Chamber Errs on Minimum Wage Cost

The minimum wage is an issue that drives the California Chamber of Commerce to apoplexy, far out of proportion to its actual cost to the chamber’s members.

So it’s not surprising that in campaigning against a proposed raise in the state’s minimum wage not long ago, the chamber produced a ridiculously inflated estimate of its costs.

In legislative testimony June 22 about a bill drafted by Assemblywoman Sally Lieber (D-Mountain View), and in material sent out to its members, the chamber contended that the proposed $1 increase in the minimum wage (bringing the standard to $7.75 in 2007) would cost employers more than $9 billion a year. That’s an enormous number, larger even than the state’s current budget deficit.

It was based, however, on the misinterpretation of a statistic the chamber received from a state agency. The error was so egregious that the chamber recently withdrew the estimate and publicly disclosed its change of heart.

“The bottom line is that we proactively went to the bill’s author and brought it to her attention,” the chamber’s spokeswoman, Sara Lee, told me. “If our intent was to deceive anybody, we wouldn’t have done that.”

Fair enough. Still, that’s not to say that the chamber entirely owned up to its blunder. At first, it blamed the California Labor and Workforce Development Agency, which it said supplied the inaccurate data it relied on. As we’ll see, that was largely a bum rap.

Let’s first consider the rationale for raising the state minimum wage. Many minimum wage earners today are family breadwinners. The current state minimum of $6.75 an hour places a three-member family near the federal poverty level.

At the moment, California’s minimum wage is the lowest on the West Coast. Lieber observes that families dependent on the minimum wage often have to turn to taxpayer-supported programs for necessities such as food and healthcare. She also says her proposed raise, to $7.25 in July 2006 and $7.75 a year later, would merely recover inflation-related losses since the minimum was last raised in 2002. (Lieber’s bill, which has passed the Assembly, awaits Senate action and a sure veto by the governor.)

The direct cost of the wage increase would be about $2 billion a year. The most heavily affected industry would be restaurants, including fast-food joints, which presumably would pass on the increase to customers.

The chamber, however, claimed to have uncovered a much larger hidden cost. State law requires that certain workers earning less than twice the minimum wage be paid time-and-a-half for overtime; over that threshold, and the workers aren’t entitled to OT pay. The chamber argued, therefore, that the raise would “mandate” overtime payments, and thus a wage increase, for all workers earning between $28,000 a year (the current threshold) and $32,000 (the threshold if the bill passed). In Senate committee testimony and other statements, chamber lobbyist Julianne Broyles contended that 1.68 million workers would receive this “mandated” increase, costing employers a stunning $7 billion a year.

Her figure, however, was wrong. First, the labor agency estimated 1.68 million as the number of all managerial workers earning $28,000 to $32,000, not merely those affected by the minimum wage change. (Actually, the agency’s figure was for managerial workers earning $28,000 to $40,000, the only breakdown it had, thus conceivably overstating the number of potentially affected workers by a factor of three.)

But not all those employees would become newly eligible for overtime. For example, some are part-time workers, who don’t normally receive overtime. The agency believes that no more than 10%, or 169,000, would be affected by the minimum wage change, although it can’t say for sure. Some experts place the figure closer to 58,000.

Second, payment of overtime wouldn’t be “mandated” by the law. Employers would be free, as always, to pay the workers overtime, pay them higher base wages to keep them exempt or not assign them extra work. Some affected employees presumably already earn close to $32,000, so an employer might have to spend only a few bucks more a year to preserve their exempt status.

It certainly looks as though the chamber made no serious effort to refine the figure, which the labor agency produced in response to an e-mail from Broyles, and which was evidently the subject of considerable confusion on both sides. She had asked whether it would be “reasonable to estimate that 10 percent of CA workers are managers,” adding that she was trying to calculate the cost of the minimum wage.

The agency gave her what it thought she asked for -- an estimate of California “managerial” workers within the pertinent wage range. Broyles assumed the agency meant that all those workers were subject to the OT rule -- a bad assumption, as it turned out. In any case, Broyles obviously knows there are nuances to the designation of exempt employees, because she has occasionally alluded to the complexities in some of her public statements.

The chamber this week acknowledged that it wasn’t blameless in the misunderstanding. “We don’t believe the incident was entirely our fault, but we will accept some responsibility,” Lee says.

The organization is surely guilty of being too casual about information it was putting forth in a public policy discussion. Seeking ammunition against the minimum wage increase, it hastily seized on a big number, evidently without first considering whether that number was plausible. Then it broadcast its error widely to attack what it termed, hysterically, a “job killer” bill.

Broyles appears to be genuinely chagrined about the mistake, as is her employer. Lee insists that “accuracy is very important to the Chamber of Commerce.” We should take the chamber at its word, and, as always, watch its use of statistics like a hawk.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com.