On Jan. 1, the state increased its minimum wage by 50 cents — the second such hike in as many years. The move makes the $6.75-an-hour minimum 31 percent higher than the federal hourly floor of $5.15, and further rises are possible in the near future.
The increases raise questions about the state’s long-term competitiveness as the nation’s largest center for apparel production. Many fear a higher minimum wage will force more vendors to source in Mexico, where the minimum wage is $4.20 per day, or to the Far East, where labor is considerably cheaper.
Since the implementation of the North American Free Trade Agreement in 1994, some 12,200 apparel jobs in California have been lost, though it’s unclear how many of those positions eventually resurfaced in Mexico. The state industry currently employs 144,400 workers.
Among many nations, China is perceived as the 2,000-pound gorilla competing for the domestic industry. That country’s entry into the World Trade Organization last year is “taking away Mexico’s edge,” said Michael Fineman, production manager for San Francisco-based Esprit. “Relative to those places, [Mexico] is a high-cost labor country. It will come down to India and China, where there is an unlimited labor supply.”
While California will keep its advantage on quick-turn product, some observers worry wage pressure could push companies to use sweatshop labor domestically.
Supporters of wage increases, however, claim they help insure a stable, well-trained workforce that benefits the industry in the long run. They also point out that higher minimum wages eventually benefit retailers, since they give consumers more spending power.
While the majority of state industry jobs are skilled positions paying above the minimum wage, many note the hikes put upward pressure on wages overall.
No data is available on how many of the state’s apparel workers earn minimum wage, but in 1999 (the latest data available) some 2.1 million Californians in a general workforce of 16 million earned minimum wage or less, according to the state’s Economic Development Department. California’s minimum currently is the second highest in the nation, after Washington state’s $6.90 an hour.
The latest increase is unlikely to be the last in the near future. The Industrial Welfare Commission, which governs the minimum wage and has mandated three increases since 1997, is slated to review the subject again this year.
Several groups have already begun lobbying to push the minimum wage as high as $8 an hour. California Labor Committee chairman Paul Koretz proposed a bill in November that would piggyback minimum wage increases off jumps in the Consumer Price Index.
In other words, when inflation rises, so would wages.
According to Koretz’s chief of staff, Scott Svonkin, the bill’s goal is to “ensure Californians receive cost-of-living adjustments annually.”
Richard Giss, a partner in the retail services group of Deloitte & Touche, questioned the bill’s mechanics, calling it a “self-fulfilling prophecy. The increase itself could well become a component of the Consumer Price Index. I can’t imagine it would be easy to get that passed.”
Then there is the concept of a “living wage,” which several municipalities, including Oakland, are adopting at levels of up to $11 an hour. In Santa Monica, citizens will vote Nov. 5 on a measure calling for businesses within a mile of the ocean, heavily trafficked by tourists, to pay a living wage of $12.25 an hour. Sears has already warned the city in writing that its store there would be forced out of business if the measure passes. Labor costs would be passed on to the consumer, the letter states, undercutting the discounters’ price advantage.
The UNITE labor union, representing 10,000 apparel, textile and laundry workers statewide, has retained an economist to research a living wage. A spokeswoman declined to specify what wage the union will seek, but said UNITE hopes to have a proposal before the IWC by the end of January.
The IWC has scheduled a hearing Jan. 25 to consider such wage hikes.
The pain of wage increases is primarily felt at the bottom of the food chain, with the state’s roughly 5,000 contractors. Garment Contractor Association executive director Joe Rodriguez called the minimum wage hike “another nail in the coffin” for his 200 members.
Jimmy Macias, an owner of Ja-Mar Apparel Manufacturing Co. in Irwindale, Calif., is expecting to shell out $20,000 in raises for 15 minimum wage workers, as well as $7,000 in incremental hikes to keep his skilled sewing machine operators ahead of entry-level workers.
Donald Owen, owner of California Joy Inc., a 170-person operation in Glendale, Calif., said he’s “afraid” to calculate the hit he’s going to take on wage increases.
He said shops using a piecework system will need to raise rates across the board to accommodate slower workers and thus will end up paying more to all workers. Under piecework, workers are credited for the number completed per shift, which translates to a fluctuating hourly wage based on efficiency. With the increase, Owen said he shelved plans to hire two people.
Mary Yeung, owner of New Tops Enterprise here, said 80 percent of her 68 employees make minimum wage. To finance roughly $80,000 in added labor costs this year, she’s cut three positions and janitorial staff.
The irony, GCA’s Rodriguez pointed out, is wage hikes heighten the discrepancy between law-abiding contractors and those who offer cut-rate pricing because they operate as sweatshops. “The illegal shops,” he said, “are thrilled when minimum wage goes up.”
