Calif. State Chamber Admits $4.5 Billion Mistake

Assemblywoman Sally Lieber (D-San Jose) announced today, after meeting with representatives from the California Chamber of Commerce, that the Chamber has been relying on “unrefined” data which overstate the cost of a proposed minimum wage increase by as much as $4.5 billion.

I appreciate that the Chamber came forward to correct this misinformation,” stated Lieber. “While we may disagree about the need to increase wages for our state’s poorest workers, we should be able to agree on bringing reasonably accurate data to the discussion.”

Assembly Bill 48 (Lieber), which will increase the minimum wage, was narrowly approved by the Senate Committee on Labor and Industrial Relations on June 22nd by a party-line vote of 4-3.

During Senate committee debate, the Chamber testified that A.B. 48 “mandates a $6.98 billion wage increase for 1.6 million exempt workers.”

This claim is wrong on two counts. First, while it is true that the exempt salary level is linked to the minimum wage, A.B. 48 would not mandate any increase for exempt workers—only employers get to decide how much to pay their salaried employees. If an employer chooses to reclassify an employee from exempt to non-exempt, then that employee will be eligible for overtime pay. An employer could also choose to increase an exempt worker’s salary to avoid paying overtime.

Second, according to the latest information provided by representatives of the state Chamber, the claim that 1.6 million exempt workers could be directly affected by A.B. 48 is plain wrong. The Chamber’s representatives stated today that they now believe that the actual number of workers that could be affected is between 500 and 600 thousand. So far, staff at the Employment Development Department have been unable to substantiate any of the data provided by the Chamber.

Julianne Broyles, Chamber Director of Small Business and Employee Relations, stated in today’s meeting “I’ve lost a lot of sleep over this,” referring to the time since her testimony and subsequent interviews based on over-inflated data.

A.B. 48 increases the state’s minimum wage to $7.25 on July 1, 2006, and to $7.75 on July 1, 2007. The bill also provides for an adjustment of the minimum wage on January 1 of each year, beginning in 2008, by multiplying the minimum wage by the previous year's rate of inflation as measured by the California Consumer Price Index.

Current state law provides that to be exempt from overtime requirements, executive, administrative, and professional employees must earn at least 2 times the state minimum wage for full time employment. The current exempt salary level is $28,080. Increasing the minimum wage by $1 would increase the exempt salary level to $32,240.

A.B. 48 marks the first time a minimum wage bill that includes a cost-of-living-adjustment has cleared the house of introduction in the California Legislature.

California’s current minimum wage of $6.75 is 98 cents below the federal poverty level for a family of three. A.B. 48 would increase California’s minimum wage to 48 cents below the projected federal poverty level in 2006; and to 22 cents below the projected federal poverty level in 2007. The federal poverty level covers subsistence food only. In 2004 for a family of three, the federal poverty level was $15, 670 per year ($7.53 per hour). In 2005 for a family of three, the federal poverty level is $16,090 per year ($7.73 per hour). In 2006 for a family of three, the projected federal poverty level, assuming a 3 percent increase, would be $16,572 ($7.97 per hour).

A.B. 48 is scheduled to be heard next week (July 11, 2005) by the Senate Appropriations Committee.