Oakland’s costly gamble with spiking its minimum wage

Original Article: http://www.ocregister.com/articles/wage-705902-oakland-minimum.html

  • Author: Michael Saltsman

  • Publication Date: February 2016

  • Newspaper: OC Register

  • Topics: Minimum Wage

On March 2, 2015, Oakland raised its minimum wage by 36 percent overnight, from $9 an hour to $12.25. One year later, advocates may be ready to celebrate, but the evidence suggests that their rose-colored predictions of minimum wage benefits haven’t come to pass.

The evidence of Oakland’s mistake started appearing early. Soon after the wage hike came into effect, the San Francisco Chronicle reported that 10 grocery stores and restaurants in and around the city’s Chinatown district were closing, partially because of the increased labor costs associated with the wage hike. Among the closures was Legendary Palace, one of two banquet restaurants in the neighborhood.

Next, it was reported by the Los Angeles Times and my organization that several day-care centers in low-income Oakland neighborhoods were struggling to adapt to the wage hike. Sterling’s Family Childcare was forced to reduce hours for its employees, and eventually had to let a staff member go. The owner, Muriel Sterling, also had to eliminate free rides to the center that she provided to members of the community who didn’t have transit options.

Similarly, Reaching Beyond Care on East 12th Street was forced to shave employee hours and lay off one of its assistants to try to adapt to the wage hike. One employee, Eunice Medina, was initially excited about a “raise” from the minimum wage hike, but almost as quickly found that her hours were cut from eight per shift to six.

Other low-margin businesses in Oakland suffered similar fates. A seafood restaurant we spoke with (who didn’t want to be identified) laid off two of its employees as a direct consequence of the wage hike. A local apparel manufacturer who also requested anonymity cut its workforce in half to try to adapt to the increased labor costs. Numerous local restaurants, including Bocanova, Camino and Pizzaiolo, have raised meal costs by up to 20 percent and changed their business models to try and adapt to the higher costs.

Even Wal-Mart felt the pinch from Oakland’s dramatic wage hike. The giant retailer decided to close its Oakland stores at the end of last month. Oakland Councilman Larry Reid told the Chronicle: “The minimum wage in the city of Oakland played a factor, was one of the factors, they considered in closing the stores.” The retail giant left open two stores in San Leandro, which shares a boundary with Oakland but doesn’t set its minimum wage above the state requirement.

What do childcare providers, retailers, restaurants and these other businesses have in common? They all face narrow profit margins and price-sensitive clientele, which means adapting to a higher minimum wage is not as simple as raising prices or absorbing it. Instead, they are forced to cut costs elsewhere, often starting with staffing levels. In worst-case scenarios, they have to close their doors.

Other Bay Area cities that have dramatically increased their minimum wages are encountering similar negative effects, whether it’s a coffee shop in Berkeley or a favorite local restaurant in San Francisco. (Many stories can be found at Facesof15.com.) But it’s worth reflecting on the riskiness of Oakland’s particular minimum wage experiment, where the increase happened in one fell swoop. The federal minimum wage was increased by roughly the same percentage as Oakland’s over a three-year period – and even that didn’t mitigate the harm.

As more data is released by the Census Bureau, we’ll be able to draw more conclusions about the impact of the wage hike on the city’s entry-level workforce. The early numbers aren’t promising. In 2015, Alameda County – where Oakland and its high-wage brethren of Berkeley and Emeryville are located – actually enjoyed a lower unemployment rate (4.7 percent) than the state of California (6.2 percent). However, the same can’t be said for the county’s young adults, who faced a staggering 24 percent unemployment rate, compared with the statewide 21 percent rate.

One year ago, Oakland voters hoped they could lift up the city’s lowest-earning residents with this minimum wage increase. Instead, they left many of them without any earnings at all.