The impacts of raising San Francisco’s minimum wage to $15

The impacts of raising San Francisco’s minimum wage to $15

minimum wage, Rick McKee, Cagle, Oct. 8, 2014On Nov. 4 San Francisco voters are being asked to approve Proposition J, a measure which increases the minimum wage in San Francisco to $15 per hour by 2018 from the current city rate of $10.74. San Franciscans should think carefully before approving this measure.

When a business hires an employee, the business evaluates the total cost of employment as opposed to the wage being offered to the employee. Using the $15 minimum wage as an example, the total cost of employment breakdown based on a 2,080-hour full-time job for a firm employing 20+ workers with typical workers’ compensation and unemployment insurance rates is as follows:

Wages: $31,200
Employer “contribution” to Social Security and Medicare (7.65%): $2,386.80
San Francisco payroll tax (1.5%): $468
Healthy San Francisco ($1.65 to $2.48 per hour in 2015): $3,432 to $5,158.40
9 personal days as required by SF Law (direct wage cost only): $1,080
Workers Comp Insurance (7.5%): $2,340
CA Unemployment (4% of first $7,000): $280
State Disability (1%): $312
Total:  $41,498.80 to $43,225.20

Other costs

Keep in mind that the total number does not account for vacations or any other sort of employment costs including payroll services, benefits, uniforms, meals, etc. It does not include the cost of Obamacare under the employer mandate provision for firms in the categories of those with from 50 to 99 employees; or 100 or more employees.

The implication of the above is that businesses will only hire employees to the extent that the employee can create a minimum of $41,498.80 in productivity (or $19.95 per hour).  For most businesses, the amount of productivity will need to be considerably higher in order to account for the cost of goods sold and administrative costs, and to allow for the business to make a profit.

Another way of looking at this is to say that any job which does not generate $41,498.80 in incremental value will not be filled. This implies an increase in unemployment for low-skilled labor. The hardest hit will be poor people, minorities, immigrants, young people and old people. Not everyone is capable of creating $41,498.80+ in value. Goodbye to entry-level jobs!

Killing jobs

Proposition J will drive employment out of the city of San Francisco and into neighboring counties. It is likely some businesses will move further; just look at the existing exodus of California businesses (and jobs) to Nevada and Texas.  For more information on this, see PRI’s 2012 book, “Eureka!: How to Fix California,” by Dr. Arthur Laffer and Dr. Wayne Winegarden.

Proposition J will cause an increase in black market activity (crime) because employers will look to pay people “under the table” in order to avoid compliance with the law. As the gap between the market rate (what someone is willing to pay/accept) and the minimum rate (as required by law) becomes larger, so too will the black market in labor.

So Proposition J will mostly hurt the people it is meant to help. It will increase unemployment, and encourage San Francisco businesses to close and/or migrate. It will expand the black market in labor, thus criminalizing San Francisco residents.

Is this what San Franciscans want?

I would posit that our tax policies (local, state and federal) have created an environment which discourages hiring workers. As seen from the above example, local, state and federal mandates add a minimum of 33 percent to the cost of hiring an employee. Tax policy should be changed to remove the burden of hiring new workers.

To the extent that our society is willing to subsidize certain members, tax policies should be revised to encourage employment. They need to recognize that work has an intrinsic value.

Sally C. Pipes is President & CEO of the San Francisco-based Pacific Research Institute, CalWatchDog.com’s parent think tank.  Her latest book is “The Cure for Obamacare” (Encounter Broadside). 

 

11 comments

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  1. Queeg
    Queeg 11 October, 2014, 07:44

    We are France.

    Look at the basket case. It doubles down annually.

    You expect a different result? Here?

    Reply this comment
    • Bill Gore
      Bill Gore 11 October, 2014, 08:39

      Yes we ARE France. I am in ever-increasing amazement at how NO ONE seems to ever be at work anymore. Even in the ‘private sector’…The entire month of August is off limits, french style, and Thansgiving through New years seems to be blacked out also. Fridays are half days, no one can answer a phone before 9 or after 3, on and on and on. Seems any young person with half a work ethic ought to clean up in this environment….

