Following in the footsteps of cities in northern California, San Diego is weighing an increase to its minimum wage that small business owners warn could serve as a “job killer” for them.
The city is gearing up to vote on a proposal to raise its minimum wage to $10.50 an hour—50 cents higher than the state’s current minimum wage—after election results are certified. Beginning Jan. 1, 2017, the minimum wage would increase to $11.50 an hour, with annual increases scheduled to take place beginning in 2019.
The plan, approved by the city council back in 2014, also requires businesses to provide full-time workers with five paid sick days and part-time workers with one hour of sick leave per 30 hours worked.
Though San Diego residents won’t hit the polls to vote on the proposal until June 7, small businesses in the area are bracing themselves for the impact of an increase to the city’s minimum wage.
“It’s not a win-win,” Mark Klaus, president of Home of Guiding Hands, told The Daily Signal. “It’s a lose-lose for us.”
Based in San Diego County, Home of Guiding Hands is a nonprofit that provides programming and housing to children, teens, and adults with developmental disabilities. The nonprofit operates residential homes located within and outside of San Diego city limits, and Klaus said a minimum wage hike affects his organization and others like it in a unique way.
“Our rates are set by the state,” Klaus said. “There’s no way that we can raise our rates. It’s against the law. We’re at a point that if San Diego moves the minimum wage to within six months after this referendum passes to $11.50 an hour, that’s a significant burden for us and other providers that really have no way to pass on these costs.”
To compensate for a minimum wage hike, Klaus said the state would need to adjust rates accordingly.
The Democrat-controlled San Diego City Council first approved the plan to raise the city’s minimum wage in July 2014, but the proposal was later vetoed by Republican Mayor Kevin Faulconer.
After the city council voted to override his veto, the San Diego Chamber of Commerce launched a petition to force a public vote. The group collected the necessary signatures, and the city council placed the proposal on the June primary election ballot.
Approximately 172,000 San Diego residents will receive a raise if voters pass the minimum wage hike in June, City Councilor Todd Gloria told news outlets. Another 279,000 would earn paid sick leave, he said.
However, Ann Kinner, owner of San Diego-based Seabreeze Nautical Books and Charts, said the minimum wage hike would be a “job killer.”
“It’s important that people understand the impacts of things like this ‘do-good’ impulse to give everybody a sustaining living wage,” Kinner told The Daily Signal. “I’m sorry. You can’t. It doesn’t work like that. The inflationary part of it is totally out of people’s understanding. You increase my cost, I have to increase something.”
Kinner’s store specializes in nautical books and charts, and her clients include the U.S. Navy and Coast Guard, as well as tugboat captains and fishing fleets.
The prices of the books and charts she sells are set by publishers and the federal government, respectively, which limits how much Kinner can increase the prices of her products if her labor costs go up.
“When my payroll goes up, I pay more to my payroll processing company. All of these things add to my costs, and I can’t magically increase the number of people walking in my front door to increase my sales. It would be lovely if it worked that way,” she said. “My alternatives are, I cut back on the hours I’m paying somebody. Eventually, if it gets squeezed enough, I close the store.”
When Kinner, who took over ownership of Seabreeze Nautical Books and Charts in 2004, first heard that the City Council was planning to pass the minimum wage hike two years ago, she decided to lend her name to the top of the petition and has since been a vocal opponent of the increase.
“I was looking at my neighborhood, and I was looking at the impact it was going to have on me and on my friends,” Kinner said. “All these costs keep going up. You’ve got automated checkouts in the CVS and in the Ralphs market where we used to have live people. You want to keep increasing the minimum wage, you’re going to see more and more and more of that.”
Kinner employs one person at Seabreeze Nautical Books and Charts and has cut her own salary to keep up with the rising labor costs. However, the latest statewide minimum wage hike—to $10 an hour, which took effect in January—coupled with the looming potential for another increase to the minimum wage in San Diego, has Kinner worried about the future of her business.
“I have said on a couple of occasions I don’t want to be at the helm when Seabreeze sinks, and that’s something that’s very real and concerning to me,” she said. “I have to deal with it as best I can and then figure out what we’re trying to make it keep going. How much longer can I handle it? It’s day-to-day at this point. It’s one day at a time.”
