Should Oakland voters have a case of buyer’s remorse on minimum wage?
Author: Michael Saltsman
Publication Date: May 2015
Newspaper: Contra Costa Times
Topics: Minimum Wage
The Oakland minimum wage rose by 36 percent to $12.25 on March 1, following ballot-box approval this past November. Proponents from a labor-union backed coalition called Lift Up Oakland argued that the new mandate would be good for business, and that the city’s small businesses might even “appreciate” the new mandate.
But press reports and a new survey of more than 200 Oakland businesses paint a very different picture of unreasonable cost increases and unintended consequences.
Indications that Oakland’s new minimum wage was a larger burden than advocates had acknowledged arrived not long after the law took effect.
In a series of reports in various local newspapers, including this paper, restaurateurs reported raising prices by as much as 20 percent. Not all businesses had this luxury: One paper interviewed a member of the Oakland Chinatown Chamber of Commerce who noted that ten businesses had closed up shop for good.
Due to a quirk in California labor law that doesn’t allow tips to be recognized as income, some of the city’s restaurants also eliminated tipping in favor of a menu surcharge. This policy change helps fund raises for the rest of the restaurant’s staff, but reduces take-home pay for servers.
At one restaurant, Bocanova, employees who once earned up to $70 an hour with tips included now earn a flat hourly wage of $22 to $28. This paper reported that 60 percent of the restaurant’s wait staff quit as a result.
To expand on these anecdotes, my organization worked with a survey research firm and contacted 223 mostly small businesses in the city between March 23 and March 25, all of whom were affected by the wage increase to $12.25.
Of the businesses surveyed, 56 percent reported a large increase in labor costs. One in five of those able to estimate the size of the cost increase put it at greater than 20 percent.
To offset that cost, 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.
Consistent with the reporting on Oakland’s Chinatown, 27 percent of surveyed businesses reported that they were “somewhat” or “very” likely to close their doors altogether.
In follow-up conversations with one of the survey participants, a family-owned sewing business, the owner reported cutting staff from five or six additional employees down to one or two additional employees. She’s going to try this staffing arrangement for up to a year, and close down if it isn’t feasible.
Another survey participant, who owns a seafood restaurant in Oakland, has cut two people from his staff since March 1 just to make ends meet. Like the sewing business, 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. Muriel Sterling, who’s operated Sterling’s Family Childcare since 1974, 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 child care rates to come. Press reports indicated that the Salvation Army’s child care center was facing a $146,000 hole in its budget, and “scrambling” to fill the gap and avoid cuts.
Proponents of Oakland’s law — including a former living-wage organizer who’s now part of a research team at UC Berkeley — have chalked up potential small business closures to “churn” in the economy. One representative for the Lift Up Oakland coalition even suggested that child care cuts related to the $12.25 minimum wage might not matter, because employees’ higher pay could mean “less child care is needed in the first place.”
Destroying job opportunities for the many to give higher pay to a few is not a sustainable strategy to build a city’s economy, a lesson that Oakland is learning the hard way. The important question now is whether other cities in the Bay Area and beyond will heed the warning.