Ill-Conceived Minimum Wage Hike Hurts More Than Just Small Biz

John Kabateck
NFIB State Director in California

Despite 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% 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.

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