New York and California pave the way on aggressive minimum wage legislation that will hike the starting wage to $15 an hour over a multiyear timetable. New York Gov. Andrew Cuomo signed off an increase Monday morning that was followed up on the West Coast with a bill signing by California Gov. Jerry Brown.
“Economically, minimum wages may not make sense but morally and socially and politically they make every sense because it binds the community together and makes sure parents can take care of their kids in a much more satisfactory way….This is an important day. It’s not the end of the struggle but it’s a very important step forward,” Brown said during the bill signing Monday.
Cuomo echoed that sentiment in a statement released by his office: “These policies will not only lift up the current generation of low-wage workers and their families, but ensure fairness for future generations and enable them to climb the ladder of opportunity. I am proud to sign these programs into law, because they will ensure a stronger, fairer and brighter future for all New Yorkers.”
The California legislation, which was fast-tracked through the state Assembly and Senate after Brown struck a deal with labor groups, sets out a six-year time frame during which the state’s starting wage will increase, beginning next year when it rises from $10 an hour to $10.50. It will continue to increase annually up until it hits $15 an hour by 2022. The first increase is expected to come at a cost to the state’s General Fund of $19 million for some two million affected workers, according to the state Department of Finance. The law, once fully in place, will cost the state about $3.6 billion for roughly four million workers.
New York’s law calls for a slightly more aggressive timetable for reaching $15 an hour with New York City businesses counting at least 11 workers, required to raise the starting wage to $15 by 2018. Other parts of the state will have slightly more time to roll out the increases.
Industry reactions have ranged, depending on the business model and company size, but have been just as divided on the issue as much of the rest of the nation.
Ted Potrikus, president and ceo of the Retail Council of New York State, applauded the hike in a statement.
“The Retail Council participated actively throughout those discussions, and although we have members concerned about continued economic growth in our state, the deal as announced addresses constructively many of the concerns we raised,” Potrikus said.
An Amazon spokeswoman said the company would not comment on either the New York or California laws but confirmed Amazon would not be impacted by the wage increase.
The prepared comment from a Target spokeswoman on both states’ laws said: “At Target we typically don’t disclose our wage rates. To help recruit and retain the best talent, we regularly benchmark to ensure we are providing competitive compensation. In addition, we follow all local, state and federal laws.”
The spokeswoman declined further comment on the cost implications for the company specifically. Target, last year, hiked the starting pay of its workers to at least $9 an hour, following similar paths tread by retailers such as TJX Cos. and Wal-Mart Stores Inc.
A Macy’s spokesman referred any comment to the California Retailers Association, which he said speaks for the industry on the issue.
Bill Dombrowski, president and chief executive officer of the Sacramento-based CRA told WWD last week when the governor announced his agreement with the unions, that the cost implications would be significant.
“That is an unbelievably large expense to absorb,” he said. “It is going to affect staffing. It’ll involve layoffs. It’ll involve increased automation. It’ll involve price increases because there’s no money just sitting around in a pot.”
The policy comes at a particularly fragile time for the retail industry in general, Dombrowski added.
“The biggest issue facing retail I would say over the last decade has been this shift from bricks-and-mortar to online shopping,” he said. “Every retailer in this country is scrambling as fast as they can to build up this e-commerce business and they’re actually trying to reduce their brick-and-mortar presence. I think you’re going to see a dramatic drop in retail real estate over the next 10 years. Those who shift those sales to the internet and are profitable to the retailer but they are not subject to all of these laws like the $15 minimum wage, restrictive scheduling and all of the other labor issues.”
“It will affect domestic manufacturing,” said California Fashion Association president Ilse Metchek. “It can’t not. It will affect it not just in the ways of the wage, per se.”
Joe Rodriguez, executive director of the Garment Contractors Association of Southern California Inc. called the increase to $15 a “blow” to the group’s membership of garment contracting businesses.
“They are not in a position to really get higher prices from their customers, the manufacturers, who will just continue to source elsewhere if the costs become prohibitive,” Rodriguez said. “And the contractors will suffer. The employees of those contractors will suffer because they’ll simply be laid off.”
The one upside, Rodriguez said, is the fact that the increase will not come all at once, allowing companies time to make the adjustment.
