Oakland minimum wage hike burdens businesses, hurts employees
Author: Michael Saltsman
Publication Date: April 2015
Newspaper: California Political Review
Topics: Minimum Wage
Oakland’s minimum wage rose by 36 percent to $12.25 less than a month ago, but the city’s neighbors to the north in Emeryville are already trying to follow suit. This week, the City Council settled on a plan to increase the minimum wage by 36 percent for smaller businesses, and by 60 percent for larger businesses.
Before acting on this plan, the council would be wise to take a closer look at what’s happening in the city it’s trying to emulate.
Oakland’s minimum wage increase was approved by voters in November, following a campaign by proponents in a labor union-backed coalition called Lift Up Oakland. Their argument, which can still be viewed at LiftUpOakland.org, was that increased labor costs would be good for business — indeed, that smaller businesses would even “appreciate” the new mandate.
A team of researchers at the University of California-Berkeley, including a former living-wage organizer from San Francisco, reached a similar conclusion: The costs of the mandate would be negligible, and the benefits would be substantial
However, a series of news articles published in the weeks since the minimum wage took effect — in publications such as the East Bay Express and the San Francisco Chronicle — suggest that costs of the new minimum wage are real. Restaurants have reported raising prices by as much as 20 percent, hoping customers won’t be turned off. The Chronicle interviewed a member of the Oakland Chinatown Chamber of Commerce, who noted that (predictably) some businesses have closed up shop for good.
To expand on these anecdotes, we worked with a survey research firm and contacted 223 mostly-small businesses in the city between March 23rd and March 25th, all of whom were affected by the wage increase to $12.25. What we found in these conversations was a sentiment far different than appreciation.
Of the businesses surveyed, 56 percent reported a large increase in labor costs. One in five of those businesses who were able to estimate the size of the cost increase pegged it at greater than 20 percent.
Customers might expect price increases following a minimum wage increase, and indeed, 47 percent of surveyed businesses reported raising prices. But the law didn’t just cost customers — it cost employees, too. For instance, 30 percent of the surveyed businesses either reduced their employees’ hours or their hours of operation. Seventeen percent — or about one in six — laid off employees or otherwise reduced staffing levels. Perhaps most concerning, 27 percent of surveyed businesses reported that they were “somewhat” or “very” likely to close their doors altogether.
In follow-up conversations after the survey was complete, we spoke with some of these “likely” businesses. One husband-and-wife team, who’ve owned a sewing business in Oakland since 1990, cut their staff from 5-6 additional employees down to 1-2 additional employees. One of the business owners said they’re going to try this overworked arrangement for 6-12 months — and close down if it isn’t feasible.
At a seafood restaurant in Oakland that’s been open less than a year, a similar dynamic applies. The owner, who used to operate with three additional employees, has cut two people from his staff since March 1st just to make ends meet. His wife sometimes comes in to help with the restaurant. Like the husband-and-wife sewing team, he said it’s possible he’ll close if he can’t make the low-staffing model work.
Child-care providers have also been pinched. The Chronicle reported the Salvation Army’s childcare service was “scrambling” to fill a $146,000 hole that the minimum wage increase ripped in its budget. One small provider I spoke with, Muriel Sterling, has had to make cutbacks for the first time in her business’s existence: Employees are working fewer hours, and she’s posted a sign warning of higher childcare rates to come — which typically means a loss of business.
Members of the Lift Up Oakland coalition have shown a surprising lack of empathy for the damage they’ve wrought. When asked about the deleterious impact on childcare services, for instance, a spokeswoman said they “did not specifically analyze impacts on all industries.” Oops.
She offered that the childcare cuts might not matter, because employees’ higher pay might create a beneficial situation where “less child care is needed in the first place.” This response highlights perfectly the economic illiteracy that underpins these campaigns. Instead of destroying job opportunities for the many in order to give higher pay to a few, we should create more pathways for all to a better-paying future.
It may be too late for Oakland to learn this lesson — but Emeryville still has a chance.