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Leaving for Las Vegas: California's minimum wage law leaves businesses no choice
Leaving for Las Vegas: California's minimum wage law leaves businesses no choice
California’s minimum wage jumped to $10.50 an hour at the start of the new year. As the founder of a small fashion design house and clothing manufacturer in San Fernando, I’m not a disinterested observer in this change.
After two years in business, my company now has more than 150 clients from all over the world and 18 employees. It’s what’s known as a cut-and-sew house, part of the garment industry that generates about $17 billion in annual economic activity in Los Angeles County, including $6.9 billion in payroll, according to a 2016 industry report by the California Fashion Assn. This is the epicenter of apparel design and manufacturing in the United States; domestically manufactured clothing is more expensive, but retail and wholesale customers who care about quality and working conditions have historically been willing to pay for it.
Unfortunately, the industry is on a downward trend. Los Angeles County used to have more than 5,000 apparel factories; today, my company is one of roughly 2,000 — and many (e.g. American Apparel) are looking for a way out. One Los Angeles Times headline, quoting a California State University economist, warned that “the exodus has begun."
The biggest reason is the minimum wage, which will rise to $15 by 2021 in the county and by 2022 statewide. I write with some hesitancy, because I’m in no way an opponent of higher pay. When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.
Here's what the math looks like: I pay my employees $10.50 an hour, plus productivity bonuses. In addition, I pay payroll taxes and one of the highest worker compensation rates in the state. Even still, I could likely absorb a minimum wage as high as $11.50 an hour. But a $15-an-hour wage for my employees translates into $18.90 in costs for me — or just under $40,000 a year per full-time employee.
When the $15 minimum wage is fully phased in, my company would be losing in excess of $200,000 a year (and far more if my workforce grows as anticipated). That may be a drop in the bucket for large corporations, but a small business cannot absorb such losses. I could try to charge more to offset that cost, but my customers —the companies that are looking for someone to produce their clothing line — wouldn’t pay it. The result would be layoffs.
When Los Angeles County’s minimum wage ordinance was approved in July, I began looking at Ventura County, Orange County and other parts of the state. Then, when California embraced a $15 wage target, I realized that my company couldn’t continue to operate in the state. After considering Texas and North Carolina, I’ve settled on moving the business to Las Vegas, where I’m looking for the right facility. About half of our employees will make the move with us.
Nevada’s minimum wage is only $8.25 right now, so I can keep my current pay structure or possibly increase wages. Even in the event that Nevada raises its minimum wage, I’ll still be better off with reduced regulations, no state taxes, and significantly less expensive worker compensation insurance. I have had the opportunity to meet with Las Vegas city officials (including the mayor) and I am confident that we are entering a very business-friendly environment.
Still, if not for the $15 minimum wage, I’d have zero interest in leaving California. In some ways, it’s an ideal time to make clothing here. There's a huge demand for American-made apparel, and the industry infrastructure that exists in Los Angeles — from garment makers to sewing machine repairmen — is difficult to find elsewhere. But businesses can’t operate at a loss.
Today, it’s cool to be a tech startup in Silicon Valley, but not to be an apparel industry startup in the San Fernando Valley. That needs to change. Not everyone has the inclination or aptitude to write code for Google or Facebook. Moreover, the lifespan of tech startups is shockingly short: 30% to 40% collapse and another 40% get bought, putting people continuously on the hunt for the next job. That is no way to live or to raise a family.
We need more stable, blue-collar jobs in places like the San Fernando Valley — the kind I thought I was helping create. California, however, has put up a giant “Go Away” sign. If President-elect Donald Trump is interested in learning more about the hurdles to adding manufacturing jobs in America, looking at the Golden State’s steep pay requirements would be a good place to start.
http://www.latimes.com/opinion/op-ed/la-oe-salem-minimum-wage-20170102-story.html
California’s minimum wage jumped to $10.50 an hour at the start of the new year. As the founder of a small fashion design house and clothing manufacturer in San Fernando, I’m not a disinterested observer in this change.
After two years in business, my company now has more than 150 clients from all over the world and 18 employees. It’s what’s known as a cut-and-sew house, part of the garment industry that generates about $17 billion in annual economic activity in Los Angeles County, including $6.9 billion in payroll, according to a 2016 industry report by the California Fashion Assn. This is the epicenter of apparel design and manufacturing in the United States; domestically manufactured clothing is more expensive, but retail and wholesale customers who care about quality and working conditions have historically been willing to pay for it.
Unfortunately, the industry is on a downward trend. Los Angeles County used to have more than 5,000 apparel factories; today, my company is one of roughly 2,000 — and many (e.g. American Apparel) are looking for a way out. One Los Angeles Times headline, quoting a California State University economist, warned that “the exodus has begun."
The biggest reason is the minimum wage, which will rise to $15 by 2021 in the county and by 2022 statewide. I write with some hesitancy, because I’m in no way an opponent of higher pay. When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.
Here's what the math looks like: I pay my employees $10.50 an hour, plus productivity bonuses. In addition, I pay payroll taxes and one of the highest worker compensation rates in the state. Even still, I could likely absorb a minimum wage as high as $11.50 an hour. But a $15-an-hour wage for my employees translates into $18.90 in costs for me — or just under $40,000 a year per full-time employee.
