Now that the Los Angeles County Board of Supervisors (LACBOS) has approved a motion to move forward with a minimum wage increase to $15 an hour by 2020 in unincorporated areas, nearly half of L.A. County’s population is subject to a higher minimum wage. Although Torrance businesses remain obligated to only pay the state minimum wage rate of $9 an hour, many are deciding to raise their wages to keep employees from leaving for higher wage paying areas.
Torrance business owner Rob Van Lingen thinks the county’s vote was a pivotal shift of balance in the labor market. “Whether I like it or not, $15 an hour will be the de facto wage for the region,” says Van Lingen. “Because half of the county now pays the higher wage, it will be hard for Torrance businesses to be on an island of their own. I have to make sure my business maintains competitive wages with the rest of the county.”
Businesses that employ a high number of minimum wage workers will be most impacted. Restaurants are believed to be among the hardest hit. Bob Brandt, owner of Red Car Brewery and Restaurant in Downtown Torrance, notes that 60 percent of his workforce is comprised of minimum wage earning workers but believes the minimum wage increase will also affect his other workers. “A minimum wage increase doesn’t just impact minimum wage workers,” says Brandt, “it also has the unintended effect of bumping up all hourly wage workers.”
Brandt points out that as his payroll costs increase, so do his insurance costs. When all of the costs are added up, Brandt finds that each incremental dollar increase will cost his business $160,000 per year culminating in total costs of $800,000 by 2020. Brandt has sympathy for the need to address income inequality but feels minimum wage fails to get to the root of the problem. “Most of my minimum wage workers are servers who also earn substantial compensation from tips. When total compensation is considered, all of my servers earn well above minimum wage,” comments Brandt. “Some of my servers actually earn a higher hourly wage than I do when tips are factored in.” California is one of the few states in the nation that does not include tips as part of a server’s hourly wage.
The wage increase will cause Brandt’s labor costs to absorb 40 percent of his sales revenue. As a result, Brandt plans to increase his prices by 11 percent annually to offset the added costs. “A burger and a beer at today’s prices costing $20.45 in five years will cost my customers $33.95,” he says.
Kirk Rossberg, owner of Torrance Bakery, will also raise his wages to stay competitive. “This means that the $14.00 an hour baker who has worked hard and has been rewarded with raises for his efforts will now expect to earn $19.00 an hour,” Rossberg says. “He will not be happy with a dollar raise that would put him back on minimum wage.” Rossberg notes that 50 percent of his Bakery’s revenue goes to payroll and on a good year, his profit margin is 5 percent. “My business cannot absorb this increase without raising our prices,” he says. “Our best guess is that we would need to raise our prices a minimum of 31 percent to stay in business.”
Torrance businesses are not alone. A recent study of the ordinance conducted by the Los Angeles County Economic Development Corporation (LAEDC), found that of the businesses not directly impacted by the county’s minimum wage increase (i.e., Torrance and other incorporated cities), 66 percent plan to match it. Additionally, nearly all of the businesses surveyed with minimum wage workers said they plan to increase their prices to offset the incurred costs.
As competition heats up between local jurisdictions for the highest-skilled workers of the low-skilled labor market, increased competition is also believed to exist between jurisdictions for businesses that are looking to move out of higher minimum wage areas to lower minimum wage areas. However, Donna Duperron, president and CEO of the Torrance Area Chamber of Commerce, thinks the competition for labor will be more prevalent than the competition for businesses. Duperron admits she has had one L.A. business contact her office to move into Torrance from L.A. but does not expect there to be many more. She says, “It is not cheap for business owners to move their businesses, especially small business owners. On the other hand, workers are easily able to leave their employer for a new job just a few miles away in L.A.”
To Duperron’s point, 0 percent of businesses surveyed in the LAEDC study said it was likely they would move their business to a community with a lower minimum wage.
Only time will tell what the inter-jurisdictional ramifications of a 60 percent minimum wage increase for half of the county will be; regardless, high prices may be coming to a store near you.