Related Minimum wage increase benefits all of us in California

On Thursday, March 31, 2016, California legislators approved a landmark agreement crafted with labor leaders that will make California the first state in the country to commit to raising the minimum wage to $15 per hour statewide by January 1st, 2022.

As a regional chamber of commerce, we ask ourselves, what are the underlying impacts this legislation would have on business in our region?

According to a report from the Center on Policy Initiatives, there are more than 300,000 households in San Diego County that do not make enough to cover basic expenses: this figure represents 37.8 percent of all homes in the county. According to the report, one individual would need to make $13.09/hr. just to make ends meet in San Diego, while two wage earners would need to make between $15.93/hr. and $20.06/hr. combined.

Advocates for a minimum-wage increase, argue that raising the minimum wage would equate to more local spending. Notwithstanding, the increase in discretionary income throughout the region, the increase to the minimum wage will have real impacts to businesses and jobs.

It is important to acknowledge that the impacts to business are diverse as not every business will be impacted as greatly as others. For example, the impact of a minimum-wage increase on a hotel or motel owner would be far greater than the impact on a law firm or other operation, where employee wages may already exceed the suggested minimum wage increase.

In order to comply with this legislation, many small businesses will be forced to raise the wages of their employees over the next few years, regardless of the fact that the business may be prospering or faltering. Also, by not giving higher earning employees a raise, employers are inadvertently creating an atmosphere of favoritism or low morale, should they choose not to raise all employees’ salaries.

One of our members owns multiple retail gasoline, convenience stores and full service car washes in the region and employs line personnel that are making minimum wage. If those wages increase, the employer is then forced to give increases to other employees such as cashiers, supervisors and everyone else up the line. Over time, costs are going up approximately 11 percent and with costs going up every year by that amount you have to raise prices and automate services. The end result is that employees lose their jobs and the economy is impacted by the lost wages.

Raising the minimum wage will not close the gap between higher-paying and lower paying jobs. Because of other regulatory requirements, higher wages will not automatically equate to wage parity. Additionally, the minimum wage has always operated as the wage earning “floor” for employees. These wages are paid to those entry level jobs and employees with little or no experience. As employees gain experience and skills, it is expected that they would earn more thus allowing room for new jobs and professional growth.

Raising the minimum wage does not take into consideration the impact of all increases to wages and fees that have been passed on to businesses over the years. When the minimum wage is increased, so are other costs associated to a company’s bottom line such as workers’ compensation rates. Coupled with the loss of federal unemployment insurance credits and new legislation, such as the Affordable Care Act, the effect is a significant impact on any business.

A dangerous result of such a large increase in the minimum wage is a loss of jobs and higher costs for consumers. California already suffers and is known for one of the worst business climates in the United States and this new legislation adds one more challenge in keeping business open, operating and thriving in our state.

Businesses will be forced to cut labor costs and increase costs of their products and services. Hourly employees will likely see their hours cut to account for the impact to their employers. Continued investment into automation will also cut into the job market by eliminating the need to have lower-skilled employees. Raising the minimum wage for these jobs may in fact accelerate the decision to invest in automation technology.

The North San Diego Business Chamber is mindful of the many impacts this decision carries. With this unilateral raise in minimum wage, we will continue to put our region at a competitive disadvantage and make it tougher for business to stay in California.

Rosen is president and CEO of the North San Diego Business Chamber.