Economy & Jobs

San Francisco Minimum Wage Hike Raises Small Business Owners’ Stress

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Late last year, voters approved a gradual hike of the San Francisco minimum wage to $15 per hour. This, along with similar increases approved in Seattle and Los Angeles, is leading to nationwide debates.

Pitting a livable minimum wage for employees in service industries, such as restaurants and retail, against the affordability of labor in a business sector that often experiences low profit margins isn’t new, and it isn’t going away. But the debate has stirred up additional concern over two major, foreseeable risks.

Risk 1: The Burden on Small Business Owners

The San Francisco minimum wage was the subject of Proposition J, a referendum that 77 percent of city voters approved last November. It will raise service-industry salaries in stages to the full $15 an hour in 2018. Despite this seeming win on the surface for workers’ rights, some business owners and employees find the new law problematic.

One example is Comix Experience and its sister store, Comix Experience Outpost, two iconic comic and graphic novel shops. Owner Brian Hibbs told the National Review that by 2018, his salary costs will have risen by $80,000 per year.

“My jaw dropped,” he says. “Eighty thousand a year! I didn’t know that. I thought we were talking a small amount of money, something I could absorb.”

While some stores can cut costs or raise prices, Hibbs says he usually only has one employee in each store during its 10-hours-a-day, seven-days-a-week schedule. If he cuts hours, he loses business, and since his books have prices printed on the cover, it would be uncompetitive to raise them. He’s asking customers to join a club to commit to buying books regularly in the hopes that the increased volume will offset costs.

Hibbs wonders why small businesses bear the brunt of social policy initiatives: “Despite being a progressive living in San Francisco, I do believe in capitalism. I’d like to have the market solve this problem,” he says. “Why can’t two consenting people make arrangements for less than X dollars per hour?”

Risk 2: Fewer Jobs

In response to the Seattle City Council’s vote last year to phase in a $15 minimum wage for the city, American Enterprise Institute scholar Michael R. Strain notes that while wage increases could help workers when done gradually, offering time for businesses and labor markets to adjust, they are often much harder to absorb over a shorter period.

If wage increases only cover a limited area, such as a single city, businesses might leave to seek lower-cost locations. Seattle has lost a number of restaurants recently, and the minimum-wage hike is likely one of the factors involved.

In a Seattle-area business survey, 42 percent of employers said they would trim staffing levels to survive under the new law, and 44 percent are considering cutting hours. Applications for new business licenses have also declined.

Too-rapid increases can also spur job losses through automation, according to economist Robert J. Samuelson. News stories covering the replacement of counter clerks in European McDonald’s restaurants with automated ordering stations adds evidence to this claim. Samuelson notes “invisible” lost jobs as well, which occur when stores that might have opened if costs were lower never get off the ground.

With polls showing strong support for pay increases, it’s likely that the minimum-wage hikes in Seattle, San Francisco, and Los Angeles aren’t the only such laws Americans will see passed. While options for adjusting to them may seem limited for small business owners, continued profitable results will be the reward for entrepreneurial creativity.