An object lesson in how a minimum wage of $15 kills many small businesses. On January 1, California’s minimum wage went up to $10.50 an hour and by 2021, the minimum wage will reach $15 per hour, the number that has gained a great deal of attention over the years as “the fight for 15” movement has gained traction.
One local business owner in the state penned on op-ed in the Los Angeles Times that laid out the case for why it’s not workable for many small businesses.
The Federalist Papers report,
Houman Salem wrote that he is “the founder of a small fashion design house and clothing manufacturer in San Fernando.” He continued:
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.”
Salem noted that while he’s not an “opponent of higher pay,” and that he has “genuine concern” for his employees, there are certain financial limitations that he went on to break down:
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.
The wage increase has pushed Salem to move to Las Vegas, Nevada, where the minimum wage sits at $8.25 an hour.
Read more at The Federalist Papers