Our Business's Response to California $2 Minimum Wage Increase

Well, we have completed our response to minimum wage increases in California.   As a review, California is raising its minimum wage from $8 to $10 (or 25%)  in two steps starting this July 1.  I will confess that in some of these cases the causes are complex, and are not just due to minimum wage changes but also other creeping California regulatory issues (particularly the first two).

  • Suspended operation and closed on large campground in Ventura County that employed about 25 people
  • Suspended investment / expansion plans at two other campgrounds
  • Raised prices everywhere else, on average adding $3 to a $20 camping fee.   (this is inevitable when wages are increased 25% in a business where more than half the costs are tied to wages and margins are around 5%)

The only reason I take the time to write this is that I think this tends to demonstrate that 1) minimum wage increases can have a real economic impact and 2) just looking at job losses after the date the wage takes effect can miss most of this economic impact.

To this latter point, a lot of the impact is not necessarily job losses.  We see lost investment, which perhaps means fewer jobs in the future but there is no way to measure that.  We see price increases, which affects consumers and disposable income.  And we see some job losses, but note that the job losses were 6 months before the law goes into effect.

We are left with a certainty that the minimum wage had a real economic effect but a suspicion that, at least in this case, that effect would not be measured.

By the way, there may also be a lesson here for those who believe that the entire problem in the economy is one of not enough aggregate demand.  In the last month I walked away from a million dollars a year of demand, because it was impossible to serve profitably, in large part due to regulatory issues.

  • Old Lessons

    San Francisco has both a living wage policy, for all businesses, and a Prevailing Wage policy for any business providing sub-contracted services to the City, (not just construction). There are also City wide policies that regulate hours, conditions and health care in addition to CA state law. These have caused many industries that employ lower skilled workers to close or relocate. And while some might call this an unintended consequence, I believe it to be the purpose of such regulations. It allows government to sound noble while simultaneously eliminating low tech industries that generate lower tax revenues to the City.

    My San Fran based business provided clerical type services to both public and private organizations with our pricing to the City set by competitive bid. The moment this legislation took effect, we were required to pay our employees the city mandated prevailing wage. As you might guess, we were not able to change our contracted pricing to the City to include these higher City mandated labor costs.

    Over time we lost every City contract to companies located outside San Fran who were not subject to these higher labor costs.

    To summarize, I loved my employees and would happily pay them what ever the company could afford. But when government acts so cynically by trumpeting higher wages for low skilled workers while simultaneously rejecting all but the low bidder, they reveal their true contempt for the very people they claim to want to help.

  • BonafideView

    Dear Coyote,
    It is disheartening to learn of your pull back in plans particularly when you are ready and willing to put the energy into moving forward. It reinforces my belief that the biggest blockade to turning our economy in the right direction is a government where oppressive regulations come before common sense. The idea of reasonable trade off for best use of resources is foreign to our present rule-makers. If our California "leaders" (and their constituency of blind "followers") put any rigorous thought into their decisions they could allow the people to grow opportunities once again. I long for the day when our government returns to a proper purpose of maintaining a civil society that we people can work within rather than trying to micromanage 38 million of us.
    It is so unfair Coyote. You are one of those who makes this country a better place because you participate in a productive manner. And at least 25 people won't be able to have the job many dream of having at one time or another; working in a beautiful park.
    All because those 25 people are under the rule of a regulatory agency (our entire present government) that claims it is "helping" them.
    Sincerely, an ashamed Californian

  • http://itsaboutliberty.com/index.php MNHawk

    Are you considered a federal contractor, in any way, to be affected by the unilateral declaration of a $10 NATIONAL minimum wage for employees of such?

  • vsevolod4

    This is the only rational response for thousands of businesses out there.
    That and investing in automation. When politics trumps economics and the government forces a violation violation the laws of supply and demand, the market will find a new equilibrium. The demand for La will fall (fewer jobs) and consumer prices will rise (less disposable income, inflation negating the intended gains). Companies will also invest in automation, just as millions of jobs for telephone operators, secretaries, stenos, toll takers, bank tellers have been automated away. McDonald's, Walmart nd the like can either raise prices, hurting the poorest people the most, or slow down jobs growth, or replace burger flippers, order takers, checkout clerks with technology.
    If government wants to redistribute money, it should at least redistribute it from everyone, not by mandating redistributing on the backs of the entities which train the most people for their first job.

  • Gil G

    And if the minimum wages was instead lowered to, say, $4 an hour then would same said employees instantly get a pay cut?

  • sean2829

    I guess that goes to all levels of government in California. The components for the new Oakland Bay Bridge were largely built in steel mills in China.

  • marque2

    Probably not , because the 7 dollar employee is already proving to be of $7 value. Labor prices are determined by productivity and market forces. If you live in a state like North Dakota - employees would laugh if you offered them even the $7.

  • irandom419

    According to the experts what you experienced is not typical. I assume you are lying since all capitalists that exploit unskilled workers lie by providing a paltry paycheck. :-)

    http://www.raisetheminimumwage.com/pages/job-loss

  • Shovo Shake

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