Legislature(2003 - 2004)
04/25/2003 03:30 PM House L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HB 199-DELETE MINIMUM WAGE INFLATION-PROOFING Number 1871 CHAIR ANDERSON announced that the next order of business would be HOUSE BILL NO. 199, "An Act removing the annual adjustment to the minimum wage based on the rate of inflation; and providing for an effective date." Number 1909 REPRESENTATIVE ROKEBERG testified as chairman of the House Rules Committee, which is the sponsor of HB 199. He explained that HB 199 was introduced at the request of a number of small businesses. He noted that committee members' bill packets contain letters of support from many businesses, ranging from the Alaska State Chamber of Commerce to the National Federation of Independent Business, Alaska Chapter. He said there are probably two dozen people and businesses who support HB 199. This bill is a response to HB 56, passed by the legislature in 2002. At that time, Alaska's prevailing wage was $5.65; the bill established a new base minimum wage of $7.15 an hour, an increase of $1.50 or 27 percent. In addition, the bill created a formula that required that the minimum wage be adjusted every January, using either the Consumer Price Index for Anchorage prepared by the United States Bureau of Labor Statistics or $1 more than the federal minimum wage, whichever is greater. Number 2020 REPRESENTATIVE ROKEBERG observed that every January, this law impacts businesses, particularly small businesses, with a unilateral legislatively-enacted wage increase. He said he finds that very problematic, particularly given the current economic conditions in the state. The legislature has [transformed] this disquieting and controversial issue into a formula so it doesn't have to revisit it again. Representative Rokeberg said he thinks that's a mistake. It is the legislature's responsibility to make certain that the minimum wage level is correctly balanced with the economic picture of the state. He reiterated that in passing that law last year, the legislature abrogated its responsibility. Number 2052 REPRESENTATIVE ROKEBERG reviewed the rationale for increasing the minimum wage: to raise the wages of lower income people and reduce poverty. Indexing [an annual increase] is supposed to allow the workers to keep up with inflation, give certainty to employers, and take this divisive issue off the legislative calendar. However, sound economic analysis argues against those conclusions, he stated. Although this is an emotional issue, he said there is significant academic study on both sides of it. He explained that HB 199 merely repeals the index; it does not repeal the minimum wage. REPRESENTATIVE ROKEBERG stated that the minimum wage does not help the poor; it actually hurts lower income people more than it helps them because any economic theory that pushes the cost of labor up has a tendency to decrease the number of jobs. That's an axiom of economics, he said. When labor costs increase, employers react in several ways. In such a situation, employers typically hire fewer workers; lay off workers; and work people longer hours rather than hire new people. The economic analysis and studies show this to be the case, he commented. Number 2139 REPRESENTATIVE ROKEBERG discussed the groups that are targeted for help by the minimum wage, such as the working single parent with children. However, only 14 percent of the people receiving minimum wage fit that category. Another small group is single or married people with no dependents many [of whom] are younger people working entry level jobs. Representative Rokeberg said that the only thing certain about the formula now in place is that for a small businessperson, the cost of doing business will rise every January. Number 2201 REPRESENTATIVE ROKEBERG anticipated opposition from organized labor on HB 199. He praised the collective bargaining process, pointing out how labor and employers sit down at a table and negotiate. He said he thinks that's one of the country's strengths, that the labor force is represented in many occupations in the job market. However, when HB 56 was passed last year, employers were not "represented at the bargaining table" with the legislature. This was not a fair deal for employers, he said. The legislature acted in large part because of political pressure over an initiative promoted by organized labor. He noted that organized labor does not bargain for minimum wages. Number 2285 REPRESENTATIVE ROKEBERG pointed to the various kinds of financial difficulties that businesses can experience: a downturn in a whole industry, such as in tourism after the terrorist attack of September 11, 2001; a bad business cycle; or other problems external to the business. He said that any of these factors could be happening, but every January 1, a business must increase wages [because of the indexing provision in state law]. He said he doesn't think that is fair; these business people are asking for some relief because when the legislature unilaterally forces a business decision on employers, the business person has to make a choice about employment practices that end up hurting that entry level person. Those are the types of real world decisions that happen, he cautioned. TAPE 03-40, SIDE B Number 2351 REPRESENTATIVE ROKEBERG cited the example of the Red Robin franchise in Anchorage. In his March 17, 2003 letter, [the company president] stated that because of the minimum wage increase last year, he shut down the mid-town restaurant, a loss of 54 jobs in Anchorage. He said this is a solid example