California apparel manufacturers and retailers are coping with a minimum wage increase that could mean more adversity in a slumping economy.

The mandated pay for entry-level workers has jumped to $8 an hour from $6.75 a year and a half ago, and has raised concerns that profit margins may be squeezed as macroeconomic challenges such as the housing slump, the Hollywood writers’ strike and high energy costs take a toll. California’s minimum wage is now 7 cents behind the highest state minimum in Washington, and well above the $5.85 minimum federal rate.

Small companies with limited resources are likely to be hardest hit. In the apparel and retail sectors, teen stores are often most vulnerable because they rely on entry-level workers and beef up during summer by hiring students.

“Given that business is pretty poor right now, I have to believe that there are staff reductions going on to accommodate it,” Bill Dombrowski, president of the California Retailers Association, said of the minimum wage increase, which the group opposed.

Retailers and apparel manufacturers have had time to prepare for the wage boost, which was agreed upon in 2006 as part of a two-step compromise between Gov. Arnold Schwarzenegger and Democratic leaders. The minimum wage went to $7.50 last year before jumping another 50 cents on Jan. 1. San Francisco has set its own minimum wage at $9.14 per hour.

“We already made corrections for that by adjusting the budgets last year for the expense,” said Scott Manson, senior vice president of Gottschalks, a Fresno-based department store chain with 60 units nationwide. “We are not expecting to make any major cutbacks in employee service levels in the stores. California has always been a higher [paying] state and has been above the curve.”

The California Employment Development Department reported that the state’s unemployment rate was 5.6 percent in November, the most recent month for which figures are available. The rate was up from 4.7 percent during the same period the previous year. The U.S. jobless rate in December was 5 percent.

“This is probably going to cause additional headaches for businesses,” said Jack Kyser, senior vice president and chief economist at the Los Angeles County Economic Development Corp. “It is not going to be pleasant, but they are going to survive.”

This story first appeared in the January 9, 2008 issue of WWD.  Subscribe Today.

Kyser added, “Most people who earn minimum wage aren’t the head of households. They tend to be young people, and the absolute number is not huge. This summer, they [job seekers] may find that it might not be the most optimistic time with the state of the overall economy. People might say, ‘Can we skate by without hiring this person?'”

Before the two-step increase, the last boost in the California minimum wage had been 8 percent, to $6.75, in 2002.

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