Op-ed: Minimum wage plan is raising bar too far, too fast

By the Berkeley Small Business Alliance

Formed in 2014, the Berkeley Small Business Alliance is a group of 100 + small local businesses representing every district in Berkeley.

A poster produced by the Berkeley Small Business Alliance

A poster produced by the Berkeley Small Business Alliance

The Berkeley Small Business Alliance supports the need to raise the minimum wage in Berkeley. There is a longstanding history of support for small business in Berkeley as evidenced by its lack of corporate retailers and big-box stores. Berkeley residents are known for their devotion to sustainable restaurants whose chefs buy seasonally from local farmers and ranchers. It’s the small mom and pop shops that make Berkeley feel like a small town and are the backbone of the local economy.

Well-meaning legislation currently under consideration threatens to undermine the vitality of our small business community. Tonight, the Mayor and city council will vote to raise the minimum wage from $8.00 an hour to $10.00 on Oct. 1, 2014 with incremental increases every year ending at $12.53 per hour Oct. 1, 2016. This proposal will have unknown consequences on Berkeley’s small businesses. It is simply raising the bar too far, too fast.

The State of California has already implemented plans to raise the minimum wage from $8.00 to $9.00 on July 1, 2014. The bill proposed by State Senator Mark Leno just passed the state senate which would effectively raise the minimum wage to $13.00 an hour by 2017. A state minimum wage increase creates an even playing field for all. Berkeley’s proposal, while essentially the same as the State, does not allow time for small business to adapt and adds to the already overwhelming burden traditional small business face with growing competition from online retailers like Amazon.

Berkeley’s proposal will be a burden on the city’s budget as well. According to Berkeley City Manager Christine Daniel’s report, the cost to the city will be approximately $200,000 a year just to oversee the implementation and oversight of this process while adding one full time employee to her staff.

Why is Berkeley so quick to add these costs to its own budget, especially if the state of California has plans to implement the raises on its own dime?

Much of the Berkeley proposal is based upon the recommendations of the Labor Commission. The Labor Commission was comprised mostly of organized labor and was chaired by undergraduate Cal student Angus Teter. There was no actual study of how this would affect small businesses in Berkeley. Most of the evidence in the report is based on the experiences of San Francisco and San Jose. Both are much larger cities and have a vastly different business climates to Berkeley. In both cases the incremental increases were far less than Berkeley’s proposal of a 50% increase in just over two years.

Seattle’s recent minimum wage proposal, based on a thorough impact study, is tiered with a slower ramp-up time for small businesses. It would put small business at $15.00 in 2025. It is heralded as model for large cities around the country. University of Massachusetts economics Professor Arindrajit Dube said in a recent New York Times opinion piece, “The good news is that the somewhat long ramp-up period in Seattle will provide us with an occasion to learn from this experiment and offer opportunities for course corrections.”

Berkeley’s own Robert Reich, Cal professor and former labor secretary, said in a June 4 post on his blog, “I wouldn’t advise any place to raise its minimum wage immediately from the current federal minimum of $7.25 an hour to $15. That would be too big a leap all at once. Employers – especially small ones – need time to adapt.”

Understanding that small business needs time to adapt to the new minimum wage increases, The Berkeley Small Business Alliance is asking the Mayor to postpone a vote to raise Berkeley’s minimum wage until a thorough Minimum Wage Impact Study is completed. This proposal as it stands may have too many unintended consequences. Berkeley’s small businesses may not have time to course correct. Many small businesses whose major competitors are online retailers cannot raise prices and will be forced to move to another city or close entirely. In addition to the needless costs to the city and the local economy, it would be too high a price to pay to lose the small businesses that make Berkeley unique. We may be left with empty store fronts in our neighborhoods with only a few chain stores able to fill them.

Without a thorough Minimum Wage impact study the city loses the opportunity to become a model for medium sized cities around the country. It is imperative that Berkeley create laws based on data and facts otherwise we also may lose the very things we love about Berkeley.

We need to Keep Small Business in Berkeley!

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  • guest

    Adapt Now. You have time. I suggest you all get together and open joint negotiations for discounts from the landlords. After that, you can adapt to us customers having more money to spend.

  • Shutter

    Blah blah blah… the usual excuses used every time to keep people down. Raise the minimum wage to $15/hr now and share the wealth downward for a change.