Karina Macias, owner of contractor MGM Apparel here (no relation to Jimmy) said she’s seen five shops slip out of compliance since the last minimum wage increase.
“I don’t think they do it out of greed,” she said. “They do it out of need. They are different from crooks who never were in compliance and never planned to be.”
She said very small shops, often employing a handful of long-term employees, are particularly susceptible. “The employees see you’re hurting and they make an arrangement among themselves” for lower wages, she said. “But it isn’t fair to everybody else.”
Manufacturers with standing orders on styles they’ve run for years may also be in danger of using illegal shops.
“Good manufacturers will pay you more for your compliance, but there’s a breaking point,” Karina Macias said. “If we can no longer make the product for the same price, [the vendor] almost has to go to those places.”
According to the state Economic Development Department, there were only 20 citations issued for minimum wage violations in the garment industry in 2000. State officials have long complained abuses are more widespread, but there aren’t enough enforcers to keep illegal shops out of the picture.
Even worker advocacy organizations who put the screws to contractors say small shops should not bear the brunt.
“The main issue we see is that retailers and manufacturers are not always paying fair contract prices, and that’s perpetuating sweatshop conditions,” said Nikki Bas, director of Oakland-based Sweatshop Watch.
But Richard Clareman, president of Montebello, Calif.-based Self Esteem, said he’s got little wiggle room on pricing. He’s resisting contractors’ efforts to pass along labor surcharges of 5 to 10 cents per garment. When he can’t reach price, he sources in Mexico. In February, Self Esteem has 1.3 million units coming from Mexico versus 100,000 units locally.
“I feel terrible to have to make goods in Mexico,” Clareman said. “I do feel a certain patriotic loyalty. A 10 or 15 percent difference in garment price is workable if I can get the quality and [short] lead times to retail.”
For other beleaguered industry sectors — such as textiles — the psychological pressure of rising costs may precipitate layoffs and closures.
“My guess is some business owners will shake their heads and think ‘doom and gloom’ without formally analyzing the net impact on their business,” said Scott Edwards, president of the Association of Textile Dyers, Printers and Finishers in Los Angeles.
Edwards said doing business in 2001 was akin to “having a stateroom on the Titanic.” He said the gas crisis and rising premiums for workers’ compensation, as well as the feeling that the minimum wage “is the last straw,” might push some firms to shutter.
Not everyone believes the minimum wage hike spells doom for local industry. American Apparel ceo Dov Charney says it’s time for the industry to be proactive about efficiency, rather than squeezing profits out of entry-level workers — many of whom are thread trimmers, baggers and, pointedly, quality inspectors.
“If you’re not creative enough to be able to pay your people $6.75 an hour, you aren’t creative enough for the fashion industry,” Charney insisted. “We made a lot of money [last] year, and we made it not because of cheap labor.”
American Apparel is a $40 million producer of panties and T-shirts employing 250 people and producing 90 percent of its goods in-state. Charney said he anticipates a direct cost of $100,000 based on scaled wage raises, but said the cost is balanced by having a skilled local workforce able to pounce on trends.
“We take advantage of our position in California,” he said. “We’re in the middle of a youth culture test zone.”
Other manufacturers contend paying a minimum wage is counterproductive in a skilled trade like garment production.
William Sung, president of vertical knitter San K., which produces the Annie B. and Betty Paige lines, said he hires at minimum wage. After a three-month trial, workers are promoted to between $8 and $12 an hour or let go. “I don’t want people making minimum wage in here,” he said. “They don’t produce as much.”
Ditto for Mary Lou Schwarz, who is a partner in Deanna Dee Inc., a 40-year-old producer of high-end coats retailing under the Fleurette label. Fabric runs between $60 and $150 a yard for camel hair and cashmere, which means Schwarz can’t afford mistakes or a “poor morale, minimum-wage environment.”
But, she added, “If we had to make a $50 dress, we would probably be devastated. A friend of mine who owns a children’s wear company had to move [sourcing] to the Orient to survive.”
Other companies prefer to see a potential upside, since some minimum- wage earners — namely, teenage girls — will have more spending money.
Although the retailers’ salary costs will go up, Pacific Sunwear of California’s ceo, Greg Weaver, acknowledged many teens will take their extra income and put it back into the economy.
“It burns a hole in their pocket one way or another,” said Weaver, who oversees 70 California units of the firm’s 719 stores. “We tend to get a good chunk back in sales. They spend money on looking good. It’s not going into a CD [Certificate of Deposit] — trust me.”