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F I S C A L I M P A C T R E P O R T

SPONSOR Altamirano

ORIGINAL DATE

LAST UPDATED

1/27/06

2/15/06 HB

SHORT TITLE Phased Minimum Wage Increase

SB

449/aSPAC/aSCORC/aSFC/

aSFL#1/aHLHRC

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

See Narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with HB258, SB462

SOURCES OF INFORMATION

LFC Files

NM Department of Labor (NMDOL)

SUMMARY

Synopsis of HLHRC Amendment

The House Labor and Human Resources Committee amended Senate Bill 449 as amended in the

following ways:

1.

Strike Senate Floor amendment 1.

2.

Strike Senate Finance Committee amendments.

3.

Remove exemption for state and local governments.

4.

Change the exemption for food processing employees to require employers to obtain a

certificate from the NMDOL. The certificate would require the employer to have a reso-

lution from the local governing body supporting continued exemption from the minimum

wage. The employer also would have to demonstrate hardship and meet any other re-

quirements determined by NMDOL.

5.

Adopts a training wage.

6.

Changes the expiration of the preemption of local ordinances from 2011 to 2010.

7.

Clarifies that an ordinance that is self executing or advisory is protected.

The amendments essentially go back to the original bill which proposed a minimum wage that is

phased in over three years and add in a training wage, an exemption for food-processing employ-

ees with certain requirements, and applying the minimum wage to state and local governments.

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

2

Synopsis of SFl#1 Amendment

The Senate Floor #1 amended Senate Bill 449 as amended to repeal the exemption for state and

local governments from the minimum wage. Current law exempts governments and this amend-

ment would mandate at least the minimum wage herein would apply to the state and local gov-

ernments. A similar amendment was included in House Bill 258 which has passed the house.

Synopsis of SFC Amendment

The Senate Finances Committee amended Senate Bill 449 as amended by the Senate Corpora-

tions and Transportation Committee in the following ways:

1.

Changed the local preemption by deleting the expiration of the temporary provision and

setting the maximum wage rate at $9.50 for local governments who have already enacted

a higher wage. This prohibits local governments other than the City of Santa Fe from

adopting a higher rate than the statewide rate and the City of Santa Fe cannot raise their

living wage above its current rate of $9.50.

2.

Exempts employees engaged in milk production and any employee engaged in handling,

drying, packing, packaging, processing, freezing or canning of any agricultural or horti-

cultural commodity in its unmanufactured state.

3.

Changes the phase-in schedule. As of January 1, 2007, the minimum wage is $6.00 per

hour. As of January 1, 2008, employees who have been continuously employed by the

same employer for one year must earn more than $6.75. As of January 1, 2009, employ-

ees who have been continuously employed for two years by the same employer must earn

at least $7.50 per hour.

Synopsis of SCORC Amendment

The Senate Corporations and Transportation Committee amended Senate Bill 449 as amended by

the Senate Public Affairs Committee reverting back to the original Senate Bill 449 as introduced.

Synopsis of Original Bill

Senate Bill 449 raises the statewide minimum wage to $7.50 per hour phased in over three years.

Effective January 1, 2007, the wage rises to$6.50. Effective January 1, 2008, the wage rises to

$7.00. Effective January 1, 2009, the wage is set at $7.50. The minimum wage is currently

equal to the federal minimum wage of $5.15 per hour except in the City of Santa Fe where the

minimum wage is $9.50 per hour.

SB 449 includes a provision that would ban local governments from imposing a wage higher

than the statewide minimum unless they have a law or ordinance imposing a higher wage prior to

February 1, 2006. This would only affect the City of Santa Fe. This provision expires December

31, 2011.

FISCAL IMPLICATIONS

Fiscal Impacts of Original Bill

Fiscal impacts for the minimum wage are difficult to determine. On the one hand, employees

who receive an increase because they have wages that are less than the proposed wage will gen-

erate more income tax revenue and more gross receipts tax revenue as they spend their extra in-

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

3

come. Also, if they previously qualified for benefits targeting low income workers, than those

benefits may decline lowering the state’s appropriations. On the other hand, if employers feel

they have to reduce their workforce, then those employees who are laid off will be paying less

tax due to their reduced income and likely need more publicly provided benefits. In the next sec-

tion there is more detail on the economic effects of increasing the minimum wage.