of one establishment that's already shut down as a direct result of legislative action. He referred committee members to studies about the State of Washington and other economic situations. CHAIR ANDERSON referenced the National Conference of State Legislatures (NCSL), which stated that only two states have a CPI connected to its minimum wage. He posed a hypothetical question in which the minimum wage is $7.15. An employer with 100 employees who work 40-hour work week would, due to the automatic CPI, force an increase of $400 a week which amounts to $19,200 a year. He asked if that's the concept: an automatic increase, not based on the merit of the employee. REPRESENTATIVE ROKEBERG agreed to this example. He added that on top of the $19,200 amount, the employer pays another 14.1 percent for payroll taxes. Number 2204 REPRESENTATIVE CRAWFORD commented that Representative Rokeberg's [argument] makes the case for organized labor. He said the minimum wage was raised so much because it had been so long [since the last increase], and the cost of living had gone up so much. Had the cost of living escalator been [included] in a minimum wage [formula], the minimum wage would have ended up at about the same amount, but it would have been a small, gradual increase for the business operators each year, instead of a massive 27 percent increase all at once. This is the business friendly part of [existing law] -- small, graduated increases that can be absorbed over time. He said he would like to have this fight every five years because it draws a lot of votes [to organized labor candidates], but its better for business and better for the minimum wage workers to have gradual wage increases. CHAIR ANDERSON asked about the fairness of wage increases regardless of the employee's aptitude or ability. REPRESENTATIVE CRAWFORD recalled that he was hired before the minimum wage covered food service in 1976. He started at 90 cents an hour and wasn't covered for overtime hours. He recalled once working 112 hours in a week. He said he knows that companies will use an employee as much as the employee allows. However, minimum wage and overtime laws curb those abuses. Number 2056 REPRESENTATIVE GUTTENBERG stated that the minimum wage is supposedly the bottom line. All of these employers [who submitted letters of support for HB 199] are service employers; they earn their living on the product their employees deliver, he said. If they don't respect their employees, if they want to drive these wages down, that's reflected in the workplace. These minimum wage workers, washing dishes or flipping burgers, understand the respect [from their employers] in the workplace; it goes way beyond what the legislature is doing here [with a cost-of-living index]. He stated that he has worked for hourly wages his whole life. He said a contractor that respects the employees produces a significantly higher quality product. Number 1983 BEN BROWN, Legislative Assistant, Alaska State Chamber of Commerce, said that the state chamber is pro-labor and pro- business. Its membership includes 700 small, medium and large businesses and 35 local chambers of commerce. It represents a large portion of Alaska businesses with employees. The chamber members this year developed a list of six legislative priorities, and he addressed two of them: securing Alaska's fiscal future and affordable health insurance. MR. BROWN voiced support for Representative Rokeberg's introductory statements. An automatic index built into the statute takes away some of the deliberative decision-making power and responsibilities of the legislature, he said. [The recent wage increase] was generous; it obviously has benefited some people but has had a detrimental affect on other people. He cited the closure of the [Anchorage] mid-town Red Robin and how his friend, a manager, lost his job. The legislature wants to make sure that whatever the statutory policy, it benefits the intended beneficiaries. That requires the legislature to evaluate the economic conditions of the state on a regular basis and determine whether another increase in the minimum wage is merited. He added that Alaska is not necessarily on the same economic wave length as the rest of the country, particularly in regard to the price of oil. [Setting the Alaska minimum wage] a dollar more than the federal [minimum wage] or using the Anchorage CPI (consumer price index) might loop in economic conditions that are inappropriate. He advocated that regular legislative review allows for a healthy and vigorous debate. number 1820 MR. BROWN addressed the chamber's support for health insurance. He said that when a business is forced by law to increase the rate of hourly compensation for its employees, if it is offering any sort of health package, there's less money available to provide those health benefits. Number 1773 REPRESENTATIVE CRAWFORD noted that he has sponsored [HB 7], allowing employers to reduce wages by $2 an hour if businesses would provide adequate health care. He said the chamber has not supported his bill. [The law passed last year] increased [the minimum wage] by $1.50, but his bill proposes a $2 an hour benefit [to employers]. Not once did he hear from the chamber, he said, so he questioned the merit of Mr. Brown's argument regarding health insurance. Representative Crawford questioned whether four months of the increased minimum wage caused the Red Robin [restaurant] to close. He asked if the Red Robin was profitable before the increased minimum wage, or was it already in jeopardy. He said that this law has