When the $15 minimum wage is fully phased in, my company would be losing in excess of $200,000 a year (and far more if my workforce grows as anticipated). That may be a drop in the bucket for large corporations, but a small business cannot absorb such losses. I could try to charge more to offset that cost, but my customers —the companies that are looking for someone to produce their clothing line — wouldn’t pay it. The result would be layoffs.
When Los Angeles County’s minimum wage ordinance was approved in July, I began looking at Ventura County, Orange County and other parts of the state. Then, when California embraced a $15 wage target, I realized that my company couldn’t continue to operate in the state. After considering Texas and North Carolina, I’ve settled on moving the business to Las Vegas, where I’m looking for the right facility. About half of our employees will make the move with us.
Nevada’s minimum wage is only $8.25 right now, so I can keep my current pay structure or possibly increase wages. Even in the event that Nevada raises its minimum wage, I’ll still be better off with reduced regulations, no state taxes, and significantly less expensive worker compensation insurance. I have had the opportunity to meet with Las Vegas city officials (including the mayor) and I am confident that we are entering a very business-friendly environment.
Still, if not for the $15 minimum wage, I’d have zero interest in leaving California. In some ways, it’s an ideal time to make clothing here. There's a huge demand for American-made apparel, and the industry infrastructure that exists in Los Angeles — from garment makers to sewing machine repairmen — is difficult to find elsewhere. But businesses can’t operate at a loss.
Today, it’s cool to be a tech startup in Silicon Valley, but not to be an apparel industry startup in the San Fernando Valley. That needs to change. Not everyone has the inclination or aptitude to write code for Google or Facebook. Moreover, the lifespan of tech startups is shockingly short: 30% to 40% collapse and another 40% get bought, putting people continuously on the hunt for the next job. That is no way to live or to raise a family.
We need more stable, blue-collar jobs in places like the San Fernando Valley — the kind I thought I was helping create. California, however, has put up a giant “Go Away” sign. If President-elect Donald Trump is interested in learning more about the hurdles to adding manufacturing jobs in America, looking at the Golden State’s steep pay requirements would be a good place to start.
http://www.latimes.com/opinion/op-ed/la-oe-salem-minimum-wage-20170102-story.html
If California's housing was so costly, it wouldn't need a higher minimum wage. As it is, $10.50 is not nearly enough to cover the high cost of living in the golden state.
1 Comments
Taxation is the reason a lot of those companies are going to Vegas and in some circumstances Reno. Been happening for years.
The last clothing manufacturer that didn't use undocumented/slave labor to produce their goods left California 40 years ago. This is last century's news, or someone blaming his business' problems on trying produce the wrong goods, in the wrong place, at the wrong time.
Increase in minimum wage has been studied many times over in different parts of the country.
http://irle.berkeley.edu/files/2014/Local-Minimum-Wage-Laws.pdf
"...Labor economists continue to debate the actual impacts of the minimum wage on
employment and hours. We discuss in our assessment the most rigorous studies and offer a
non-technical explanation of the nature of the disagreements in the research literature.
• To date, three rigorous studies have examined the employment impacts of San Francisco’s
and Santa Fe’s local minimum wage laws. Each finds no statistically significant negative
effects on employment or hours (including in low-wage industries such as restaurants).
• A larger body of economic research investigates the effects of state and federal minimum
wage increases. These studies compare employment trends for states or counties that have
different minimum wages. The best studies make comparisons to nearby states or counties
to control for regional economic trends. These studies also find no statistically significant
negative effects on employment or hours at an aggregate level or for low-wage industries
such as restaurants and retail stores, or for specific groups of workers such as teens. These
studies also do not find substitution effects (such as shifts in hiring away from black and
Latino teens)..."
Increase in minimum wage has been studied many times over in different parts of the country.
http://irle.berkeley.edu/files/2014/Local-Minimum-Wage-Laws.pdf
"...Labor economists continue to debate the actual impacts of the minimum wage on
employment and hours. We discuss in our assessment the most rigorous studies and offer a
non-technical explanation of the nature of the disagreements in the research literature.
• To date, three rigorous studies have examined the employment impacts of San Francisco’s
and Santa Fe’s local minimum wage laws. Each finds no statistically significant negative
effects on employment or hours (including in low-wage industries such as restaurants).
• A larger body of economic research investigates the effects of state and federal minimum
wage increases. These studies compare employment trends for states or counties that have
different minimum wages. The best studies make comparisons to nearby states or counties
to control for regional economic trends. These studies also find no statistically significant
negative effects on employment or hours at an aggregate level or for low-wage industries
such as restaurants and retail stores, or for specific groups of workers such as teens. These
studies also do not find substitution effects (such as shifts in hiring away from black and
Latino teens)..."
3 Comments
If Berkeley did the study, you know its spot on.
Every fascist propagandist from Limbaugh to Bannon has perpetuated that stereotype. When your kid wants the world's best education in physics, chemistry, engineering and economics he'll be competing to get in here with students from all over the world with perfect SATs and 4.0 GPAs. Tell him to bring his diploma from the Creation Museum, his total lack of knowledge of physics and chemistry that climate change denial requires, and of course, his vouchers to pay for it.
Berkeley is nothing short of a junk show. These people are claiming to be concerned about other peoples right all the while denying other people of theirs. And I have personal dealings with professor from Berkeley who lost his mind but is still on campus bloviating his liberal bias.
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