Brown Signs Important Legislation Into Law

Jerry Brown 8-04-2010 (Photo courtesy Lou Delgado)

Jerry Brown 8-04-2010 (Photo courtesy Lou Delgado)

Last week California Governor Jerry Brown signed two pieces of legislation the we want to take note of. Over the irrational objection of business groups, Brown signed AB 10 which will implement an increase in the state minimum wage to $9 an hour on July 1, 2014 and to $10 an hour on January 1, 2016. The California Chamber of Commerce named AB 10 on of 2013’s “Job Killer” bills claiming that the legislation “unfairly imposes an automatic $2.00 increase in minimum wage over the next three years, that will continue to increase costs on employers of all sizes, regardless of other economic factors or costs that California employers are struggling with to sustain their business.”

“Small business owners’ hopes have once again been dashed with a stroke of Gov. Brown’s pen,” said John Kabateck, executive director of the National Federation of Independent Business in California. He said the new law “will only cement California’s status as the worst place to start a business.”

We call these claims irrational because there is no evidence to support their claim. in his recent paper; “Why Does the Minimum Wage Have No Discernible Effect on Employment?” John Schmidt; of the Center for Economic and Policy Research, concluded:

Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.

The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.

We think Governor Brown said it best when he signed the legislation last Wednesday:

“This is about the social fabric and harmony of Los Angeles and California,” he said. “And the minimum wage will set the floor as the ceiling keeps getting further and further apart.”

On Friday, Governor Brown signed AB 701, providing Orange County with $53 million to alleviate the need to slash budgets, cut jobs and potentially harm public safety in this fiscal year.

“Thankfully, everyone was able to work together on this problem and reach a solution that treats Orange County the same as the other 57 counties in the state,” said Assemblywoman Quirk-Silva.

Orange County owes the state $148 million as a result of 2013 court decision concerning the restoration of the county’s VLFAA property tax allocation as a result of the SB 89 transfer in 2011. Without a deal, the County would have been forced to consider severe budget reduction strategies that could have included laying off employees and making additional funding reductions for public safety programs in this fiscal year. AB 701 allows for the county to balance their budget in this fiscal year and provides certainty for future revenue growth by ensuring that Orange County receives the same amount in revenue from vehicle licensing fees as all the other counties in the state.

“The entire Orange County delegation supported this measure,” continued Assemblywoman Quirk-Silva. “The Governor’s signature allows the county and state to move forward on this issue.”

We note that while the legislation was a team effort, it should be noted by every single resident of Orange County, and in particular the five members of the Board of Supervisors, that this legislation, and the deal it codifies, would not have been possible without the strong advocacy by the labor organizations representing county workers. Simply put, the door to settlement was slammed shut after the county lost the lawsuit by the state to recover funds the county withheld during the dispute. It was the coordinated effort of organized labor that pried open that door and set the table for an agreement to be reached, which provides the county with breathing room and desperately needed revenues.

It would be encouraging if the Board were to consider those efforts, as well as the efforts of the entire workforce of line staff at the county, to improve efficiency, implement cost saving strategies, and find innovative solutions to fiscal shortfalls, as they consider their next steps in the bargaining process with those employees.