only been in affect for four months, so he didn't see how people could say with any certainty that it is putting people out of work. In the past, when the minimum wage has increased, the Department of Labor & Workforce Development hasn't been able to show any resulting loss of jobs. MR. BROWN said he will take Representative Crawford's bill under advisement because health care is part of the larger debate here. If a business is in a precarious situation, then [increasing the minimum wage] is the straw that breaks the camel's back. He advised against unnecessary burdens on a business that's already precarious. Number 1649 REPRESENTATIVE GUTTENBERG asked if it's the chamber's position that a business in trouble should have the minimum wage adjusted. MR. BROWN said that the chamber's position is that state law should not place businesses in a position that makes it unreasonably difficult for them to survive and continue providing jobs. He explained that the chamber doesn't advocate legislation that addresses each business's wage conditions; it advocates legislation that is fair and allows the entire business community to prosper. Number 1602 REPRESENTATIVE GUTTENBERG noted that a business's plan is based on economic stability. He proposed that having a minimum wage laid out in advance is a benefit for a business. MR. BROWN responded that there two kinds of certainty: the certainty that [wages are] going to stay the same till there's a reasonable debate that raises them or the certainty that [wages will] go up without that debate. He admitted that both are better than total uncertainty. But the superior option for the businessman is not having an automatic wage increase when the economic conditions do not warrant it. REPRESENTATIVE GUTTENBERG asked if a ballot initiative [raising the minimum wage] is a much worse alternative than [current law which has an indexed wage increase]. Valid initiatives create a less certain future for businesses. Number 1552 MR. BROWN said because the minimum wage in currently generous, he doesn't think a ballot initiative is likely. REPRESENTATIVE GUTTENBERG said he's never heard a minimum wage considered generous. Number 1530 REPRESENTATIVE GATTO said that the minimum wage is generous in comparison to the wages paid in other countries' sweat shops that produce athletic shoes and sports equipment, sometimes with child labor. He said that legislators have the power to bring back the minimum wage any time and deal with it; there are also these automatic increases [due to the CPI]. He suggested, maybe the legislature should ignore [increasing] the minimum wage benefit and have the CPI tied to some minimum wage one time [only]. MATTHEW SAMPSON disagreed with Representative Rokeberg's comment that unionized labor does not represent minimum wage earners because it never bargains for minimum wages and pointed to HB 255 in which union [advocates opposed training wages]. He said the union does represent the little people, not directly, but there's the trickle down affect. He agreed with Representative Rokeberg's statement that if small business can't afford to pay minimum wage, then they're going to have more layoffs, they're going to hire less people and pay them more. He referenced the packet of letters from Alyeska Prince Hotel, Denali Park Resort, Land's End Resort, Alyeska Resort, and Subway, all businesses that are having a hard time with the [increased] minimum wage. [The increase] was $1.50 an hour and [businesses] are feeling it in their pocketbooks because it had been a long time since there was an appropriate raise [in the minimum wage]. He said it is only logical that [businesses] are not liking that. If legislators had been [increasing the minimum wage] year in and year out, [the issue of] inflation-proofing the minimum wage would not be a big deal. Number 1261 REPRESENTATIVE GATTO asked Mr. Sampson if given a choice, would he prefer going for minimum wage increases every few years or [yearly increases under] the CPI. MR. SAMPSON asked why shouldn't his rate of pay be inflation- proofed. He said it has no bearing on the $1.50 pay raise; he deserves both. Number 1169 DON ROBERTS testified against HB 199, which eliminates the annual adjustment to the minimum wage. He cited the Alaska State Constitution and stated that the bill does not meet the requirement that it express the will of the people or is good for the people as a whole. He stated that it will benefit rather "well-healed" campaign contributors and lobbyists and "their corporate coffers." He urged the committee not to pass HB 199. He proposed giving business owners and employees an alternative where the employees shared in the profits of the business if they agreed to work at a lower minimum wage. Number 1036 BILL BUBBEL, Operator, Pump House Restaurant, testified that the only people in Alaska who make a minimum wage are the food service or hospitality people, and those individuals augment their wages with tips. In his restaurant, the only minimum wage employees are servers; the dishwashers are paid $8.50 an hour. McDonalds [Restaurant] doesn't hire anybody at the minimum wage. He opposed [applying] the CPI to the minimum wage because it really doesn't reflect the state of the economy. He said that most of the minimum wage earners work in tourism, which is substantially down. He said this affects a business person's ability to absorb any additional wage increases. He recommended leaving the minimum wage at the federal level plus $1.50, while removing the CPI from it. Any increase is inflationary because