SIGNIFICANT ISSUES

1. Employment Impacts. As Table 1 shows, the bill will affect approximately 5,400 businesses,

or 11 percent of all businesses, and several tens of thousands of employees. The table shows

96,065 employees working in these industries but not all of them will be affected as many are

already at or above the proposed wage. Most of the industries are service and retail trade related,

which are typically low-wage, low-skill industries. These industries are significantly below the

statewide average of $14.52 per hour.

It is unknown at this time how many employees have been with the same employer for over one

year. NMDOL estimates that employee turnover is approximately 13 percent. This is higher in

industries characterized by low wages. Administrative, support, accommodation and food ser-

vice industries have almost 20 percent turnover. Construction has over 15 percent turnover. It is

likely that at the current minimum wage, there is a high degree of employment transition and so

the number of employees affected by the minimum wage will be substantially fewer than the

100,000 that would be affected without the amendment.

Table 1: Occupations with at least 10 percent of employees at less than $7.50 per hour

Occupation

Employment

Mean

Wage

Hourly

Wage 10

th

Percentile

Hourly

Wage 25

th

Percentile

Hourly

Wage (50

th

Percentile)

Food preparation and serving re-

lated occupations

72410 $7.36 $5.57

$5.97

$6.64

Farming, fishing, and forestry occu-

pations

4130 7.40

5.60

5.95

6.54

Building and grounds cleaning and

maintenance occupations

29710 8.79

5.85

6.69

8.08

Personal care and service occupa-

tions

23150 9.01

6.07

7.16

8.80

Sales and related occupations

77390 12.47

6.02

7.14

9.50

Healthcare support occupations

20310 10.26

7.03

7.95

9.56

Transportation and material moving

occupations

45050 13.14

6.31

7.92

10.98

Arts, design, entertainment, sports,

and media occupations

6740 17.08

6.61

9.46

14.56

Office and administrative support

occupations

120510 12.29

7.16

8.89

11.32

Production occupations

31960 13.37

6.9

8.53

11.36

Source: LFC analysis of NMDOL Data

The current law exempts many types of employees including state and local employees and high

school students. This bill does not revise the definition of employee so those exemptions remain

in tact. Even though these exemptions exist, there is considerable evidence that once a minimum

wage is established, employers find it difficult to either find qualified employees to work for less

than the minimum or divide their workforce between exempt and non exempt employees (ie,

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

4

paying high school students less than other employees simply because they are exempt).

The amendment would expand the definition of agricultural employees to include dairy workers

and food processing workers.

2. NMDOL Statistics on Directly Affected Workers (ORIGINAL BILL – Number with

amendment likely much lower)

•

Number of workers: 123,000 (13.5 percent of the workforce)

•

43.5 percent male, 56.5 percent female

•

34.6 percent white, 49.7 percent Hispanic

•

82.4 percent older than 20 years

•

59.7 percent work more than 35 hours per week

•

49.3 percent in retail trade or leisure and hospitality

•

58.3 percent in a sale/service occupation

Percent of Workforce Below $7.50

13.5%

12.2%

16.4%

0.0% 5.0% 10.0% 15.0% 20.0%

New Mexico

Metro Areas

Rural Areas

3. Economic Theory. The impact of raising the minimum wage on employment is a hotly con-

tested issue among economists. Conventional theory states that an artificial floor for any price is

a market distortion and so will lead to an imbalance in the market, in this case dis-employment.

Most economists believe that increases in the minimum wage cause unemployment amongst

some groups, particularly low skilled and younger workers. At issue, then, is not whether there

is unemployment but how significant is the unemployment that is caused by the wage increase

and how is it offset by other positive impacts. The key to the argument is the elasticity of the

demand for labor. In other words, how employers respond to changes in the wage. At very low

wage levels near the federal minimum, there is evidence that employment is not significantly

impacted by small changes in the wage.

