CA wrestles with minimum wage domino effect

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Forging ahead with plans to take minimum wages to new highs, California’s San Francisco Bay Area has touched off tit-for-tat increases, deepening fears that the region’s high cost of living has become a business-killer.

A growing dilemma

“Berkeley’s City Council approved a hike in June 2014 that will lift the minimum wage to $12.53 by next year,” the Los Angeles Times noted. “In November, voters in San Francisco and Oakland overwhelmingly approved increases, with San Francisco on track to hit $15 before Seattle does. Oakland went up to $12.25 this year.” Then, last month, nearby Emeryville surpassed Berkeley and Oakland with a $14.44 wage; “Berkeley sent its labor commission back to the drawing board. The council next month is expected to take up a proposal that would add paid sick days, extend wage hikes until they hit $19 in 2020 and then add cost-of-living increases in perpetuity.”

The upshot for businesses has been mixed at best: although some employers have crafted clever strategies for adding more value for customers, others have worried the path is unsustainable. “The necessity of paying people a living wage in the Bay Area is clear, so it’s hard to argue against it, and it’s something I’m really proud to be able to try doing,” one pizzeria owner told the Times. “At the same time, I’m terrified of going out of business after 18 years.”

As big wage increases have been passed into law across California, business interests haven’t always been the only ones to pump the brakes. In Los Angeles, where the city minimum is a $15 wage, critics of the increases howled when labor advocates wound up asking for a waiver on the eve of its passage. “The exemption was left out of the law’s final version after criticism from the local chamber of commerce and business groups,” noted the Wall Street Journal. “But similar exemptions are included in at least three other Los Angeles laws, including a minimum wage for hotel workers approved last year.”

Recalibrating business

Although California has led the country in grappling with stagnant wages and rising costs of living, the turn toward higher minimum wages has touched off broad debates across the country. Hospitality businesses such as the hotel industry have faced a particular challenge as wages have climbed upward. For years, bar and restaurant groups have lobbied policymakers to think twice, warning that dramatically hiking wages would undermine their business models, which politicians and analysts have often built into their assumptions about jobs and economic health.

“The problem with the minimum-wage offensive is that it throws the accounting of the restaurant industry totally upside down,” as Harold Miller, a restaurant consultant currently serving as vice president for franchise development at Persona Pizzeria, told the Chicago Tribune.

In tech-forward areas with high costs of living and high rents, the threat to the hospitality business model has accelerated the shift toward increased automation and decreased employment rolls.

Stalling statewide

Some California employers have set out to recalibrate their work forces, hoping that a shift to more temporary workers could blunt the economic impact of wage increases. But the political impact of such a shift has also become a problem. Faced with criticism over differential treatment between contract and career employees, the University of California system offered a $15 “minimum wage” set to apply to thousands of contract workers on a private, not public, payroll.

UC unions were still left cold. “Private contract firms will still make as much as $10 an hour or more in profit off the labor of workers being denied the same wages as UC workers doing the same jobs,” wrote the president of the system’s largest employee union in the San Francisco Chronicle. “UC could choose to send a different message by supporting SB376,” she argued, “legislation that would guarantee the employees of UC contractors equal pay as career employees doing the same work.” That bill was authored this spring by state Sen. Ricardo Lara, D-Bell Gardens.

But the latest Golden State bellwether, a bill creating a statewide $13 wage introduced by state Sen. Mark Leno, D-San Francisco, could signal that the minimum wage wave may be cresting. As the Sacramento Business Journal observed, Leno’s effort “moved farther than it did last year, but the bill’s fate is far from assured.” Although Gov. Jerry Brown has “proposed to tackle income inequality this year through an earned income tax credit,” he has declined to comment on the push for a $13 wage — letting a skeptical Department of Finance speak for him.

8 comments

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  1. Skep41
    Skep41 19 August, 2015, 11:32

    Lucky we dont have a porous southern border or a few of those tricky foreign types might be tempted to sneak across the border and undercut the wages of our entry-level teenagers or struggling unskilled workers, especially when we raise the incentives for employers to save money by hiring them.
    Of course we’re all ready to pay much more for food in restaurants, especially since that raises the 20% tip we add (somehow mysteriously risen from 15% a few years ago).
    Straw? Camel’s back? There is no limit to the amount we can raise prices and taxes.