the cost will have to be absorbed by the public. He questioned how much more the public is willing to pay for a meal at the Pump House. His business has just absorbed the minimum wage increase and a huge increase in insurance and [workers'] compensation rates. He reminded committee members that every rise in the minimum wage has an exponential affect on other expenses, increasing costs and squeezing profits even further. Margins in the food business are probably some of the smallest in the nation, he said. Number 0975 MR. BUBBEL said that the minimum wage doesn't apply to Alaska because no one will work for it. He encouraged the committee to create a tip credit as a way of helping the employer, increasing employment, and bringing in more young people. He said as an employer's costs increase, fewer people will be hired. He encouraged the committee to make it easier for an employer to hire lots of staff, provide lots of jobs for young people entering the job market. He said that he doesn't currently use the training wage at the Pump House but if wages go up, he'll have to use it to compensate for these rising costs. Number 0873 FRANK ROSE, President, Alaska Hotel and Lodging Association; Owner, Alaska Lodging Management, testified in favor of HB 199. The past two years, the industry has been devastated by the decline in visitors to our state. In his case, that's a 20 percent [decline in occupancy]. He explained that occupancy is about 70 percent, and in order to make a profit, the occupancy rate should be around 80 percent when the business is open four months of the year. It's a severe situation, he said. Whether it's the result of the underlying economy or the [the terrorist attacks of September 11, 2001], business is suffering; in contrast to the comments of an earlier witness, he said, things are not that rosy in the Denali [Bluffs Hotel]. To further exacerbate things, his insurance rates have gone up 40 percent. That's a big number given the $100,000 he pays for insurance a year. He pointed out that Alaska has the highest minimum wage in the nation. MR. ROSE said that to not pass HB 199 would be another road block to his business. Increasing the minimum wage through the CPI, is, at least in the tourism industry, focused largely on tipped employees, and they're some of the most highly compensated in his business. The average pay last year before the minimum wage was increased, was between $19 and $20 an hour. Some 80 to 90 percent of the other positions in his operations are not affected by the increase in the minimum wage. In his seasonal restaurants this coming year, he has had to raise his menu prices by 8 percent and has cut his staff by 5 percent. Then the whole [success of his business] still depends on whether visitors are coming to Alaska. He urged the committee to pass HB 199. Number 0732 REPRESENTATIVE ROKEBERG asked Mr. Rose about his 8 percent menu increases and 5 percent staff cut, whether he attributed those to general business conditions or to the increase in the minimum wage. MR. ROSE replied that the restaurant employees are minimum wage earners, even though they're making about $20 an hour. [The increase in those wages] is the area [of the budget] that has been most severely [impacted]. He said the increase in menu prices is directly related to the minimum wage increase. Number 0663 JON FAULKNER, Owner/operator, Land's End Resort, referred to the letter he faxed to the committee members. The resort has a sizable restaurant, he said. He testified in support of HB 199. He said he believes that minimum wage is a legislative prerogative and needs to remain so. Restaurants in particular are impacted by [changes in the minimum wage]; restaurants are a major part of the economy and a major employer of the entry level people that minimum wage is designed to help. The legislature needs the input of restaurant operators when it deliberates minimum wage increases such as this. There's new information that comes up annually: the economic conditions after[the terrorist attacks of September 11, 2001] sharp increases in insurance, fuel and utility costs. He said the legislature does not know who exactly is affected by minimum wage. Although many restaurant servers are paid minimum wage they earn, on average, well above twice the minimum wage. This information, which changes, certainly should affect the legislature's deliberations, and that information changes. To make [the CPI increase] automatic defies the rationale for having a legislature, he remarked. MR. FAULKNER stated [an annual increase in the minimum wage] is absolutely inflationary. The wages at Land's End constitute 30- 40 percent of its annual budget, and therefore the product [price] will certainly go up. He said, "Is this what we want? I don't think so." He said that raising the minimum wage absolutely reduces jobs. Restaurants operate on a fixed labor budget otherwise they go broke. Furthermore, restaurants are labor intensive and operate on very thin margins. This is not an issue of loyalty to his employees, Mr. Faulkner said. There are many ways that he rewards his employees that are more important to them than minimum wage. He did not agree with an earlier comment that the [certainty of an annual] CPI increase gives employers stability [for planning]. The stability of an automatic increase is not as important to restaurant operators as keeping labor [costs] under control. CHAIR ANDERSON commented on the fact that many businesses are saying that many of their employees [paid at higher than minimum wage] won't be affected [by the CPI increase]. He said these companies are still testifying on behalf of business. Number 0417 REPRESENTATIVE ROKEBERG said the point is that these restaurant workers, because they make tip income, earn twice the minimum wage. They're making $15, $20, $25 an hour, and the legislature gave them a raise they didn't need. Number 0348 JOSE RAMOS, Operator, Don Jose Restaurants, said he operates three restaurants on the Kenai Peninsula and Anchorage. He employees 60-70 employees year round and 107 employees in the summer. He said the increase in the minimum wage had a really big impact in his restaurants. He said his employees were happy to get the raise from $5.65 to $7.15, and he was happy for them. Annual increments will put a lot of businesses in a tough situation. In fact, he said he will probably hire fewer employees and figure out how to adjust his cost of operations. He concluded by noting his support of HB 199. Number 0235 JIM SAMPSON, Executive President, Alaska State AFL-CIO, asked that the legislature not move HB 199. He reviewed the history associated with the bill. He recounted that several years ago, the Alaska State AFL-CIO asked the legislature to look at the minimum wage. For many years, his organization expected Congress to adjust the minimum wage. In 1999 and 2000, Congress considered a number of proposals; the Democrats wanted to [increase] it $1, and Republicans wanted a $.50 jump. As happened in many other states in the country, the Alaska AFL-CIO asked the Alaska legislature to increase the minimum wage in two steps of $.50 each. For two years, he and others asked the legislature to address that issue, but it wouldn't vote on the bills. Because the legislature failed to act, the public went ahead and moved an initiative petition. He said he wrote the initiative petition and supervised the 50,000 signatures that were collected. He agreed that the jump between the existing state minimum wage of $5.65 to $7.15 was a big one. His preference was a two-step increase. Number 0116 MR. SAMPSON related that his group asked the legislature for a vote up or down on the bills. They delivered the 50,000 signatures [to the Office of the Lieutenant Governor]. The legislature held that bill until the last week or so [of the session]. And when [legislative leaders] were deciding whether to vote on the bill or let the [initiative] go on the ballot, they asked whether the initiative sponsor would be willing to accept an [increased] minimum wage without the CPI. He said his group said no, let the people vote on the issue. They were also asked if they would be willing as a sponsor half the CPI. They said no, let the people vote on the issue. He said it was not the sponsor's determination as to whether if the bill had passed, it was substantially similar and would have precluded the petition going to the ballot. He said that was the decision of the attorney general and the lieutenant governor. He said the legislature passed the bill ... [tape ends mid-statement]. TAPE 03-41, SIDE A Number 0010 MR. SAMPSON said he believes that the legislature should look at whether the CPI is appropriate; it is the legislature's responsibility to look at these issues. The problem he has with HB 199 is the timing of the review. If the legislature passes a piece of legislation with the intention of making a substantial change in it six months later -- this frustrates the initiative process. The legislature has precluded the public from voting on [the issue]. He urged the legislature to let the [law passed last year] work; it's too early to look at its economic impact. Number 0078 He continued and announced that the AFL-CIO disagrees that the [increased] minimum wage or a subsequent CPI indexing is going to cause job losses. He noted that Representative Rokeberg has provided some [economic] discussions in his paperwork; he said he could provide similar studies on the other side [of the issue]. He recommended that the legislature let the [law] stand for that two-year period, and then review it. If the legislature does not, he predicted the public would present another initiative with more than 50,000 signatures. He predicted a public movement across the state for more of a living wage instead of a minimum wage. He concluded by asking that the legislature not frustrate the [initiative] process, let the process work, and review it at the appropriate time. Number 0200 CHAIR ANDERSON noted that five of the seven members of the committee were not in the legislature [when this bill passed]. He confirmed that the increase in the minimum wage with the CPI passed in the last legislative session. MR. SAMPSON reiterated that if the initiative would have gone to a vote, it would have been in effect for two years. He noted that the courts have not ruled on the question of whether [passing] a substantial change like HB 199 [undermines the initiative process]. He said he brings that up because [a court challenge] is going to be an issue. Number 0287 REPRESENTATIVE GATTO asked about a person who makes $8 an hour and the CPI [triggers an increase in the minimum wage]. Would this worker feel singled out because the increase didn't apply to that job, he asked. MR. SAMPSON responded that he did not know. He said this is a legitimate question and should have been -- and perhaps was -- discussed last year. The legislature could have passed a bill without the CPI increase, last year. He reiterated his point that for the legislature to pass the [bill last year] with full intent to change it and thus deny the people the right to vote, is