my nomination application for -- to the wage board, should you convene one, for the purpose of ensuring that the unique wage structure of the restaurant industry in California and the adverse economic and morale effect of a blanket minimum wage increase to our industry be considered at the wage board level. Times have changed. All compensation must be considered when looking at minimum wage increases.
And I know I've been before you before about the issue of tips, and I know you understand the issue of tips, so I will not belabor it at this point. But I would like to ensure that it be considered should any wage board be convened.
COMMISSIONER DOMBROWSKI: Thank you.
COMMISSIONER CREMINS: Ma'am, to clarify real fast, on the issue of tips, are you saying they should or should not be included in the minimum wage?
MS. BRESLIN: Throughout the country, all but seven states consider tips toward a minimum wage level. I'm not asking that we go backwards to the way the federal reading is, going back to $2.13 an hour, but I am suggesting that at this point in time, with a wage level of $6.75, that with the tips an employee earns, the average goes well above $20 an hour and should be considered into that compensation.
COMMISSIONER CREMINS: Thank you.
MS. BRESLIN: Does that answer it?
COMMISSIONER DOMBROWSKI: Just for the transcript again, let's show that we've lost Commissioner Coleman, so we don't have a quorum. I assume we can continue the hearing.
MS. STRICKLIN: Yes.
COMMISSIONER DOMBROWSKI: We have two more cards, Juli Broyles and Jon Ross.
MS. BROYLES: I believe it's now good afternoon, Mr. Chairman, commissioners. Julianne Broyles, from the California Chamber of Commerce. We are here regarding the minimum wage and the adequacy of the minimum wage in the State of California at this time.
Certainly, when you look at a number of items that have happened recently, including many things that have been mentioned by previous speakers, so I won't belabor them, but in brief, certainly, just as of the first of this year, we saw another increase in the minimum wage, the sixth in six years. At $6.75, we have the second highest minimum wage in the United States. Our economy has been very, very hard hit by the downtown, both in the technology sector as well as in reaction to the attacks of September 11th. We are already continuing with very high energy costs, health costs, workers' compensation costs, unemployment insurance costs. And to add in on top of that a minimum wage increase, and on top of the last six that we've had that have raised it almost -- what, 46 percent? -- over 46 percent in the last six years, it is asking quite a bit of California employers to add yet this next cost onto what they're currently contending with.
I would also like to note that I had been reviewing the report that was presented earlier today, and it is interesting, the data that DLSR has provided in this report. However, I would note that a lot of the projections are certainly going to be skewed based on what -- the unemployment rate that they are basing their projections on, they're using a 4.9 percent unemployment rate, and currently California sits at 6.4 percent unemployment rate. In terms of the projected unemployment aspects of an increase, I think that actually should be taken into consideration as you review that item.
Additionally, as you look at that report, you're going back in time, unfortunately, to where most of the data is collected prior to 2001, 2002. So, again, you're having skewed based -- skewed data results because of where the -- or the time frame upon which the data and conclusions are based.
So, again, it does give us great concern that that might be used as a conclusive item for the Commission to use to base their adequacy decision on.
Again, we would advocate looking outside government sources and other groups. We did advocate at earlier hearings that the Commission contact something like the Federal Reserve Bank of San Francisco or any other Federal Reserve district for unbiased data on what is occurring in the California economy. The 12th District of the Federal Reserve Board would be able to provide some very interesting data for the Commission to look at, and have done, in fact, upon request from various organizations -- it doesn't matter who it is, they're happy to supply the data
-- on what projected changes in an economic condition, what the overall impact might have as a final result, because consequences and unintended consequences are two things that California employers must contend with.
As the speaker from the Golden Gate Restaurant Association pointed out, there are a lot of things that are not being taken into consideration when you look at California's economy as a whole. And I think that as the Commission goes forward in the adequacy hearings, that if there is another one, that you ask for some additional data to come into place for you. The DLSR information was interesting. I also thought it was extraordinarily interesting that they predicted that the high unemployment counties of the Central Valley would be harder hit by a minimum wage increase than any other part of the State of California. And again, hopefully, that is something that gives you pause as you look at the issue.
