Glendale College's Student Magazine
Tuesday October 24th 2017

California’s Minimum Wage Conundrum

Mia MaselliBy 6 a.m. on Monday, second year Glendale College mechanical engineering student Mia Maselli is awake in her apartment packing school books for a 90­-minute bus ride, but she’s not heading to school. She’ll do homework on the ride to a diamond jewelry wholesaler in downtown LA where she works as an office assistant for $12 an hour. She’ll also do homework in the stairwell during lunch.

She’s studying to be a programmer at SpaceX, Elon Musk’s dynamic spacecraft company that’s doing some of the most exciting engineering projects in the world. But first she needs a degree, and this semester she’s only taking one class. In her little free time she writes creatively and works on building her own local food service business, a venture that will take time and money she doesn’t have.

Caption: GCC student Mia Maselli works two jobs that pay $10 and $12 an hour.

“For the month the bus is a hundred dollars at five dollars a day. But the bus stops running from downtown at 5:45 p.m., so I can’t stay late anymore and make those extra bucks. I used to stay until 6:15 or 6:30.”

To supplement she works at least one weekend day a week at Barnes and Noble for $10 an hour, a choice that restricts her social life, but inches her closer to financial freedom, slowly.

This month the California Government seemingly came to her rescue. Mia is one of 4.3 million Californians who make less than $15 an hour and stand to have their wages dramatically increased. In early April, Governor Jerry Brown announced a deal to raise the state minimum wage by $1 a year until it reaches $15 in 2022, with a one year start delay for businesses with under 25 employees. The top-down measure aims to boost notoriously stagnant wages and low-skilled workers’ purchasing power and standards of living. Their increased spending will ideally spur economic growth.

Maselli says the raise would let her quit one of her jobs, and regain some much needed free time. The potential costs of the measure, however, are many and threaten the very group of workers the measure intends to aid.

In early April, Governor Jerry Brown announced a deal to raise the state minimum wage by $1 a year until it reaches $15 in 2022, with a one year start delay for businesses with under 25 employees. The top-down measure aims to boost notoriously stagnant wages and low-skilled workers’ purchasing power and standards of living. Their increased spending will ideally spur economic growth.

Last year the city of Seattle adopted a $15 minimum wage standard, and while Washington State saw major job gains in 2015, Seattle’s food service industry suffered its largest job losses since 2009. Many fear the same for California, that businesses struggling to adjust to the January 2016 $10 minimum wage hike will get squeezed even harder and have to lay off workers, potentially replacing them with automated systems.

In Fresno, Calif, Craig Scharton owns a farm­to­table restaurant that he has to keep closed on Mondays and Tuesdays and cut his staff from 18 to 10 to make up the costs of a $10 an hour minimum.

Seattle and Fresno highlight another critique of the deal, that a state­wide minimum wage will affect areas differently. Historically, areas with high housing prices and tourism industries more easily adjust to wage hikes than low ­median ­wage cities like Fresno and Merced where labor comprises 74% of business operating costs.

Maselli is excited to be making more money but anxious about losing one or both of her jobs. Since she’s not specially trained, she can imagine either of her companies justifying letting her go.

Fred Capriccio is the COO of California Marketing, a direct mail and advertising company in Pasadena. He’s fearful of what he sees as a drastic wage hike at a breakneck speed. “You’re going to get a lot of people having their hours cut back because smaller businesses have one of two options: pass the cost onto the customer or reduce their labor costs. It could mean reduce the hours worked, or reduce the number of people working. They’ll expect one person to do the job of one and a half people.” Mathematically, a worker whose wage went from $10 to $15 only needs their hours cut by 33% to nullify their gain in total earnings.

“The next issue is that it puts upward pressure on everyone else in the company. You’ll have people who have worked X number of years for $20 an hour who say ‘I only make $5 more than someone working at Wendy’s. I consider myself skilled labor.’ It’s going to increase the labor costs across the board, then you’re going to have to increase things like workers’ compensation and payroll tax. Not all of those costs can be absorbed because not all companies are Walmart or MacDonald’s.”

The hike is also likely to hurt California businesses’ competitiveness in an interconnected world. “In my industry, you’re competing against a guy in Florida who doesn’t have a $15 an hour minimum wage rule but has an online printing service that could be cheaper than mine even with shipping included. Industries are now in close competition with each other because of online business. I know of companies that hire illegal immigrants. I’m competing with them and they’re taking the business.”