a serious breach of public faith. CHAIR ANDERSON noted that one legislature is not bound by the actions of a previous legislature. He noted that 17 legislators are new this year and didn't vote on that bill. Number 0425 REPRESENTATIVE ROKEBERG said he found Mr. Sampson's language grossly unconstitutional and offensive. He noted that Mr. Sampson is implying that the legislature does not have the right to act under its constitutional purview, which it did. The legislature adopted similar language, abrogating the need for any initiative vote. He said he is offended that Mr. Sampson is implying that even considering [HB 199] is objectionable. The legislature has the constitutional right and the duty to [review this legislation]. He also asked about Mr. Sampson's statement about a potential initiative for a living wage. He asked if this is a threat. Number 0512 MR. SAMPSON replied that when he was told that the legislature might bring the issue back up again and substantially change it this session, he talked with the assistant attorney general who researched the case [last year]. She said she has not seen any [case] law on this question of whether the legislature can pass a bill to avoid an initiative vote and then later change the law. He said that if this bill passes, many people will feel they were denied the right to vote and be frustrated with this initiative process. He said there could be a subsequent initiative petition that will try to correct that or [raise the bar] a little higher. number 0605 REPRESENTATIVE ROKEBERG said Mr. Sampson's statement is very tough. He asked again about his prediction of another initiative on a living wage. CHAIR ANDERSON summarized his understanding of Mr. Sampson's statement: The legislature passed the minimum wage with the CPI six months ago; the CPI hasn't even clicked in yet so that those who thought they were going to get it won't, and that those people are feeling disfranchised. MR. SAMPSON said he's not here to get into an argument. He said he thinks that if the legislature comes back and substantially changes a piece of legislation that was passed for the purpose of not allowing the people to vote, the legislature will see a reaction and another petition. He doesn't know what the petition will say. He said he may or may not write it. Number 0832 CHIP WAGONER, Lobbyist for Alaska Catholic Conference, announced that the church supports the minimum wage and a living wage, which is a wage sufficient for a person to provide for their family with dignity. With a minimum wage, the state says basically this is a just wage; anything below this wage is not just. Once that figure is determined, automatic indexing makes sense, otherwise inflation erodes the value of the minimum wage and it becomes unjust. Number 0925 MR. WAGONER urged committee members to beware of economic materials that are very biased. He said one [biased group] is the Employment Policies Institute, which is funded by some of the restaurant industry; another example is the Economic Opportunity Institute, which presents the [organized] labor side. He advised that the most accurate information is provided by the states. According to the Alaska Department of Labor & Workforce Development, 14,000 people earn the minimum wage in Alaska; about one-third of these are restaurant workers. The minimum wage, even at $7.15 an hour, is still below the poverty level for a family of two. MR. WAGONER testified that if the restaurant industry claims that the minimum wage indexing is going to cost jobs, it's useful to look at the effect of automatic indexing [on the minimum wage] in the two states that use it: Washington and Oregon. Washington State adopted their initiative in 1998, and in 1999, there were 174,800 jobs in the food services/drinking places industry, a national designation. In 2000, the number rose to 202,200 jobs, a substantial increase, but in 2003, the numbers dropped to 173,300. So Washington has lost about 1,500 jobs since adopting the indexing. But, he added, that loss in jobs is not related to the minimum wage, it has to do with The Boeing Company crisis and the [depressed] Pacific Northwest economy. Bob Wagner (ph), Manager, Research and Analysis unit for the [Oregon] Unemployment Division, said, "There does not appear to be a direct correlation between the indexed minimum wage and the number of jobs in the food service/drinking places industry." In other words, indexing does not affect the jobs. In Oregon, [indexing] took affect this year. In December of 2002, there were 106,700 jobs; in March 2003, there were 106,800. Art Ayr (ph), State Employment Economist for the State of Oregon, said "Its probably impossible to identify an increase in the unemployment rate and to tie it to the minimum wage, at least at the state level. At a local level, you may be able to identify specific employers who have reduced employment due to a variety of factors, including the minimum wages." Companies already on the ropes are one factor among many, Mr. Wagoner said. MR. WAGONER said he talked to Dan Robinson, Alaska's state economist, about the huge jump [in Alaska's minimum wage], $1.50 from December [2002] to January [2003]. The number of jobs in the food service industry for that period dropped by 1,000, but Mr. Wagoner quoted Mr. Robinson as saying that happens every year, as the food service industry gears up for the holidays. Now the number [of food service jobs] in Alaska has increased, from 15,600 in January to 16,200 in March 2003, despite this huge increase in the minimum wage. Number 1202 