‘Get Government Out of the Way’
According to a January analysis by Investor’s Business Daily, six U.S. cities that raised their minimum wages to $10 an hour or more in 2015 saw jobs decline in the leisure and hospitality industries, two industries that thrive in San Diego. Though the analysis relied on preliminary data, the jobs numbers showed consistency in job losses across the different cities.
“These guys just don’t understand economics, and the idea we’re going to take working class people that have these jobs and turn them into middle-class jobs by artificially inflating wages is silly,” Jason Roe, president of the San Diego Small Business Coalition, told The Daily Signal. “The only thing we’re going to be inflating is unemployment.”
Roe’s group was born out of the San Diego Chamber of Commerce, which is opposed to the city’s proposal, but now operates independently of the Chamber.
Though advocates of a minimum wage hike say that it would help families make ends meet, particularly in an area where the cost of living is high, Roe said that more than half of those working in minimum wage jobs are under the age of 25, as opposed to heads of households working to feed their families.
“Most minimum wage jobs are supplemental,” he said.
Instead of raising the minimum wage to $11.50 an hour in 2017, as San Diego’s measure would do, Roe said the best way to help workers is to “get government out of the way.”
“There needs to be a balance between a regulated minimum [wage] and what employers believe an employee is worth,” he said. “Having said that, if we care about improving the situation of folks at the bottom end of the scale, the best way to do that is through economic growth.”
Inflating the Wage
Like Kinner, Klaus, too, was involved in efforts to put the minimum wage proposal before voters.
“I spent 35 years advocating for fair and adequate wages for our staff,” he said, “and artificially inflating the minimum wage to increase that wage doesn’t provide the outcome or the relief that our staff deserve.”
Klaus currently pays his employees more than the minimum wage established by the state. However, he fears that if San Diego residents approve the proposal, it could cause some of his workers to seek less challenging jobs elsewhere, particularly if they know they can find work with more flexible hours for the same pay or more.
Additionally, Klaus said he worries that those working at facilities located outside of San Diego’s city limits will look for employment in the city, where they know they can secure a higher hourly wage.
“We serve some challenging individuals. We’re providing applied behavior analysis services. We’re working with children with autism. We’re providing direct care, assisting people with eating, bathing,” he said. “That’s not an entry level job and that’s the challenge that we have. Why would you want to assist someone with eating and toileting and bathing for minimum wage when you could go work at McDonald’s, and you may come home with a fry burn. The services we provide are not minimum wage jobs.”
For Klaus, an increase to $11.50 an hour doesn’t just have an impact on Home of Guiding Hands’ employees.
The nonprofit prides itself on the “quality of life enhancements” it provides its residents, which include trips to the beach and the San Diego Zoo. If the city increases its minimum wage—and the state fails to take action to adjust rates to compensate for the increased labor costs—Klaus said he and other providers will be forced to do away with those services to save costs.
“Our mission is very simple. It’s to improve the lives of those we serve,” he said. “At some point if this passes and there isn’t relief, those quality of life enhancements go away, and we then provide minimum standards. We meet the standards, and that’s it. I refer to that, from a residential setting, as three hots and a cot. That’s not a quality of life for anybody.”
Businesses in California have been adjusting to a minimum wage increase that went into effect in 2014, to $9 an hour, and again last month, to $10 an hour. Cities like Oakland, San Francisco, and Los Angeles have passed ordinances increasing their citywide minimum wages to $12.55, $12.25, and $10.50 an hour, respectively.
“The state increase was a 25-percent increase over where we were two years ago,” Roe said. “The city-only increase is a proposed 44-percent increase over where we were two years ago. Businesses can arguably figure out how they can navigate the implementation of the 25-percent increase, but when they add another 19-percent increase, it really becomes really difficult.”
Labor unions in the state have already mounted efforts to include a question on the November ballot that would let voters decide whether to raise the statewide minimum wage to $15 an hour.
In San Diego, specifically, residents have already begun seeing changes to the restaurants and businesses they frequent, and some attribute them to increased labor costs.
Roe said he and his family have noticed smaller portions, higher prices, and poorer service at neighborhood restaurants.
And if San Diego voters approve the plan raising the minimum wage to $11.50 an hour next year, he suspects the problem will worsen.
“These restaurants are now trying to figure out, ‘how do I reduce the number of hours that I have to pay my employees in order to make up the difference in these increased costs?’” Roe said. “The human impact here is folks that work in restaurant and hotel jobs are going to see a reduction in hours, if not a reduction in jobs.”