Quick and Dramatic Consequences of Minimum Wage Hike

Minimum wage fight for 15Confronted with an impending hike to $15 in the California minimum wage, businesses, labor advocates and political analysts have all begun to shift strategies and tactics. Given current trends, the combined impact could be a smaller, more unionized workforce — that doesn’t always see the benefits wage activists have promised.

The consequences will be quick and could be dramatic. “Most state raises over the past decade, when there have been any, ranged from 1 percent to 3 percent annually. The law Gov. Jerry Brown signed will increase bottom-rung pay roughly 10 percent per year starting in January,” as the Sacramento Bee reported.

Manufacturing flight

One immediate result of the hikes has already appeared in Southern California, where the garment industry faces an especially rough road. Sung Won Sohn, former director of apparel company Forever 21 and economist at Cal State Channel Islands, told the Los Angeles Times a veritable “exodus has begun,” with manufacturers already tempted to shift garment production overseas to retreat from the Golden State still further. “The garment industry is gradually shrinking and that trend will likely continue.”

“In the 1990s, as borders opened up, foreign competitors began snatching up business from Southland garment factories. Eventually, many big brands opted to leave the region in favor of cheaper locales. Guess Jeans, which epitomized a sexy California look, moved production to Mexico and South America. Just a few years ago, premium denim maker Hudson Jeans began shifting manufacturing to Mexico. Jeff Mirvis, owner of MGT Industries in Los Angeles, said outsourcing was necessary to keep up with low-cost rivals.”

The problem, particularly acute for business owners who can’t automate jobs as readily as, say, fast food restauranteurs, was encapsulated by Gov. Jerry Brown himself, who signed the $15 wage into law despite clear reservations about its economic wisdom. “Economically, minimum wages may not make sense,” he said, defending the law on moral and sociopolitical grounds. A high minimum wage, Brown claimed, “binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.”

Incentives in tension

According to critics of the change, the tension involved in using poor economic choices to encourage good moral ones has driven labor unions themselves toward a predictable, if hypocritical, shift in their own policy objectives. Many of the same unions that agitated for a higher wage “have been quietly — and often successfully — lobbying cities to let employers who hire union workers pay them less than the mandated minimum,” as Quartz observed. “Unions say it gives them the flexibility to negotiate packages for their workers that supplant wages with health insurance and other benefits.

“Critics say that it’s a shrewd move by unions to drive up membership dues and ensure that their workers are the cheapest in town. The exemption gives cost-conscious employers little choice but to hire union, and workers who want jobs little choice but to join their local.”

At the same time, however, workers who have been rallied to the $15 cause have been swiftly pressed into service for pro-unionization demonstrations. “The demand from the original strikes in 2012 was $15 and a union,” said Mary Kay Henry, international president of the SEIU, according to the Times. “Underpaid workers in California are now on a path to $15, but we think the way we can make these jobs good jobs […] is through a union.”

In an added twist, some economists defending the wage hikes have raised the question of whether subsequent job losses are a price worth paying. Gov. Brown, in fact, has referred favorably to that view. “We understand that this can be difficult,” he said, as the Washington Post recalled. “But the fact is that there’s a principle called the living family wage, which is a doctrine that has been around for a long time, since probably before the 1900s, which is that you can’t expect someone to work if the wages for that work can’t support a family.”

Proposed Minimum Wage Hikes Hurt More Than Just Small Business

Minimum wage1Despite the heavy mudslinging and name-calling that never ceases to accompany an election year (this one clearly setting a new low standard), there’s one thing that Democrats, Republicans and persons of most every political persuasion are likely to agree upon: every red-blooded American deserves the right to and a fair shot at earning more money to realize their dreams.

Work hard, get paid, provide for one’s self and family – something our parents repeatedly hammered into our brains and a cornerstone of the red, white and blue capitalism that makes our country great. Every employee that has met minimum qualifications for a position deserves a reasonable “foot in the door” from day one – something that offers a temporary first plank from which to prove themselves to the employer, customers and workplace.

