How to kill jobs & close doors — a minimum-wage warning to New York

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2015

  • Newspaper: New York Post

Couples across the country spent Valentine’s Day watching the rom-com “You’ve Got Mail,” where Tom Hanks and Meg Ryan fight over customers as his bookstore behemoth threatens to gobble up her neighborhood Shop Around The Corner.

That storyline resonated with viewers in 1998, and today the threat to locally owned bookstores in the big city remains real. But it’s no longer the Borders and Barnes & Nobles of the world that put them at risk — it’s increases in the minimum wage.

Right now, the city of San Francisco is learning that lesson the hard way. Mayor Bill de Blasio and Gov. Andrew Cuomo, with your proposals to raise New York City’s minimum wage, please take note.

The backstory: In November, San Francisco voters approved a ballot proposal to rapidly raise the city’s minimum wage to $15 an hour by 2018. Advocates claimed the policy would help employees make ends meet and perhaps even stimulate the economy in the process.

Three months later, the Election Day glow has worn off and economic reality has set in. Two popular local restaurants have already closed, citing the wage hike as a factor, and another is set to follow suit.

But it’s not just eateries facing problems: Borderlands Books, a local bookseller specializing in science fiction, announced it would also close at the end of March.

The owner, Alan Beatts, explained on the store’s website that he had survived the Great Recession, the rise of Amazon, and even the advent of e-books.

But Beatts — who’s not against a higher minimum wage in principle — said his city’s $15 mandate proved more than his business could handle by raising prices or cutting costs.

A team of left-leaning researchers at the University of California Berkeley had argued that the higher operating costs from the new wage mandate would be negligible — just two-tenths of 1 percent in the retail industry. But when Beatts did the math for his store, he realized that his operating cost would jump closer to 18 percent — meaning the Berkeley analysis was off by a factor of 90.

When businesses with tight profit margins see their labor costs spike, they’re typically left with two hard options: Raise prices or cut costs. But book prices are printed on the cover, so a price hike wasn’t an option for Beatts.

Cutting costs was also a non-starter: The staff cuts required to absorb the wage hike would’ve forced Beatts to shoulder an unrealistic workload while maintaining his own $28,000 yearly salary.

In the end, Beatts concluded: “Borderlands Books as it exists is not a financially viable business if subject to that [$15] minimum wage.”

It’s not unusual for a minimum-wage hike to have such consequences, however unintended. The nonpartisan Congressional Budget Office concluded that a nationwide $10.10 minimum wage would eliminate a half-million jobs — opportunities that now exist at bookstores, restaurants, hotels and grocery stores.

And the CBO drew its conclusions based on past minimum-wage hikes that weren’t anywhere near the $15-an-hour figure that was passed in San Francisco. So it’s not surprising that an unusually large wage hike is leading to unusually large consequences, including business closures.

This story’s ending doesn’t have to be a sad one. De Blasio and Cuomo could use San Francisco as a cautionary tale and drop their demands for huge minimum-wage hikes. Instead, they could opt for better-targeted policy strategies that boost wages and reduce poverty without reducing jobs.

If they do follow San Francisco’s path, the heartbreak of lost jobs and closed doors in the City by the Bay will be coming soon to the Big Apple.