    Reply this comment
  2. Sean
    Sean 19 August, 2015, 12:28

    California has both the highest state GDP in the nation and the highest rate of poverty with cost of living considered. If you read about the guy with the pizzeria mentioned in the original LA Times article above also had to raise prices, saw his revenue drop by 30% and has had to close a couple of his stores for lunch. I suspect that most restaurants will be raising prices and cutting back hours to try and stay in the black. Their customers who might have gone out to have $12 fresh pizza vs. $8 frozen pizza may eat at home more often if the price of dining out is way too high.
    The other thing most minimum wage articles don’t get into is how higher incomes move people across thresholds with respect to government assistance. Some employers have had employees ask for reduced hours so that they don’t lose benefits. http://www.myfoxorlando.com/story/29616731/seattle-sees-fallout-from-15-minimum-wage.
    Finally, the businesses that will most easily handle the transition to higher wage work forces are not the mom and pop independent establishments but the big franchises that can develope software and hardware to automate order taking, money handling and food prep.
    It will be interesting to see how the higher minimum wage laws affect business formation and real wage growth. Let’s just hope it does not end as it did in Puerto Rico where applying the US mainland min wage to the poor island resulted in a 30% lower labor participation rate and the state on the brink of bankruptcy.

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    • Ulysses Uhaul
      Ulysses Uhaul 19 August, 2015, 15:03

      Business strategy of being everything to anyone at any time or day was a winner for slaver service businesses. Oh…oh!

      Some say…look to the rise of the machines…..touted as the new panacea to raise productivity of low ender businesses. Will be interesting to watch a few uneducated button pushers try to whack those spiffy machines into shape!

      Inevitable……new business formation will deemphasize use of labor……while high cost social welfare admin costs will rise to the moon trying to mitigate human unemployment misery and violent neighborhood chaos.

      The way California is changing is alarming…..for doomers, socialists and dreamy liberals alike-

      Reply this comment
  3. Ronald Stein
    Ronald Stein 19 August, 2015, 14:47

    The unintended consequences associated with increase in the minimum wage may have adverse effects on graduation rates. There was a time when the minimum wage was an incentive to get an education to get into job that would pay a wage to support a family. Now, the crusade toward huge increases in the minimum wage to the point that everyone will be getting similar compensation as those on Social Security. The crusade toward entitlement lives on while the incentive to get educated loses.

    Numbers don’t lie but liars can figure. Yes, our employment numbers have improved, but those reporting those great numbers don’t bother highlighting that most are in the food service and hospitality sectors. The public focus is diverted to those not making enough on minimum wages, i.e., those in the food service and hospitality sectors, and the crusade is to RAISE the minimum wage! Rather than heal the wounds resulting from constant attacks on businesses that are driving out many high wage positions and driving up the costs for those that remain in California, the easy way out is to apply a “band aid” on the wound rather than heal the wound.

    An unintended consequence of raising the minimum wage will be adjustments in the cost of services and good, creating an even bigger underclass of unemployable people.

    But wait, another unintended consequence associated with the upcoming minimum wage increases will be a great way to incentivize kids to drop out of school. Imagine the carrot of a huge minimum wage of a $25 to 30,000 a year minimum wage as a reward for no higher education. These kids will also be netting more than those on fixed income Social Security. It may be better to stop beating up on businesses with over regulations, over taxation, and uncontrollable “fees”, all to pay for ballooning government spending, that are slight inconveniences to those making the big bucks, but the California financially challenged will continue to disproportionally pick up the costs “camouflaged” at businesses as the costs of burdensome regulations disproportionately affect young people and other Americans who are living within limited means.

    Reply this comment
  4. Dude
    Dude 19 August, 2015, 19:36

    The real growing dilemma is how to get rid of these mentally disabled Democrats that apparently aren’t capable of even basic math.

    Reply this comment
  5. ted E Mind of your Godhead Ted
    ted E Mind of your Godhead Ted 19 August, 2015, 20:09

    Kinda funny
    all of these El Rushbo lower middle class screws doing the bidding of the 1 percenters and they have no clue!

    Reply this comment
  6. desmond
    desmond 20 August, 2015, 20:20

    Like David Gregory vacationing with his corporate banking attorney wife, and Chris Matthews boating off Nantucke, joining the other one presenters.Let’s not forget Jerry Brown and he 17000 foot loft in Oakland. The only thing green about him and his Gap attorney wife is their shit, but that isn’t t min wage talk….sure is true though.

    Reply this comment
  7. Norman
    Norman 24 August, 2015, 21:17

    The public and the politicians haven’t even thought of who will pay for the increase in wages. Someone has to. Data is in for Los Angeles, Seattle and San Francisco: It’ll be lost jobs. But that’s just the first step. Santa is not coming to town.

    Reply this comment

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