Minimum Wage Deja Vu

This letter to customers from San Francisco bookstore Borderlands is making the rounds.  Apparently, the new "living wage" legislation in San Francisco is killing this store:

In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018.  Although all of us at Borderlands support the concept of a living wage in [principle] and we believe that it’s possible that the new law will be good for San Francisco – Borderlands Books as it exists is not a financially viable business if subject to that minimum wage.  Consequently we will be closing our doors no later than March 31st.  The cafe will continue to operate until at least the end of this year.

I find the authors surprisingly open to the Progressive assumptions behind this bill, despite the death of their business.  I don't know if this is a pair of hipsters destroyed by their own cause, or if the nods towards Progressivism are merely boiler plate that is required in any San Francisco conversation, like having a picture of Lenin on your wall in Soviet Russia.

Anyway, I found the language here familiar because I spent most of last year writing such letters to angry customer bases.  In our case, fortunately, we had the ability to raise prices so the letters were to defuse customer irritation rather than to announce a closure.  Here is one example I wrote in Minnesota:

Labor and labor-related costs (costs that are calculated as a percentage of wages, like employment taxes) make up nearly 50% of our costs.  The Minnesota minimum wage is set to rise from $7.20 to $9.50 in the next two years, an increase of 31%.  Since wages and wage-related costs are half our expenses, the minimum wage increase raises our total costs by 15.5%. This means that all by itself, without any other inflation in any other category of expenses, the minimum wage increases will drive a $3.10 increase in our camping fees (.155 x $20).  Note that this is straight math.  The moment the state of Minnesota passed their minimum wage increase, this fee increase was going to be required.

One of the problems with these minimum wage increases is that the people behind them, with their hazy assumptions and flawed understanding of economics, typically think that companies will just absorb the increase.   Our net profit margin runs in the 4% range, so it difficult to see how any such retail company can absorb a 15+% cost increase, but it happens all the time.  After some trial and error, the "this is straight math" phrase seems to work the best in communicating the need for price increases.

  • Canvasback

    This is delicious. Lefties love to hang out in bookstores and think big ideas. You wonder if they'll be able to make the connection between big ideas and the closing of one of their favorite hangouts.

  • Jim Collins

    "this is straight math", now you know why they are trying to get this Common Core math off the ground. If it ever gets going, people won't be able to do straight math and things like this can be hidden.

  • mogden

    The solution is simple. A new law should make it illegal to close a business based on minimum wage increases.

  • Matthew Slyfield

    " You wonder if they'll be able to make the connection between big ideas and the closing of one of their favorite hangouts."
    I doubt it.

  • Mark

    I definitely doubt it. I just saw a comment to the effect that book stores are a good thing, but they are not a charity(!) and need to pay their workers a "fair" wage. No recognition that the new "fair" wage really means no wage for many.

  • Daublin

    A few months ago, a local business raised its fees, and they sent out a letter to everyone to say it was to cover the costs of the employer mandate for health coverage. The employer mandate is very much like the minimum wage: it's part of the minimum compensation package.

    My Democrat friends seethed and fumed about this, and wrote angry letters back to the business. They claim that there's no way the employer mandate raised costs for anyone, much less this particular business. They claimed, therefore, that the business was just trying to make excuses, or maybe even to insert a dig against the Democrats.

    I found it surreal to listen to this diatribe. I can only imagine that it's worse in San Francisco.

    I'm impressed that $15/hour passed. Then again maybe not: it's increasingly a place where poor people just aren't allowed within the city limits.

  • joshv

    Interesting, why can't they sell a book for more than its suggested retail price? That seems to be more of the problem here. Businesses should be free to price their products however they want to. Then they should be able to absorb any regulatory dictate.

  • Chris Smith

    Their arrangement with the publishers is "Sell books are the Suggested Retail Price, and we'll give you a refund on any books you don't sell."

    Sell for more than the SRP is a bad idea, because people will just go out and order the books from Amazon.

  • Canvasback

    Why can't employees price their own labor instead of having to obey regulatory dicktaters?

  • Tuesday Is Soylent Green Day

    What the book store should have done is lay off all staff except one and make that one work 10 times harder for their minimum wage.

  • Mike Powers

    People who've never run a business don't understand how little profit businesses actually make. Or, even if told, they'll just say "well they should cut costs elsewhere like in marketing".

    I remember a discussion where I showed someone Pfizer's annual report with a 5% overall profit margin. He replied that Pfizer was clearly lying because "they have so much money, where do you think it all comes from?"

  • J K Brown

    They actually address this option in the larger letter. They would be down to the two managers, one working the counter almost exclusively. In the end, in 2018, the manager would, assuming he could find a job, make more working 40 hours at some other minimum wage job with less stress and responsibility. All in all, bookstores are not viable businesses in San Francisco. Perhaps some rich Google employee will open one as a vanity business?

  • J K Brown

    But, soon, they'll be able to take the high speed train to buy the book outside the city where business costs are lower. Then they'll have a book and an adventure.

  • http://occamsrazr.com Ike Pigott

    But there will be no 40-hour per week minimum wage jobs. They will all stay under 25 to avoid full time status and benefits.