      Reply this comment
  2. LetitCollapse
    LetitCollapse 11 October, 2014, 08:20

    The gov is tired of subsidizing the minimum wagers with public assistance. Pushing them north of the $30,000 mark turns off the free cheese spigot. So the small mom and pop business will be expected to pick up the slack. The $15/hr phenomenon is spreading. It started in Seattle and is moving down the West Coast. It’s just a matter of time when other urban areas to follow suit and it will eventually become a state law, with California probably leading the pack. Black market employment will explode. I’ve heard of large legit businesses in the area now paying their workers $15/hr off the books while the workers collect free cheese from the gov. And they don’t have any problem finding workers. Enforcement is non-existent. That’s why so many employers do it. Paying under the table gives the businesses a competitive advantage in the marketplace – thus punishing businesses who follow the letter of the law. This will force honest businesses to go illegal too! Either that or go into liquidation. But the morons in government don’t consider these unintended consequences. Rule of law has become a joke in this country. More signs that we are devolving into a typical banana republic.

    Reply this comment
    • Sean
      Sean 14 October, 2014, 11:48

      $15 an hour under the table will leave more money in the pocket of the worker than a legitimate $15 wage. The legitimate paycheck has 25% of earnings going to the government as described above plus the employee’s portions of SSA and likely some income taxes. I wouldn’t be surprised if the legitimate paycheck for a person making minimum wage was as little as $25-$28K per year while the government got $15-$18K per year for their effort. In essence, minimum wage earners pay an effective tax on their earnings of 33%. Now throw in loss of benefits for someone with public assistance and a job may yield more cash benefit to the government than the worker.

      Reply this comment
  3. Queeg
    Queeg 11 October, 2014, 08:49

    What do you expect?

    Go to a local swapmeet.

    The working poor fighting back supplementing government cheese and globalist service job droppings.

    Until doomers stop consuming services and stop tipping the working poor they will not demand politicans come up with a sound manufacturing economy will decent jobs.

    Payroll overhead is for suckers…..immigrant kids can’t eat overhead!

    Reply this comment
  4. Bill Gore
    Bill Gore 11 October, 2014, 15:32

    America has been a plantation economy since the first settlers stepped on Plymouth Rock. In an adversarial system like ours you will get paid exactly as little as I can convince you to show up for. If I own a business and my full timers are all on food stamps, WIC and MediCal, well then I’m high-fiving with my accountant, cause I don’t give a rat’s ass if the taxpayers are subsidizing my operation.

    Think about it: plantation economic systems chase rock bottom cheapest labor, with slavery being the ideal business setup. Plantation systems do not develop communities or human potential. No middle class.

    Until we can somehow re-orient our society away from the quick buck towards long-term sustainibility and development, which is probably never, minimum wage laws will be a very blunt force tool to keep full time workers out of the benefit system. So yes, your sawdust mcgarbage pinkslime burger will cost you 35% more but the poor souls who serve it aren’t on assistance either.

    Reply this comment
    • LetitCollapse
      LetitCollapse 11 October, 2014, 17:18

      Many ethnic grocery stores pay their help under the table. That’s the reason I can go there and buy whole ocean salmon for $3/lb while the big chain stores sell farmed salmon for $8/lb. Oh, and at the ethnic stores they slice it for free. They either refuse that service at the chains or charge me an extra fee. The chains play by the rules. Many independents don’t. I have no idea why people still shop at the chains. I guess it makes them feel more patriotic. Probably the same reason they still buy GM cars. Whatever…they tell me it’s a free country.

      Reply this comment
  5. T Mind of Ted Your God
    T Mind of Ted Your God 11 October, 2014, 19:41

    LOL
    Sally Pipes wants to overturn the Wagner Act…..zzzzzzzzzzzzz— same old republibagger dull-normal drama…….

    Reply this comment
  6. eck
    eck 11 October, 2014, 21:26

    Another insane, wedge issue from the left. So, why not $20 or $50, no wait, $100 an hour? Huh? Anyone?

    Reply this comment
  7. T Mind of Ted Your God
    T Mind of Ted Your God 12 October, 2014, 10:27

    Eck–

    Silly argument—–why not pay them zero? This would help employers afford to create new jobs which would be good for the economy. Or pay everyone 2 bucks an hour?

    Or pay everyone a million dollars an hour and only pay them for one hour a year no matter how much they actually work? This way everyone could be a millionaire and self insure which could eliminate Obamacare.

    Get real rhetoric please. Hurry!

    Reply this comment
    • LetitCollapse
      LetitCollapse 12 October, 2014, 13:41

      “Silly argument—–why not pay them zero?”

      Because nobody would work for ‘zero’, silly.

      “Or pay everyone 2 bucks an hour?”

      Because nobody would work for “2 bucks an hour”, silly.

      “Or pay everyone a million dollars an hour and only pay them for one hour a year no matter how much they actually work?”

      Because it would be irrational to do so, silly.

      Eck made a good point and it flew completely over top your head. The market should determine the wage. Not the government. Everything the government touches turns to crap.

      Reply this comment

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