“That will be somewhat helpful,” Rodriguez said of the scheduled increases. “But the fact that, on average, it will go up $1 an hour over the next five years or so that’s not going to be very helpful unless [contractors] can get some relief from their customers and hopefully some of those customers will still find a value in sourcing the production here domestically.”
Mike Karanikolas, cofounder and coceo of Cerritos, Calif.-based multibrand e-tailer Revolve Clothing echoed Rodriguez’s optimism in the tiered rollout of implementation and said his company is still assessing the implications.
“We’re still digesting the impact to our business, but in our experience increases in minimum wage can cause a ripple effect through the entire salary structure over time,” Karanikolas said. “The good news is that California businesses have plenty of time to prepare for these costs and figure out how to get more efficient or absorb the costs in other ways.”
E-tailers could potentially have the upper hand. The industry’s seen the rise of online brands that have built followings based on their promise of providing premium product at lower prices by cutting out the middleman and selling direct. Being able to compete as costs rise may be yet another competitive advantage these young brands have against established players.
That point of distinction in the business model allows them to focus resources on building a story around the brand rather than a brand based around price.
Eunice Cho, founder of Los Angeles women’s work basics line Aella, said online orders are fulfilled in-house by staff paid more than minimum wage and the rest of her workforce in the office or the factories she works with are also paid more than the starting wage.
“And we keep our channels limited in order to control dilution. Manufacturing costs are always variable, especially for a growing company,” she told WWD last week when the governor’s deal with the unions was first announced. “But exclusivity is a very important tool for fighting margin erosion, so even though it is challenging to sustain growth while keeping your channels limited, that is exactly what we have been doing. We think in the long run this will help us build a more resilient brand.”
West Hollywood-based online premium denim brand DSTLD (pronounced distilled) has forged a similar path. It’s made it a point to work with factories that pay employees fair wages and provide safe working conditions. Thus, the new minimum wage law is simply a continuation of that practice in managements’ eyes.
“While it’s likely we’ll see an increase in labor costs, the benefit of being an online-only brand is being able to minimize the effect it will have on our customers and the prices of our product,” said cofounder and coceo Mark Lynn. “Raising the minimum wage will hopefully ensure the well-being and integrity of our Los Angeles facilities.”
Vishaal Melwani, ceo of online men’s wear company Combatant Gentlemen in Irvine, Calif., also supports the minimum wage increase.
“As a start-up and business, the wage increase means it will cost us money. But our employees are the reason we are where we are today and making sure they are taken care of has always been a priority, especially as costs of living continue to rise,” Melwani said. “Our company is founded on good judgment and efficiency. This means having the best infrastructure, compensating our employees fairly and maintaining a tighter-knit, nimble team to make superior product and experiment with new ideas that further translate into savings for our customer. We already pay above minimum wage. It is good business and the right thing.”
Dov Charney, who built a company and a brand over more than two decades based around fair wages and the idea of equality for all, is another backer of the legislation.
“I support the fight for $15. Over time, it will professionalize the industry and it will also open up a lot of the disposable income of young people who are going to be buying clothing anyway,” the American Apparel founder said. “It will also challenge the industry to be more efficient and it will help bring health and prosperity to the workers who are going to be part of this whole onshoring.”
Charney, who was fired from American Apparel in late 2014, is in the midst of starting over with a new apparel company set to be headquartered in South Los Angeles, where he will build a new factory and has said he will pay his workers fair wages.
American Apparel, headquartered in downtown Los Angeles, declined through a spokeswoman to comment on the state’s minimum wage law.
Aside from the social argument that’s played the central theme of the wage debate in the state and elsewhere in the nation, Charney said there’s a chain reaction higher wages will bring.
“The pace of inflation of the bottom wages of China and Vietnam will probably double in the same period [the state’s minimum wage is set to rise] so if we’re competitive now, we’ll still be competitive then. But it’s important that labor earn enough money to live,” he said. “With all the additional tax revenue that the state will get from these workers and the additional funds that they have, they can also put money back into infrastructure and other things. The excuse that it will make us less competitive is false because wages offshore are accelerating at a rapid pace.”