Part of the problems that other speakers addressed, I won't go into again, but we certainly agree with the concerns that were raised by the Commission itself on who actually is the minimum wage worker in the State of California, as well as the number of minimum wage workers in the State of California. According to our data, instead of the 6.1 percent that I believe the DLSR -- 6.2 percent that DLSR is saying are minimum wage workers, our data shows that it's less than that, that it's somewhere underneath 5 percent of California workers actually are minimum wage workers as currently defined.
So there are a lot of reasons that we're asking that we not move forward into wage boards. Certainly, revenue for all California boards and commissions is at a premium. Going into a wage board situation, again, is going to expend a lot more of the Commission's revenue, in our opinion, and certainly we would be looking at -- and possibly used to better investigate the issue rather than moving forward into wage boards at this time.
Thank you, Mr. Commissioner -- Mr. Chair.
COMMISSIONER DOMBROWSKI: Thank you.
MR. ROSS: Commissioners, Jon Ross on behalf of the California Restaurant Association.
I guess one of the benefits of going near last is I get to truncate my elaborate remarks because a lot's been said. I also --
COMMISSIONER DOMBROWSKI: I have one more card now, so --
MR. ROSS: Oh, okay. But I also get to -- I also get to focus my remarks at a much narrower audience -- though attentive, I know.
In October, 1999, this Commission reached a conclusion as to what would be an adequate minimum wage as of January of this year, and at that time set the minimum wage at $6.75. I think the burden to be overcome by the proponents of an increase in the minimum wage and moving forward with wage boards would be showing a circumstance that has changed that would suggest your judgment at that time was wrong and too low.
What out there in the economy would suggest today that that judgment deserves to be revisited? I guess our observation, on behalf of the Restaurant Association, would be -- and as you've heard today, everything that's happened since October '99, I guess, would lead one to question whether we did the right thing in increasing the wage as fast as we did, and certainly would raise questions, given what we know now about the economy and where we are, about whether going forward is appropriate.
Since 1999, we've seen the economy surge, then slow to historic rates. We're facing budget deficits that are unparalleled, and we're beginning to feel the effects in our industry, in the restaurant industry, of heightened job loss, job loss, frankly, that far outstrips the job loss that would be projected based on the information presented by the Department earlier today, looking at the data at it existed in 1999.
As you heard earlier from the Golden Gate Restaurant Association -- and I'll try and give these a statewide flavor -- for the Restaurant Association, since last August, looking at the most recent data that the EDD provides -- and this is probably consistent with what you're hearing on the Tourism Commission -- 16,000 jobs have been lost in the restaurant sector. These are -- that's 1.6 percent of the total restaurant workforce. In San -- the areas hardest hit, San Francisco, roughly 4,000 jobs lost, 5.4 percent of that workforce; Santa Clara County, 19,000 jobs lost; Oakland-Alameda, 17 -- not 19,000 -- excuse me -- one hundred -- nine hundred jobs lost; Oakland-Alameda, 1,700 jobs lost, 3 percent of the total restaurant employment there.
So the obvious near-term trend since the events of last fall have been, as one would expect, a serious impact on those industries dependent upon travel and tourism to sustain themselves.
Some other things that -- factors that I think might, again, explain why the job loss is particularly focused in restaurants, one note -- that -- as was noted earlier, there is not a tip credit in California for restaurant workers. That's a fact. That means that here we pay three times what you'd pay under the federal wage for a tipped -- to a tipped worker for a base wage, exclusive of tips. As we've noted before, the result of that often means that because increasingly scarce labor dollars are directed to those in the restaurant who make the most, there's less available for those in the restaurant to employ and continue hours for others in the restaurant who make relatively less. And the effect has been job losses in those areas.
Second, I think -- and the economists would probably agree -- to try and project job losses based only on the effect of one component, the minimum wage -- and I think this speaks to the risk in indexing -- ignores other cost factors that may be happening concurrently. You know, in our recent months, we've seen an increase in workers' comp costs. We're about to see an increase in UI costs, and we all experienced a spike in energy costs last summer. So there are a number of factors colliding and colluding, I guess, at the current time to drive these employment numbers lower.
Finally, I guess, I'd close by noting I do -- I think it's worth noting, in the summary that was provided to you of the DIR report, these projections and what you do with the minimum wage have a great deal of sensitivity when you consider it in terms of economic conditions generally. They say:
"When the economic growth falters, the increase in the net gross wage income of affected workers is not likely to be as great because of reductions in employment and work hours. Ultimately, the impact of changing the minimum wage can differ, depending on the strength of the economy at the time of implementing such change."