Now enter the Minimum Wage – a topic that is probably not foreign to you unless you’ve been hopelessly abandoned on the Red Planet a la Matt Damon. Labor unions are pushing the “Fight for $15” without first understanding the empirical data and repercussions of current minimum wage increases that have yet to fully manifest.

As with many government programs and activities that were created with the best intentions – think social security, welfare-to-work and state retirement systems – the minimum wage these days is spinning more out-of-control than The Donald in front of a microphone at an Iowa pep rally. Efforts to push, push, push for a higher minimum wage without seeing the existing ones take shape is making it impossible for small businesses and even many social programs to keep pace. And, at the end of the day, something – or more commonly, someone – will feel the negative fallout.

To put things into perspective, Californians have witnessed a 25 percent increase in the statewide minimum wage over the past two years – an increase from $8 to $9 in 2014, and another $1 increase, spiking it to $10 an hour, this past January.

Peering ahead and atop these already-dramatic increases, we’re witnessing other proposals and jurisdictions taking it even higher without knowing or seeing how the current increase in California will play out. Los Angeles and Santa Monica just hiked their local wage to $15, Long Beach to $13, Pasadena to $13.25 and Sacramento to $12.50. Add to that a legislative proposal to hike the minimum wage to $13 an hour and two measures aimed for the November ballot – one that would hike the wage to $15 over five years, and the second that would raise it to $15 over four years and add six days of mandated paid sick leave — and it leaves many asking “When is enough, enough?” as well as “Why the rush?”

Some in the Capitol and in many council chambers are heard uttering, “We can’t afford to wait – the time is now!” However, we must bear in mind that minimum wage hikes at any level that are too much, too fast, too soon will have negative consequences for many more than just small businesses in our communities.

Our policymakers need to take a careful look at other notable stakeholders that are very likely to be affected by a reckless, ill-conceived, rushed minimum wage increase policy:

In-Home Supportive Services (IHSS)/Persons with Disabilities

According to discussions with experts in the IHSS and disabilities community, a minimum wage hike will unquestionably be passed on to clients with disabilities because the resources simply aren’t there. There are over 300,000 IHSS workers in California, most of them unionized. This will be a higher cost to scores of private clients – yes, our most vulnerable patients – who are on a fixed income and they won’t be able to afford to sustain same level or duration of care. Counties, especially those in rural and disadvantaged regions, will tell you they simply won’t be able to absorb those costs. And keep in mind that many IHSS workers are family members of the clients and are likely to lose hours and in many cases health benefits because of this.

Many Californians with disabilities will be forced into institutions at a major cost to the state rather than keep them in their homes and having people care for them. To put a fine point on it, one person with special needs noted that their agency rate is about $200 a day for 24-hour in-home care, but for many it’s upwards of $350. He noted that a $5 an hour increase would be “a huge hit and for me and many disabled because that money simply isn’t there.”

Education

A representative from one Central Valley school district said a minimum wage increase of this magnitude would impact schools in two ways: (1) raising the wages of everyone who makes less than $15 currently; and (2) the compaction of the salary schedule that will create a ripple effect and force increases up the ladder and competition in the workforce. How can schools compete with others who are offering the same or more? While schools have received funding the past few years, that money isn’t appropriated in the future. By 2019, schools are expected revert to “cut-back mode.” What then? Unlike a small business, schools can’t raise prices on customers.

What are some examples of programs where reductions are likely?

  • Class size reductions
  • Hiring freezes such as grounds, maintenance, custodial staff, resulting in deterioration of facilities
  • Transportation cuts, resulting in decreased number of bus fleet runs and not enough drivers to transport students to events
  • Reduced technology dollars, resulting in network failures and computers and activities simply not there to meet the needs
  • Reduced work days
  • Reduced discretionary budgets for school sites – field trips, copy machines, etc – and other opportunities such as athletics or music.

Career Tech/Workforce Development Programs

According to a notable vocational education leader in California, these programs have already been decimated over the past thirty years, reducing the career prep they’ve been providing California students. Employers are facing untrained, undertrained workers with little or no job skills. Access to good programs is limited – with a minimum wage increase, this access will continue to decline. There will be fewer internships and work experience opportunities. The impact will be a further reduction or elimination in job readiness programs and opportunities for young workers, minority workers and low-skilled workers.