MR. WAGONER concluded that people cannot say the minimum wage increase or indexing causes people to lose jobs. He said all the factors must be considered. He estimated that if the legislature had adopted a minimum wage with indexing [that took effect in January 2002], then there would have been a $.14 increase per hour per employee. He estimated for a business with 40 employees with 8 hour shifts, that would account for an additional $11,648 increase for a business which had a $594,880 payroll. The minimum wage [indexing] does not affect jobs, he concluded. Number 1236 REPRESENTATIVE ROKEBERG said he agrees that there are conflicting studies and arguments on both sides. He directed the committee's attention to a study in the committee packet by Richard Vedder and Lowell Galloway, of Ohio University ["The Economic Impact of Washington's Minimum Wage Law,"], which uses the Card-Krueger methodology, a seminal study of minimum wage in New Jersey. This credible study looks at the Washington [indexing] situation and analyzes two neighboring communities across the Washington/Idaho borders. The authors concluded that 24,000 to 48,000 jobs were lost in Washington by the adoption of the [minimum wage indexing]. Number 1349 JAY SUTHERLAND spoke in support of HB 199. He said [the minimum wage indexing] will cost jobs. He mentioned the Spokane/Coeur d'Alene study referenced by Representative Rokeberg. He said his friend owns the Wendy's franchises in both of those markets. Since [Washington adopted] the CPI indicator, he has chosen not to build any more Wendy's in Spokane, Washington, but is choosing to build restaurants in Coeur d'Alene, Idaho. He said it's a much bigger market, and a number of other businesses are moving to the other side of the state line. In Alaska, businesses don't have the ability to move across the state line, but when businesses are looking to come north, they're going to be looking at the labor climate and how stable it is. In the long term, the CPI is going to tell people that this isn't a place where they want to come do business. This CPI is a catch- 22; it guarantees that every year there will be inflation. He pointed out that the customers have noticed the new prices on his menus and will notice it again next year with the CPI increase. He said he is looking at technology to replace labor where he didn't consider it before. He said he likes to give people jobs, but sooner or later, with the rise of the minimum wage, his company will start making technology investments and reduce the labor in the building. He advised that kids without jobs get into trouble. He reiterated that he's in favor of the CPI being eliminated. Number 1454 REPRESENTATIVE CRAWFORD asked if Mr. Sutherland's menu prices have increased before. MR. SUTHERLAND replied that his menu prices have been flat for three years until this. REPRESENTATIVE CRAWFORD suggested that his menu prices didn't change because the legislature had not addressed the minimum wage issue for several years. MR. SUTHERLAND said [he has maintained his prices by careful] bidding, looking at different purveyors, [changing] freight companies, and staying in a competitive venue. [Workers'] compensation went up 40 to 42 percent last year, and there will be another increase this coming year. He said he's running about 10 percent more labor than he was running last year, due to the [minimum wage] increase, not because he has more employees but just because he's paying 26 percent more to these employees. Furthermore, there's federal taxes, state unemployment taxes, workers' compensation. He anticipated that the increase will be more than $.14; it will be more like $.24; it's going to be very expensive. At that increase, he can start looking at some stainless steel and motorized [equipment] to take labor out of his building. He can guarantee that in five years, the equipment will be paid for and still functioning. However, he said he can't guarantee what his labor costs will be anymore. REPRESENTATIVE CRAWFORD related his understanding that Mr. Sutherland is saying that the minimum wage was increased too high and now Mr. Sutherland can't "stand" automatic increases. Therefore, he inquired as to what Mr. Sutherland would suggest the minimum should've been increased to or should it not have been addressed. MR. SUTHERLAND answered that he is from the "old school" that believes in demand and supply. Mr. Sutherland said that there is no one in Anchorage looking for a job that doesn't have a job. He guaranteed that the market would drive the price. When this came in, artificial inflation was introduced into the economy. Therefore, he suspected that this [minimum wage] increase will result in the largest [consumer] protection index in the next 12-19 months. Number 1595 JACK AMON spoke in favor of HB 199. An automatic increase in wages is particularly onerous to small businesses because mandating a yearly wage increase continues to increase costs. Although the wage increase can be bearable when economic conditions are good, when economic conditions falter businesses could face increasing costs while revenue decreases. He informed the committee that this year his business experienced a decrease in revenue while the highest paid employees, the employees who receive tips, received a wage increase. The combination of conditions caused his business to reduce hours and dramatically reduce staff. As other costs have increased as well, Mr. Amon related that for the first time in 20 years he may not be able to continue with group health insurance. Mr. Amon pointed