Good — and perhaps bad.
That was the view of the Los Angeles fashion industry following Tuesday’s City Council decision in support of a plan to hike the city’s minimum wage to $15 over the next five years.
The decision calls for a final vote on an ordinance that would take minimum wage in Los Angeles from $9 to $10.50 an hour by July 2016. The state’s minimum wage is already set to increase to $10 an hour on Jan. 1, 2016. The council plan makes incremental increases until the city’s base hourly wage is $15 by 2020.
For boutiques like Satine, which has two locations in Los Angeles, the impact will be felt among its vendors as well as its own line, some of which is made in L.A.
“I pay far above minimum wage so it’s not going to impact my stores directly, but we carry a lot of lines that produce in L.A. and I make some things in L.A., so it will be interesting to see how that plays out and whether or not they will have to move out of the city,” said owner Jeannie Lee.
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As business owners attempt to make sense of the law, there are some obvious implications.
“No question, it’s positive for workers to get that extra pay because nobody can really live on minimum wage, especially in California. But it’s a big negative for retailers. They won’t be able to pass along all the costs to consumers so they will lose profit margins and consumers will pay a little more,” said Esmael Adibi, Ph.D., director of the A. Gary Anderson Center for Economic Research at Chapman University.
Small businesses and nonprofits, with no more than 25 employees, will have an extra year to meet the milestones set out in the law.
As for future increases after 2020, the city’s minimum wage will move alongside the Consumer Price Index from 2022 on.
It’s possible some companies may choose to relocate to avoid the expected expense increases this will have on balance sheets.
“For those producing goods in L.A., they may move out of the area,” Adibi said. “It’s a negative for people who live in the city and want to work in that industry, and it puts a cap on the growth potential of employment.”
Adibi noted, “if the wage hike was by region, there wouldn’t be as much movement, but it’s likely other cities will follow, it’s just a matter of how high and how fast.”
Seattle, San Francisco, Oakland, Calif., and Chicago also have more recently seen base wage increases.
The size of a business matters little in whether some companies will have an easier time absorbing the additional costs, pointed out California Fashion Association president Ilse Metchek.
“[It’s] no difference because the people at $15 an hour now who have been there for two or three years will need to have a raise,” she said. “You can’t suddenly have a person who started as an intern making $15 an hour and someone who’s been there for three years making the same wages. The bigger company has to have all their [wage] levels reassessed.”
There are also ancillary issues, such as workers’ compensation liability or exempt and nonexempt employee pay, surrounding wages that are impacted, Metchek said.
“We’re all for people making a living but the way the government has it structured, you don’t have only an increase in workers’ compensation,” she said.
Companies already paying their workers more may have an easier path getting into compliance with the law.
Ron Robinson, founder and chief executive officer of Ron Robinson Inc., said the majority of his workforce of roughly 50 people in the company’s Los Angeles office and two boutiques are already meeting the 2016 requirement of $10.50 an hour and it’s likely the company might already have been near $15 an hour five years from now without the law.
“Anything that comes out of the expense side of things, just naturally comes out of the expense side. Whether or not we’re going to see things improve on the revenue side, I don’t know but we’re already [at the 2016 goal] now,” Robinson said. “You’re talking to a retailer who wants to hire quality employees and we have been, and they have been with us for a long time, so retention is what we want to do as well.”
Hiring and retaining a skilled workforce sometimes requires higher pay and for the companies that recognize that, they’re already in line to meet the law’s requirements, said Rob Lohman, founder and director of Los Angeles-based men’s and women’s basics line Groceries Apparel, which manufactures locally.
Groceries, which has about 65 workers companywide, was already on pace to be paying around $13 or $14 an hour in the next few years and, on average, Lohman said the workforce is currently at the 2016 minimum wage requirement.
“The reason we are able to do that is we manufacture all our products ourselves so we have a 20 to 30 percent discount,” Lohman said. “So with that discount we’re able to pay our employees more….I don’t know about the impact on other companies. I hope they’re able to withstand this, but that’s why we manufacture ourselves so we are able to pay higher wages.”
Heidi Merrick views the issue as a double-edged sword. For her namesake fashion line based in Los Angeles, she already pays an hourly rate of $15 to employees who make samples and sew her sportswear. “We are committed to quality — both in the quality of life for our team and for our products,” she said. On the other hand, she added, “Our domestic margins are already exceedingly tight. This makes local production increasingly challenging.”
Merrick did point out that one advantage of a wage increase is a possible exodus of high-volume, low-priced manufacturing, like that for T-shirts, outside the city. This would open up the pool of sewers within the borders to take on more specialized jobs.
“I’m hoping it makes way for other higher-end designers who work in niche production to have contractors more readily available,” she said, “as I imagine there will be less of the high volume being sewn downtown.”
Other Los Angeles-based designers that take pride in their local manufacturing find the consequences of the wage hikes unnerving.
Galina Sobolev, founder of Single, said she has been preparing for the hourly minimum wage to increase to $10.50.
“However, the jump to $15 an hour will set us back,” she said. “As a manufacturer, we are always under pressure to create product at competitive prices, and if the cost of goods increases so much, we will be risking losing some of our private label accounts who tend to want to be at very sharp price points. It will absolutely result in us having to raise prices, which could ultimately lead to lost business. These days if you are not competitive enough in pricing, you can’t survive in this industry.”