At the end of the day, school boards will face pressure on wage compression to drive wages higher. The boards can’t increase revenues so they must make cuts. The irony is that the very employees who get these raises will be among the first ones to be cut. It’s not just mom-and-pops singing the blues here.

Seniors

Seniors and retirees on fixed incomes are not likely to support any program to increase the minimum wage, as long as their own increase isn’t in the equation.

The federal government – in freezing any increase in social security – are stalling this direction, but maybe there will be a change one day.

Many seniors look for post-retirement jobs, but this would dry those up and edge seniors out of the market. And many others have made it clear that, on a fixed or limited income, they simply cannot afford a minimum wage increase in grocery stores and on the retail goods that sustain them. And remember, many of these individuals also will face higher costs with their in-home workers, making it impossible for them to keep them on their current schedules, thus lowering the quality and time of care.

We’ll all be there one day – why aren’t we thinking about this now before we all must face the grim realities of such pressures on the greying population?

Small Businesses – Our #1 Job Creators

Make no mistake – Main Street gets hit with such a hike, and when that happens, nobody wins. No matter how small and in which distressed neighborhood a small business may be, many politicians make the brash assertion that “You can foot the bill.” If someone has first-hand understanding running a California small business, they’ll tell you that’s simply not the case, especially with the thin operating margins most confront each day.

If unions truly cared about lifting the neediest out of poverty, they would fully embrace the “Total Earnings” concept, which allows employers to exempt from the minimum wage increase those employees already earning $20, $30, $40 or more, well north of the minimum wage in tips and commissions as total earnings/wages. This would actually allow employers to dedicate those scarce labor dollars to those employees who, as it was ruled this past week in the courts, are prohibited from sharing in tips – “heart of the house” employees such as prep cooks, line cooks and others. Why is labor pushing for such inequity – giving a wage increase to the highest-earning employees of a business while leaving those in the back, well,in the back and out to dry? Whose interest are they really looking out for?

The Governor was wise to recently criticize and warn against the two ballot measures that would increase the statewide minimum wage to $15 an hour, noting that they would cost the state as much as $4 billion a year by 2021 and return the state budget to annual deficits. The nonpartisan legislative analyst has noted that the first ballot measure proposal would result in “an increase to state and local government spending totaling billions of dollars per year”, with an independent fiscal analysis pegging this annual increase as high as $1.7 billion. Just last week, the American Enterprise Institute revealed the raw numbers revealed through evidence from the Bureau of Labor Statistics from the $15 minimum wage increase approved for Seattle by its City Council, with the first increase to $11 an hour taking effect on April 1, 2015. The effect of an eventual 58% increase in labor costs does not look pretty. Since that first phase of the increase went into effect:

  • Seattle’s employment has fallen by more than 11,000
  • The number of unemployed workers has risen by nearly 5,000
  • The city’s jobless rate has increased by more than 1 percentage point

Our policymakers and voters need to heed the Governor’s advice, nonpartisan state numbers, and data that’s trickling in from other cities that are now grappling with grim reality of these hikes before moving forward in any way. Let’s allow the ink to dry, dust to settle and current minimum wage policy – notably our statewide increase – to first play out so we can see what the impacts truly are. Otherwise, instead of branding it a “fair wage” we’ll all see it for what it truly is: a “fare wage”, with every one of us taxpayers – seniors, schools, disabled and many others – paying down an outrageous bill and debt for generations to come.

resident of Kabateck Strategies, and former CA Executive Director of NFIB

Originally published by Fox and Hounds Daily

Fight for $15 Hits Setback in Unexpected City

Minimum wage1In a huge setback to $15 minimum-wage supporters, voters in Portland, Maine rejected a proposal Tuesday to enact the policy in their city.

City residents voted nearly 58 to 42 percent against the increase. The city ordinance was designed to phase in over time. The Portland Green Independent Committee fought to get it on the ballot. While advocates argued it would help low-wage workers, critics warned it could severely limit job opportunities.