  • guest

    The self styled Berkeley Small Business Alliance should be required to use a real human being’s name in this editorial. They are writing anonymously, claiming certain membership, with no evidence provided. Their website seems also to be human-name free. Sounds dubious. Could just be one crank with an internet connection. http://www.berkeleysmallbusinessalliance.com/contact.html

  • another guest

    … commented the human whose name is “guest”.

  • Eric Panzer

    I understand that the minimum wage issue is complex and potentially difficult for local businesses to swallow, especially in the absence of a more robust regional, state, or federal approach. Nevertheless, this piece questionably implies that Berkeley’s proposal ramps up substantially more quickly than Seattle’s. Even worse, it cynically suggests that on this basis, Robert Reich would oppose Berkeley’s proposal as it stands to be adopted tonight.

    The Seattle ordinance also includes a provision for minimum compensation—a provision with which even small businesses of less than 500 employees would need to comply. In January 2017, approximately three months after Berkeley’s $12.53 minimum wage is fully in effect, even small businesses in Seattle will be required to provide a minimum hourly compensation of $13.00 per hour. This $13.00 per hour may be entirely from wages, or from a combination of wages and payments for healthcare coverage. Berkeley, meanwhile, has no such provisions regarding healthcare. As of January 2017, minimum hourly total compensation will therefore still be less in Berkeley than in Seattle. Berkeley’s approach may have consequences in regard to the provision of healthcare coverage or other benefits, but it is incorrect to suggest that costs to employers would ramp up significantly faster under Berkeley’s plan.

    Here is Robert Reich’s quote, with considerably more context:

    I wouldn’t advise any place to raise its minimum wage immediately from the current federal minimum of $7.25 an hour to $15. That would be too big a leap all at once. Employers – especially small ones – need time to adapt.

    But this isn’t what Seattle is doing. It’s raising its minimum from $9.32 (Washington State’s current statewide minimum) to $15 incrementally over several years. Large employers (with over 500 workers) that don’t offer employer-sponsored health insurance have three years to comply; those that offer health insurance have four; smaller employers, up to seven. (That may be too long a phase-in.)

    My guess is Seattle’s businesses will adapt without any net loss of employment. Seattle’s employers will also have more employees to choose from – as the $15 minimum attracts into the labor force some people who otherwise haven’t been interested. That means they’ll end up with
    workers who are highly reliable and likely to stay longer, resulting in real savings.

    Reich even goes so far as to say he think Seattle’s plan “may be too long a phase-in.” Seeing as how Berkeley’s phase-in is roughly the same speed as Seattle’s, and ends up at a much lower eventual minimum wage, it’s hard to image that Reich would see Berkeley’s proposal as going too far too fast.

    I agree that we should take an incremental approach, but the speed with which we move must reflect the fundamental ethical imperative of finally providing a living wage.

  • DisGuested

    Shut down fascist small business owners so we can all starve equally! Dysfunction to the people! Burn baby burn!

  • andrew johnson

    Berkeleyside, please move to a system that requires real names or user IDs for your commenting system. This “guest” person gets far too much exposure…

  • guest

    It the problem is upward accumulation of wealth wouldn’t it make more sense and do more about the actual problem to cap the top?

  • g

    >After that, you can adapt to us customers having more money to spend.

    This only works if all the customers of the establishment currently make minimum wage. For anyone else, this won’t increase their earnings.

  • John Freeman

    Are there some fascist small business owners promising to go out of business when this passes? That’d be news!

  • Best Guessed

    Let’s do both.

  • Shopper

    I’d like to know who’s in the Berkeley Small Business Alliance so I can take my business elsewere. I already shop at Costco, Andronico’s and Safeway because their employees have a union, and I used to shop at Cody’s for the same reason.

  • Shopper

    Thanks, Eric. I don’t always agree with you, but this is a good comment.

  • Just Checking
  • Guest

    It’s a really courageous and bold idea to want to pay people more, particularly when you don’t have a payroll to make.

  • Shopper

    Now I’ve looked up the signers on the Berkeley Small Business Alliance petition on change.org as linked on this thread and found names associated with Mrs. Dalloway’s Books, restaurants Comal, Liason and Brasserie Joshu-ya, Treehouse Gifts and Your Basic Bird in Elmwood. The first time I looked the Summer Kitchen restaurant was on, but later it was off, don’t know why. Patrons of these stores might discuss the minimum wage with them and make their purchasing decisions accordingly.