“You’re going to get a lot of people having their hours cut back because smaller businesses have one of two options: pass the cost onto the customer or reduce their labor costs. It could mean reduce the hours worked, or reduce the number of people working. They’ll expect one person to do the job of one and a half people.”

Capriccio prides himself on providing a high-quality product, keeping clean books, and hiring legal workers, but he realizes American consumer culture prefers low prices to high quality or American branding. He cites American Apparel filing for bankruptcy last October as a bad omen for his business model, as they also marketed themselves as a wholly American operation. He’s concerned he’ll have to sacrifice some of his business values to keep his company alive and his employees employed, some who’ve been with him over 20 years.

Many of the most outspoken critics of the hike are in the food industry who warn of impending doom for America’s comfortable relationship with restaurant dining. Alex Fresquez runs a Tex­Mex restaurant in New York City’s upper west side with his wife Laura, both who bemoan Governor Cuomo’s plan for a similar wage hike for their state.

“We’re talking about opening a second location, but if the minimum wage is going to go up to $15 in 2018, do we even want to open another restaurant?”

The couple is reeling from a restaurant specific wage hike from $7.50 to $9 an hour, where restaurants are only required to pay workers $7.50 as long as tips cover the other $1.50, but constitutes a 50% wage increase. “That system makes sense for small tip businesses like nail salons. We had to do different rotations, cut hours, and keep as little staff as possible.”

What Fresquez said next was shocking. He’d gotten pushback against the raise from those who would benefit the most: his employees. “Now that everyone is making more money on the books, they don’t qualify for certain benefits (like cheap public health care). They ask me not to report certain gains, or they don’t want the raise.”

Laura Fresquez explained that unlike normal businesses, restaurants require lots of employees, making it harder to absorb increases in labor costs. She swears small shops are appearing on the sites of failed restaurants all over the city. “If you’ve got a little nail shop, you just have one or two workers, so paying $15 an hour isn’t a big deal. When you have a bigger staff…that can really kill a restaurant.” Even a small restaurant can average 20-­30 employees. She anticipates more shops replacing often iconic restaurants that used to dot the streets of Manhattan.

So what’s the solution?

“If you’ve got a little nail shop, you just have one or two workers, so paying $15 an hour isn’t a big deal. When you have a bigger staff…that can really kill a restaurant.”

George Runner, a member of the California Board of Equalization, wrote in the Sacramento Bee that the minimum wage hike was “a huge mistake,” and suggested investment in education and skills training through tech schools and trade schools as a responsible alternative that will help make workers actually worth $15 an hour and potentially more. A rebuttal is that current economic forces are likely to suppress average wages regardless of the education level of minimum wage earners. Additionally, once someone jumps up a level in marketable skills, they no longer inhabit the socio­economic class minimum wage jobs are meant to benefit, like students, young people and immigrants who’ve lacked the time and means to acquire higher education. America needs jobs that keep low skilled workers out of poverty and serve as a stepping stone for the upwardly mobile.

Michael Reich, a professor of economics at UC Berkeley, reported that in fact the overall economic effect of minimum wage hikes is essentially neutral. He explained that in his models the negative effects of higher unemployment and declining sales from price increases are offset by the increased purchasing power of workers, which lifts economic activity in an area.

Emily, the manager at a Starbucks in East Pasadena is not so sure. She claims none of her $12/hour employees want the raise because the costs of commodities, like groceries and gasoline, will rise everywhere and knock them back to their previous financial standing, or even worse.

Maselli oscillates between two competing judgments. More money could improve her life, but she’s anxious about keeping her current job and about her prospects of making it as an entrepreneur.

If the net economic effect is in fact neutral and the benefits nominally cancel out the costs, the question then becomes one of values. California and other state governments have decided the potential rise in unemployment and heavy costs levied upon small businesses are worth having society’s lowest earners earn a more livable wage. In a way, it’s a double-down on the capitalist system: more individuals will compete for fewer jobs that, at $15 an hour, allot the recipient more time for self-improvement and skills training instead of working multiple jobs to make ends meet.

Still the fear of worse economic times looms large for workers who stand to become under- or unemployed by the wage hike.

For Maselli, dodging that unfortunate scenario is a matter of timing. Governor Brown has the option to delay incremental hikes by a year if costs begin to outweigh benefits, pushing the days of $15 an hour to 2023.

If everything goes well, Mia Maselli will be working at SpaceX by then.

About Brent Giannotta
Brent Giannotta is a continuing student at GCC who is fascinated by issues of gender, race and relationships. He previously worked as a political analyst in Washington DC and is slowly building a career as a writer.

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