Right now I’m feeling a huge sense of relief for every small business owner in Portland, and everyone who works for me,” Play It Again Sports Owners Scott Rousseau said, according to Portland Press Herald. “I think it’s great news for the future of our city.”

Critics warn businesses would have few options to offset the added cost of labor– they could increase prices or hire less workers. In some cases, the businesses could have to close. The potential problem is especially true for low-profit industries like restaurants. Supporters, however, say the increase would allow more people to afford basic necessities. The increased spending would then stimulate economic growth.

Seattle led the way in passing the $15 minimum wage back in June 2014. San Francisco and Los Angeles followed not long after. Each local ordinance phased in the new wage over the course of several years. Some Seattle businesses, though, have reported problems because of the increase.

Much of the debate boiled down to rival media campaigns. Patriotic Millionaires launched ads in support of a $15 minimum on television, as well as online. The group normally fights for minimum wage increases on the national level. Its latest advertisements latest advertisements focusing on Maine premiered Monday. The Portland Regional Chamber has been opposing the policy with its own media campaign.

Nationwide, the group Fight for $15 has led much of the effort. The group is backed by the Service Employees International Union (SEIU). Conservative opposition research group AR Squared (AR2) alleges that the push is more about helping the union as opposed to low-wage workers.

“By voting against a $15 minimum wage, voters in Portland, Maine sided with their local businesses and rejected the SEIU’s effort to increase its membership rolls,” AR2 Communications Director Natalie Gillam said in a statement to The Daily Caller News Foundation. “From Portland to the Clinton HQ in Brooklyn, yesterday was a bad day for union bosses at SEIU in D.C.”

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Originally published by the Daily Caller News Foundation

Long Beach Could Be Next In $15 Minimum Wage Movement

Minimum wage1In the past year the movement to raise the minimum wage to $15 an hour has seen success in a few major cities – and now several more are looking to be next.

Seattle led the way in implementing a $15 minimum wage back in June 2014. San Francisco and Los Angeles followed not long after. Each local ordinance phased in the new wage over the course of several years. Though it has yet to pass on the state or federal level, the movement has seen support across the country.

Still early on in the process, officials in Washington, D.C., Kansas City, Mo., and Long Beach, Calif., are considering whether they should adopt a $15 minimum wage as well. Earlier in the month, Long Beach announced it may initiate a study of the potential impact such an increase would have. The Kansas City Star reported Thursday that the Kansas City Council may seek voter input on the November ballot. D.C. announced last month it will test the waters with a ballot measure as well. New York City is also considering whether to implement a $15 minimum wage, but just for fast-food workers.

In addition to the cities that have already passed a $15 minimum wage, the University of California announced last month that the school will become the first public university to raise the on-campus minimum wage to $15 an hour. Democratic presidential hopeful and self-described socialist Bernie Sanders has even introduced a bill to raise the federal minimum wage to $15 an hour.

Supporters of the $15 minimum wage often claim it will help the poor and stimulate economic activity. They argue that it’s more representative of “the living wage,” which is the supposed basic standard by which someone can live comfortably.

Opponents, however, say the idea will actually hurt the poor by limiting job opportunities. How little or how much of either outcome usually depends on the study. Nevertheless, even the nonpartisan Congressional Budget Office agrees at least some job loss is expected.

By organizing rallies and utilizing media marketing campaigns, Fight for $15 has led much of the effort to raise the minimum wage in the last couple of years. Though claiming to be a grassroots workers movement, the group is highly influenced and funded by the Service Employees International Union.

The SEIU has been criticized by some, like Worker Center Watch, for using the Fight for $15 protests as a way of bypassing labor laws to more easily unionize fast food workersAccording to a report from the Center for Union Facts, a minimum wage increase would benefit the SEIU directly while hurting non-unionized SEIU competitors.

Additionally, unions often seek exemptions from the very minimum wage laws they support. According to the report, “Labor’s Minimum Wage Exemption,” which was released by the U.S. Chamber of Commerce in December, this is to encourage unionization by making membership a low cost alternative for employers. Los Angeles union leader Rusty Hicks was accused of just that when asked for an exemption for unionized businesses from the very wage increase he advocates for. Now he is pushing for Long Beach to go forward with its own increase.

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