  • guest

    If you are working for the minimum wage and can’t afford to pay your rent, how does it help you to cap what Mark Zuckerberg earns?

  • guest

    Again, why is no one talking about the hit this is going to be for household employers? Are the elderly and disabled going to be able to suddenly come up with the difference, famlies that can just barely afford their nannies? All of those who want to stick it to big business, please take note of the harm this will cause everyday people in Berkeley. Do we really want to push this economy further under the table so that it’s workers can’t receive unemployment, disability, and social security benefits. Think this through.

  • lakecitykat

    As the ordinance stands, all Seattle businesses will be at $18.13 in 2015 and with no tip credit or healthcare allowance.

    But for clarification, the Schedule “D” as it was originally proposed and now is called Schedule 2 in the actual ordinance states that in 2017, a small business will have to pay $11 per hour + $2 in other compensation (healthcare or tips). So the article is correct, Berkeley’s plan is higher than Seattle’s. Healthcare & tips consideration matter. Most small businesses already offer one or the other, so it is significant.

  • Whoa Mule

    The City Manager’s estimated cost for a single staff person and a budget of $200K is far too low. Seattle budgeted $250K simply for an adviser to set up the department. San Francisco has an entire Dept. of Labor with 18 employees. A dept. set to adjudicate wage issues must have the capability of holding quasi-judicial hearings and an appeal process. The City will need clerical personal, storage space, field investigators, out reach campaign coordinator, official cartographer and minister of propaganda..

    Wages and hours is a complex body of law covering controversies such as payment of salary for employee time to dress, who is an employee and who is a contract worker, who owns the tip jar on the counter, can the employer transfer the employee to a location with a lower minimum wage, should a home care worker be paid for a 24 hour shift if they are expected to be available, etc.

    It will cost at least $1million.

    So just add that onto 2015’s projected $22 million deficit..

  • JF

    The entire country of Australia has a US $16.88 minimum wage today.

  • Gust

    Just go underground and pay cash. All the politicos do it.

  • guest

    As of now, that petition has 18 signers. The byline “100 + small local businesses” is a gross exaggeration.

  • Vladislav_Davidzon

    I have been a business owner for fifteen years across several industries. If you cannot afford to pay minimum wage to your employees, you should not be in business, and the business people making all this noise are either grossly incompetent, ridiculously greedy, or simply very dumb.

    Australia has had a minimum wage higher than this for a long time, and avoided the recession entirely. The data is very, very clear, and even Henry Ford understood that paying his people well would be good for his own business.

  • mom too

    If your nanny is paid less than the minimum wage, you must not care much about your kids.

  • guest

    Standard dogma is that there is a ripple-up effect to maintain relative wages which can lead to increases for others. For instance, if you are the shift manager, you expect to be paid more than the minimum wage workers who report to you. Or if your business wants to attract slightly better workers, you paid minimum wage + 10%.

  • guest

    Plus, I’m schizophrenic as hell….

  • Mamma Mia

    That means nothing unless you compare the cost of living.

  • Chris J

    Yah, let’s see a list of the businesses who are willing to continue to sit on raising the minimum wage. If I had the list available (I’m sure they don’t want it publicized) I would use it as a general consideration as to where I would choose to shop.

  • Mom

    I think that if the minimum wage is raised, it should be regional – it’s a mistake to raise it in one city only. It would make more businesses relocate to Oakland, Emeryville, Albany, etc. Take a look at our downtown area – we have lost many retail business due to panhandlers, lack of parking, etc. Such an increase would make us lose even more. It would also mean that employers would not hire teenagers, people with little experience, people who have been unemployed for a long time – in other words, the jobs would go to those who need them the least. It is assumed that all businesses are gold mines, but there are many businesses, especially small independent businesses that are already surviving – such a large sudden increase would kill them.

  • guest

    Most household employers who want to pay a good wage and also find something affordable do “shares”. So if I pay $10/hr and another family pays $10/hr, the nanny makes $20/hr. And I pay on the books so the nanny gets all the benefits and social security. So hell yes! I care about my kids and my nanny. But the ordinance proposed will actually hurt both employers and employees as this work gets pushed farther under the table.