And while we made judgments in 1999 in times of strong economic conditions, I think it's important that this Commission look carefully at what similar impacts would occur now, in an overall economic position that's remarkably different.
COMMISSIONER DOMBROWSKI: Thank you.
MR. WEBB: Good afternoon. Mike Webb, with Western Growers Association. I wanted to testify today more specific to what a minimum wage increase means to agriculture.
Western Growers Association represents the fresh fruit and vegetable industry in California. And the impacts that we've felt since the last round of wage increases have been dramatic. As I've testified before before you, is that agriculture -- we are price takers, not price makers, meaning that we cannot pass any of the increased costs of labor along to the consumer or the buyers. We have to absorb that cost into an already dwindling profit margin.
I was looking at the DLSR report earlier as I was sitting through the hearing, and there's a part in here that indicates that, "Further estimates suggest farm workers would not suffer employment loss." And it goes on to say that a possibility is that the wage bill for agriculture is only a small portion of the overall cost to the farmer. That is extremely incorrect. The labor bill, the wage bill, for farmers is incredibly high. It's a significant part of the overall cost of farming, especially farming fresh fruits and vegetables. It's very labor-intensive, and as such, the labor bill is incredibly high.
What the increase does for California farmers is that it increases the competitive disadvantage that they have to farmers who are growing outside of California where the minimum wage is much less. And that's not even to mention the competitive disadvantage to the farmers who are growing outside of the country where their wages are far less than what we pay here in California.
There is a very big concern within our industry that we are no longer going to be able to compete with growers outside of the state and growers outside of the country. We are concerned that there's going to be a time when restaurants and supermarkets and consumers are going to be presented with a choice between two products: one product is a California product, the other product is a product from outside of California. And if that -- if that -- if it comes to that, where the product outside of California is cheaper, and the consumer takes that project, then that's going to be absolutely devastating to California agriculture.
And these are just some of the things that I wanted you to consider. A wage increase right now, right on the heels of the last two increases, would be extremely difficult for California agriculture.
COMMISSIONER DOMBROWSKI: Thank you.
Procedurally, what do we do here?
MS. BANE: Procedurally, I believe that once the hearing is concluded, that obviously, there is no quorum, and no vote or motion could be entertained, and I think that was pre-determined. And I believe that the hearing would be adjourned and that the public meeting would not be convened, as there is no quorum.
So, any further business would be agendaed at a subsequent meeting.
COMMISSIONER DOMBROWSKI: Right. And you're going to take care of scheduling that within the parameters we talked about, with that 90 days and everything. Okay.
MS. BANE: Yes. And Marguerite is advising us on that.
COMMISSIONER DOMBROWSKI: All right. I just want to -- I want to raise, just for the transcript, really, and it has no legal bearing, but there was a development this week on the wage orders that were revised in 2001. I haven't even been able to talk to Tim about it. But there was inadvertently some language deleted on the barbers, hair salons, stylists, and their equipment ownership. And it's an exemption that had been in the wage orders for decades.
So, we're procedurally going to go through to find out what we have to do to restore that language into the wage orders. And we'll be doing that.
COMMISSIONER CREMINS: We will get a notice fairly soon on the next meeting or hearing?
MS. BANE: Absolutely. And we can have some conversations about that also.
COMMISSIONER CREMINS: I would like to.
MS. BANE: Thank you.
COMMISSIONER DOMBROWSKI: So, the hearing is adjourned. Lacking a quorum, we will not have a meeting.
(Thereupon, at 12:10 p.m., the public
hearing was adjourned.)
CERTIFICATE OF REPORTER/TRANSCRIBER
I, Cynthia M. Judy, a duly designated reporter and transcriber, do hereby declare and certify under penalty of perjury under the laws of the State of California that I transcribed the tapes recorded at the Public Hearing of the Industrial Welfare Commission, held on May 3, 2002, in Sacramento, California, and that the foregoing pages constitute a true, accurate, and complete transcription of the aforementioned tapes, to the best of my ability.
Dated: May 22, 2002 ______________________________
CYNTHIA M. JUDY