out that mandatory wage increases don't allow for recessionary conditions. He echoed Mr. Sutherland's belief in paying what the market will bear. Forcing an increase in wages takes away the ability for employers to employ more people. REPRESENTATIVE CRAWFORD asked if Mr. Amon was saying that there would be an automatic increase in a recessionary economy. MR. AMON replied yes, there could be tough economic conditions and an inflationary spiral. REPRESENTATIVE CRAWFORD pointed out that when there is a recession the CPI should reflect that. He related that he had advocated for a better indicator, the average weekly wage of employees in Alaska, in order to more closely track the wage conditions in Alaska. He asked if Mr. Amon would be in favor of going to the average weekly wage. MR. AMON said that he isn't familiar with that concept, and therefore didn't want to comment. He noted his general opposition to legislating wage increases because they ultimately hurt those that they try to help. Number 1762 CHAIR ANDERSON closed public testimony. REPRESENTATIVE ROKEBERG related that he disagreed with Representative Crawford's statement that during a recession the inflation rate would decrease. Representative Rokeberg related statistics from the Anchorage CPI from 1986-1990 that illustrate while the amount of increase went down, [the minimum wage] still went up. For example, during the recession and post-1986 crash of oil, the wages were raised. The aforementioned shouldn't happen, and that's why this legislation has been introduced. REPRESENTATIVE CRAWFORD said that he had recalled that statistics showed that in 1986-1987, the average weekly wage did fall, which is why he had thought it would be more appropriate to tie [the minimum wage] to the average weekly wage. However, in up years the average weekly wage has increased higher than the CPI, which is problematic too. Representative Crawford related his belief that $1.50 increase every 4-5 years is more devastating that a small, gradual increase. Number 1863 REPRESENTATIVE GUTTENBERG pointed out that one legislature can't bind another. Representative Guttenberg said, "We should really look at things with a jaundiced eye when the previous legislature voted for something that took it off the ballot. ... The perspective of being a person that works for a minimum wage - always feeling that the burden of society is on your shoulders. Things happen, you get cut, you get hurt." Representative Guttenberg informed the committee that during a recent community meeting he had heard a lot of dialogue about the minimum wage from 19-year-old students to 38-year-old students and how one [the 38-year-old student] can't afford to work against another. Those receiving the minimum wage are the least able to afford changes in the economy, he said. REPRESENTATIVE GATTO noted that he is really divided on this issue. He commented that when one is at minimum wage, the CPI increase is fairly trivial. On the other hand, he indicated his belief in the free market. Representative Gatto related his guess that if the CPI is allowed to adjust wages, there won't be a need for another minimum wage increase. However, that may not be enough. Representative Gatto said that his suggestion would be to hold this legislation [to give this more thought]. Number 2004 REPRESENTATIVE LYNN commented that everyone wants everyone to have an appropriate wage. Unfortunately, increasing the minimum wage can bring about unintended consequences. He related his belief that in the big picture increasing the minimum wage will decrease hiring. Furthermore, excessive overhead can put businesses with a slim profit margin out of business and then those who "we" want to help lose their job. Representative Lynn related his belief that these things tend to increase prices at the expense of everyone, including the poor. Representative Lynn informed the committee that he considers himself pro- business and pro-labor. He concluded by saying that the facts seem to lean more towards supporting HB 199 than not. REPRESENTATIVE ROKEBERG related his belief that all these levels are set by the market. As pointed out earlier, there aren't many minimum wage jobs in Alaska. Most of the jobs receiving a minimum wage are entry level jobs, or jobs with tip level compensation, or at fish processing plants with guaranteed overtime. Therefore, almost all those being paid minimum wage are making more than the minimum wage. Representative Rokeberg pointed out that there is a huge inequity in the state because Alaska is one of the states that doesn't have tip credit, which causes these dislocations in employment. Once a minimum wage is passed and there's a CPI on top of that, a large percentage of those receiving that benefit are already making one to three times the minimum wage. Representative Rokeberg concluded, "I think organized labor and everybody won last year, all we want is a little bit of stability here. I don't want a big fight, I want everybody to be happy, I want to create some jobs in the state." Number 2182 REPRESENTATIVE LYNN moved to report HB 199 out of committee with individual recommendations [and the accompanying fiscal notes]. REPRESENTATIVE GUTTENBERG objected. A roll call vote was taken. Representatives Gatto, Rokeberg, Lynn, and Anderson voted in favor of reporting HB 199 from committee. Representatives Guttenberg, Crawford, and Dahlstrom voted against it. Therefore, HB 199 was reported out of the House Labor and Commerce Standing Committee by a vote of 4-3.
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