  • John Freeman

    Why don’t you simply rearrange your contracts so that the employee has a single $20/hr employer? This will not cause either current employer to have to pay more but it will keep you on the up-and-up.

  • Jeffrey Baker

    I know this argument will be indirect, but stay with me. Keeping the minimum wage low is an artificial subsidy to landlords. Incumbent landlords simply raise rents to absorb all available income, less some steady-state minimum profits for their tenants to keep the market liquid and stable. When businesses make excess profits, rents go up.

    Raising wages will, indeed, exert downward pressure on small business margins. This will transitively exert downward pressure on commercial rents, in effect transferring money from landlords to labor. This is a good thing.

    If it does _not_ exert downward pressure on rents, that is evidence that there exists some other business able to pay both the higher wages and the higher rents while still remaining profitable. It would be reasonable to describe such a business as being superior to the incumbent tenant. It’s fine if such a business displaces the existing one, and in fact this would be a net positive to the local economy.

  • Business owner

    It’s a shame to see the knee-jerk reaction to assume that people who signed the petition don’t want a higher minimum wage (or don’t already pay well above the minimum wage). The first part of the piece above states that the business alliance does support an increase, but wants it to be pegged to regional/state moves and to be done with research and data. I am someone who signed the petition and I pay my small business employees, most of whom are working part-time as students, a starting rate of $14/hour now. Please don’t make assumptions without information – all the petition asked was for a delay to include more information about overall impact. It feels like no one can ask any questions about this process without being attacked and having a boycott threatened. That doesn’t feel like the same values that made me want to have a business in Berkeley.

  • John Freeman

    Spot on except for one detail. The transmission of the squeeze from higher wages to a squeeze on rents is a weak signal.

    Here is a hypothetical example that isn’t the only way that price transmission breaks down, but it helps to illustrate the general principle: It can be easier for a landlord to sell a property if there is no incumbant tenant. It is easier for a landlord to lose a tenant by attrition than by eviction. So a landlord might decide “No, I won’t lower the poor saps rent and if he leaves maybe that’ll help sell the place.” — and then there can be a long-standing vacancy. (Long-standing vacancies can happen for plenty of other reasons as well.)

    This doesn’t change your argument that low wages are (in some cases) a subsidy to the rentier, though. That’s certainly true.

  • Northkoreanisnicetoo

    And if we adjust the weenus to reflect an increase in hydrostatic pressure than the whosie whatsie will displace x as the dominant feature of the system.

    Not sure which comment was more ludicrous, mine or yours.

  • Guest

    stop it you’re confusing people with your logic and rational approach to a topic.

  • Ghandisfruitsmoothiestand

    Right, commercial real estate properties are worth more when there is no income stream to in a town where ghandi’s locally sourced fruit smoothie and meditation center would find itself in front of the ZAB fighting for approval.

  • Supply and demand

    Thank god the minimum wage was so high back when henry ford was paying his people so well. Oh, wait, there was no minimum wage back then. How did he know what to pay?

  • Douggie fresh

    Sent from my iPad. Hmmm… Any inconsistencies there?

  • Anonymous

    There is a very simple solution that needs to be in any minimum-wage law: for small businesses, they should be allowed to substitute equity-stakes for wages (up to a point). Small businesses live and die on cash flow. Increasing the wage paid to employees makes cash walk out the door. In some cases, the owner isn’t really making profits for a time. In those cases, it makes sense to offer the employees the same basic deal that the owner is taking — get paid less now, but grow the business so it pays more later.

  • guest

    The petition is still stuck at 18, still no evidence that the membership is as much as claimed.

  • Mark

    I own a small restaurant in Berkeley and these forced wage increases are killing us. In fact has anyone noticed BUILD pizza has closed? Shattuck @ Bancroft – It was there for just two years… All costs have gone up dramatically- PGE, Beef, etc etc. NEWSFLASH there isn’t any additional money for payroll, so people will be laid off- Some simple math- I have $13,200 for payroll every week. At an $11 wage, that’s 30 people @ 40 hours per week. If you force me to pay $15 per hour, the $13,200 only supports 22 people. Any additional forced increases to the minimum wage will be a Death knell for most small businesses in Berkeley.