Industry Voices: How California’s Minimum Wage Increase Will Impact the Industry
With the recent decision to increase California’s minimum wage to $15 per hour by 2022, we asked industry watchers what they think the impact will be on the state’s apparel industry—the largest manufacturing center in the U.S.
The decision, signed into law on April 4 by Gov. Jerry Brown, follows a similar measure approved for the city of Los Angeles. Also on April 4, New York Gov. Andrew Cuomo signed legislation to raise New York City’s minimum wage to $15 an hour by the end of 2018 before it spreads to the rest of the state.
Currently, the federal minimum wage stands at $7.50 an hour.
California’s minimum wage will increase from $10 per hour to $10.50 on Jan. 1 for businesses with 26 or more employees. Annual hikes will raise the minimum to $15 per hour in January 2022. Smaller businesses have until the end of 2022 to comply.
Garment Contractors Association
We understand and are sympathetic to the fact that it is very difficult for a person to earn a minimum-wage salary and meet the growing demands of living expenses here in California, especially when they are the only person in the household with an income. However, the raise of minimum wage is putting many manufacturers in an uncomfortable predicament. Many of our members are consciously trying to manufacture domestically, but the reality is they cannot remain competitive within the industry by paying $15 per hour. This is going to lead to manufacturers questioning, “Is it better to lay off employees in order to keep their manufacturing costs competitive, or explore the alternative of moving the jobs elsewhere [overseas]?”
Another issue that we are anticipating is that we have found many production workers are not readily able to find other like employment. The government only tracks the unemployed for six months, and to qualify as being unemployed the person needs to prove they are actively looking for a job. After six months, they are no longer counted as being unemployed and are ultimately forgotten. This has led many people to believe that the current 5 percent unemployment rate is misleading, and manufacturing layoffs will possibly unaccountably spike. This could lead to these workers either remaining unemployed for the rest of their lives, due to lack of jobs, or force them to learn other skills and join other industries.
The raise in minimum wage will undeniably bring a definite blow to manufacturing in California, but when push comes to shove, as a society we will have to make very difficult decisions regarding this predicament.
Co-owner, Groceries Apparel
I think the minimum-wage hike will force our industry to find new, more-sustainable business models. Groceries is different than most made-in-California brands because we manufacture our own products and we operate our own factory. Because of this we realize savings off our COGS [cost of goods sold] labor inputs, and we use these savings to in turn pay higher wages and offer healthcare to our employees. We’ve cut out the middleman from our supply chain. The minimum-wage increase doesn’t affect us as much because we aren’t reliant on wage suppression to succeed. Our business model allows our highest output employees to earn well over $15 per hour right now, so this wage increase simply raises the minimum output bar for us over time.
I’m sure some brands will decide to offshore their production, but I believe the brands that understand why they pay higher wages will find a way. Made in California is about providing living wages for humans, not higher wages as compared to third-world standards. It all depends on why your customers buy your products. If your customer base is looking for cheap and cheapest, your brand might be at risk. If they’re looking for products that are compassionate for the environment and the humans that made them, your brand will endure. There are many things I’d rather worry about than paying my employees a higher share of the returns. For all the bad that has been spread about Dov Charney, he understood this, and he doesn’t get enough credit.
There are many advantages to manufacturing in California, including quality control and speed to market. Again, it comes down to what your customers expect from your brand. And trust me, with the exposure and speed of information provided by social media, they are increasingly expecting more out of us.
Chief Executive Officer, Tianello
We have been manufacturing in California for 33 years. Made in America is part of Tianello’s business model; it is part of who we are.
Workers’ compensation is already expensive in California, and with a 20 percent to 30 percent salary increase, it is going to make workers’ comp 20 percent to 30 percent more expensive. In order to offset the higher wages to keep us where we are, we are going to be increasing margins and automating some of the work.
To increase our margins, e-commerce will be essential. From www.tianello.com, we are able to sell direct to consumer. We will also be sourcing higher-quality fabrics from abroad direct to mills, cutting out the middlemen. By working with more-expensive fabrics, such as woven silk (as opposed to woven cotton), we will better be able to work with the margins. Higher-quality manufacturers will be okay, and budget manufacturers will continue to outsource overseas.
Chairman, California Fashion Association
In California, there are many cost burdens that weigh on employment. Workers’ compensation is already extremely expensive, and the number of family leave days is increasing. Raising minimum wage is not the sole issue but rather ultimately the straw that is going to break the camel’s back [in regards to manufacturing-cost burdens in California]. We are given the choice to raise our prices or look for lower manufacturing costs elsewhere, namely offshore, Mexico or another state.
Currently everyone we compete with manufactures offshore. We cannot afford to be less competitive and are looking to possibly manufacture in Texas or South Carolina. We may try to keep limited light manufacturing [sewing] in California, but are currently exploring our options to remain competitive.
Author, “America’s Simple Solutions”
Overall, if this continues it will eliminate 15 million jobs across America. Restaurants and manufacturing will be deeply affected. Currently, 40 percent of restaurant employee wages are below $15 per hour in California. Paychecks are going to decline, and many businesses are going to be forced to close.
No one is smarter than the free market. Instead of voting based on being liberal or conservative, we need to use common sense.