While the legislature is in session, the National Federation of Independent Business/California will be profiling anti-small business bills and initiatives and the adverse effect they would have on California’s job creators. This is the first column of the 2014 series.
Have you ever seen the movie “Groundhog Day”? It stars Bill Murray as a not-so-nice television weatherman who finds himself repeating the same day over and over again. I have a feeling that many in the small business community are feeling just like the character Murray plays. Except this time they are asking, “When will the barrage of bad bills from Sacramento ever end?”
Take for instance this week’s Main Street Menace – Senate Bill 935, which raises California’s minimum wage to $13 per hour by 2017. The measure also automatically indexes future increases to the California Consumer Price Index.
As a reminder to those of you in Sacramento in case you might have forgotten, the minimum wage was just increased last year to $10 per hour with the passage of Assembly Bill 10. AB 10 will cost employers annually over $4,600 per full-time minimum wage employee, including the 15 percent employer payroll tax and assuming they take two weeks off of work each year. For a small business with ten employees, that is $46,000 in increased costs! This money will have to come from somewhere, and based on what our small business members tell us, that means cutting employees’ hours or increasing the costs of goods and services, which will only hurt consumers. SB 935 seeks to increase employer costs by yet another $6,900 per year. This means that costs will go up by $11,500 per employee by 2017 over the 2013 rate. That is a whopping $115,000 increase for an employer of ten minimum wage employees! Keep in mind that many of these small businesses are already operating on razor thin margins.
Employers already face a barrage of high costs for doing business in California. We have the highest income tax rate in the nation, the highest sales tax, gasoline tax, franchise tax, and the highest corporate tax west of the Mississippi. We are the only state with cap-and-trade, which will greatly increase energy costs. We also have the harshest regulatory environment and highest litigation rate, and the federal Affordable Care Act will further increase costs for businesses. Increasing the minimum wage yet again will only result in the closure or shrinkage of many more small businesses, many of which are barely surviving the current economic crisis, yet create two thirds of all net new jobs. Just ask the many small hotel operators in Long Beach about the tough choices they were forced to make with fewer employees and higher room rates in the wake of the local living wage hike last year.
Now let’s have an honest conversation about who is truly impacted by an increase in the minimum wage. In small businesses, the lowest skilled employees are usually the ones who are hardest hit. A previous study by the NFIB Research Foundation found that nearly 50 percent of the time, small business owners would lay off employees, cut hours, or leave vacancies open. Many small business owners will consider price increases to compensate for increased wage costs. The truth is that employees pay for the minimum wage increase in the form of fewer hours, lost jobs and benefits, and increased living costs.
Minimum wage increases also put new cost pressures on all employers. Employers who are able to pay above minimum wage to be competitive will be forced to increase their wages, as well. Additionally, employees who started at minimum wage but have earned pay raises will see their status diminished as new employees start at higher levels. One-third of minimum wage employees work within the restaurant industry and make the majority of their wages tips. As one Southern California small business owner recently told me, “My employees who already make $50 an hour in tips just got a 25 percent pay raise.”
The minimum wage is a ‘starting wage’. According to the U.S. Department of Labor, Bureau of Labor Statistics report “Characteristics of Minimum Wage Workers” (April 2005) and the 2000 U.S. Census, 51 percent of all minimum wage earners are between the ages of 16-24 and 60 percent work part-time. For the most part, these young employees have little work experience and rarely remain at a starting wage level for long. The higher the minimum wage goes, the more likely entry-level workers are disqualified from getting their first job and “on the job training.” Small business owners have stated that they will no longer employ high school students or people with no experience. Just this week, the non-partisan Congressional Budget Office announced that raising the federal minimum wage to $10.10 an hour would cost the nation about 500,000 jobs. Aren’t we trying to get people OUT of the unemployment lines?
What small employer doesn’t strive to provide an enriching, meaningful and sustainable workplace environment for their extended family of employees? Unlike a big corporation, a small business considers their front desk receptionist, line cook or server their extended family – and unlike a big corporation, a small business is unable to absorb upwards of $46,000 in new costs.
Governor Brown is right to tell the legislature that now is not the time for new taxes. How in the world is a minimum wage hike not a tax?
Raising the minimum wage is nothing more than feel-good, election year policy created by politicians eager for votes but with no clue about how a small business operates or the serious fallout of boarded-up stores and pink slips that will come. If you truly care about the future of Main Street in your community – and the many entry-level jobs that come with it – you should not hesitate to urge your legislator to vote “NO” on SB 935.