“California is definitely back,” Governor Jerry Brown recently trumpeted. Brown then proclaimed the state a “job creation engine.” But the magical California job creation engine has shifted from a healthy manufacturing economy, to a service economy – from high-paying jobs with benefits and growth potential, to low-wage, nowhere minimum wage jobs.
Rather than creating policies to make California a healthy business state once again to incentivize businesses, politicians are instead focused on these low-paying jobs, and treating the symptoms instead of curing the disease.
The winter of our discontent
The growing discontent between politics, politicians, and the hard-working electorate could turn into anguish, misery and rebellion with the latest minimum wage increase proposal.
Before the last minimum wage hike, passed in 2013, could even be implemented, the State Senate voted last week to nearly double California’s minimum wage to $13 an hour. It’s not the highest in the country, but darned close. The California minimum wage is currently $8 an hour.
The latest bill, SB 935 by Sen. Mark Leno, D-San Francisco, passed the Senate on a 21- 12 vote, and will go next to the Assembly for approval. Leno’s bill is co-sponsored by the California and Service Employees International Union California State Council, and the California Women’s Foundation, a publicly subsidized organization.
“Not only is there a disconnect between what the state’s leaders are saying and what Californians believe, but also Californians feel as if they are stuck in neutral trying to drive uphill (accelerating is typically the norm coming out of a recession),” Carson Bruno with the Hoover Institute recently reported. “Despite Jerry Brown’s reassurances, Californians continue to believe that tax rates will be going up.”
Californians have good cause to feel this way.
Last year Gov. Jerry Brown signed Assembly Bill 10 to increase the minimum wage to $10 an hour by 2015.
The latest minimum wage increase bill, SB 935, raises the minimum wage in three steps: $11 an hour in 2015, increasing an additional $1 per hour in 2016 and another $1 per hour in 2017. Starting in 2018, the minimum wage would be adjusted annually according to the rate of inflation.
The minimum wage mess in Seattle headed for CA
Increases in minimum wage always end up with job decreases. In order for employers to save on increased labor costs because of minimum wage hikes, employers outsource more, move to more automation, and reduce the overall size of the workforce. And, existing employees are often faced with bearing more costs for benefits and perks they once had.
Just last month, Seattle voted to raise its minimum wage to $15 by the year 2020. This will apply to all businesses. Large businesses with over 500 employees have only until 2017 to enact the change; smaller businesses have the full five years.
In the Seattle suburb of Sea Tac, the effects of a large minimum wage increase are already showing. Sea Tac raised its minimum wage to $15.00 per hour January 1, 2014. Hotel workers are losing a lot of valuable perks — free parking, food on the job, a 401(k) plan, and health insurance. They also report a cut in overtime hours.
One hotel employee explained to the publisher of the Northwest Asian Weekly, that the higher wage sounds good, but is not.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added. The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
What else? I asked.
“I have to pay for parking,” she said.
I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.
Most of the described perks are tax-free, tax-deferred, or pre-tax. It’s much better to be paid $10 an hour and get free parking and food, than it is to be paid $15 per hour, pay higher taxes on the hourly wage, and suddenly have to pay extra in parking and meal costs.
Minimum wage hikes cost consumers more
Raising the minimum wage increases the prices of goods produced by minimum wage workers, according to the National Center for Policy Analysis. Consumers respond by buying less, and employers respond by making less, which means fewer jobs. Employers also respond to relatively more expensive labor by investing in labor-saving technology, which again means fewer jobs.
“Some 146,000 workers in the restaurant industry lost their jobs following the last federal minimum wage increase Congress enacted in 1996, according to the National Restaurant Association.”
Back in Sea Tac…
In Sea Tac workers are seeing the downside of the minimum wage hike. A February report from the Seattle Times found a restaurant at the Clarion Hotel has been shuttered. The story said the sit-down restaurant might be replaced with a less-labor-intensive café.
“Other businesses have adjusted in ways that run the gamut from putting more work in the hands of managers, to instituting a small ‘living-wage surcharge’ for a daily parking space near the airport,” the Seattle Times reported.
Long-time Seattle businesses are moving to unincorporated areas, according to KOMO news.
The owner of the family business blames Seattle’s increasingly difficult business climate for the move: “It just seems like increasingly the city’s become a more difficult place to do business.”
The city’s proposed $15 minimum wage was tops on the list of complaints. “If I’m going to bring someone in on an entry level, I’d prefer to start them out where I’d like to start them out, rather than having that dictated to me.”
A commercial property landlord said several tenants have signaled they may not renew their leases if the minimum wage hikes become law because, “It’s just too expensive to operate in the city.”
Small businesses throughout the city are panicking over the super high minimum wage, KUOW reported recently. Many small business owners are holding off on opening new business or expanding their current business in Seattle; others said they are delaying plans to hire new workers.