The market wage is where supply of labor equals demand for labor and the market clears. If the

market wage is higher than the minimum, the effects of the minimum wage will be on the mar-

gins and therefore not likely to be significant. If the natural wage is lower than the minimum

wage, supply of labor will exceed demand for labor and unemployment will result. The average

wage, which is a rough proxy for the natural wage, in most industries is significantly above the

current minimum wage and the proposed wage and so there will be little to no employment im-

pact.

One way to assess the real impact of a minimum wage is to look back on previous minimum

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

5

wage hikes to see if there were significant impacts on employment. In 1997, for example, the

federal minimum wage was increased to $5.15 but the economy was at the beginning of a boom

where all levels of workers, including low skilled and unskilled, enjoyed employment and wage

gains. Studies of the 90-91 federal minimum wage increase found no measurable impacts on

employment. One of the arguments is that by the time political pressure mounts to actually in-

crease the minimum wage, the economy has largely moved on without the legislation and the

new minimum wage is merely increased to the new floor wage rather than increasing the floor

wage.

One concern of businesses that pay wages around the proposed minimum wage is that when a

new floor is set by raising the minimum wage, current employees’ wages who are paid at or near

that new level will need an increase. This will increase the costs to business even more than just

the hiring of new people at the new wage. A University of California-Berkeley Institute of In-

dustrial Relations study in September 2005 on their minimum wage indicated that the impact on

business was similar for the indirect impact of wage increase for employees currently at or near

their minimum wage. However, they also indicate that the combined impact is estimated to in-

crease business operations costs by 1.3 percent.

3. Real Minimum Wage. The real minimum wage, shown in Figure 1 as the solid line, is lower

in 2005 than it has been since the 40s. Adjusted for inflation using the CPI-W index from the

Bureau of Labor Statistics, the real minimum wage has averaged $6.50, or higher than the pro-

posed minimum in SB449 as amended, since 1938, significantly higher than the current federal

minimum wage of $5.15. Figure 2 shows the real and nominal average private sector hourly

wage. Here the real wage has been fairly consistent over time.

Figure 1: Real and Nominal Minimum Wage

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Nominal $

December 2004$

Source: BLS; Real Wage adjus ted by CPI-W

Figure 2: Real and Nominal Average Private Hourly Wage

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

6

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Nominal $

December 2004$

Source: BLS; Real Wage adjus ted by CPI-W

PERFORMANCE ISSUES

The Administrative Office of the Courts reports that some of their performance measurements

may be affected if the increased wage interferes with their ability to conduct jury trials effec-

tively.

ADMINISTRATIVE ISSUES

The Administrative Office of the Courts indicates that the Jury and Witness Fee Fund is not suf-

ficient to absorb the increase in payments to jurors and will seek supplemental funding for the

fund.

There will have to be an extra effort on the part of the Department of Labor to verify the eligibil-

ity of workers who should receive the minimum wage.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Tipped Employees

2007

200

8

200

9

Local

Pre-

emp-

tion

Mini-

mum

Tips/Mo

nth

Other

CS/HB258/

aHFI#1/

aHFI#2

$6.75 $7.5

0

$7.5

0

Yes $ 2.13 $

30.00

Exemptions for

certain employ-

ees; Training

wage; state and

local government

not exempt

SB449/

aS-

PAC/aSCORC/aaSFC/aSFL#

1/aHTRC

6.00 6.75 7.50 Yes,

Tempr

orary

2.13 30.00 Exemptions for

certain employ-

ees; Training

wage; state and

local government

Senate Bill 449/aSPAC/aSCORC/aSFC/aSFL#1 – Page

7

not exempt

SB746

6.00 6.50 7.00 Yes 2.13 30.00 Training Wage

and health insur-

ance credit

SB462

7.50 7.50 7.50 No 3.10 30.00 Business Credit

NF/mt:nt:yr