CALIFORNIA COMMISSION RAISES MINIMUM WAGE BY $1 OVER TWO YEARS

Byline: Kristi Ellis / Kristin Young

SACRAMENTO — California’s minimum wage is taking a hike.
The Industrial Welfare Commission, a small body made up of five governor appointees, voted
5-0 Monday in favor of raising the state floor on wages by $1 over the next two years. The state’s minimum wage is currently $5.75 an hour, higher than the federal mandate of $5.15.
The increase will happen in two stages, with a 50-cent increase to $6.25 scheduled to go into effect on Jan. 1, 2001. Another 50-cent increase, to $6.75, will go in effect Jan. 1, 2002.
The last state minimum wage hike occurred in 1998, increasing the base to its current rate from $5.15.
The vote requires no more legislative maneuvering and does not require a signature from California Gov. Gray Davis. There were three public hearings held prior to the final vote, in San Diego, San Francisco and Stockton.
“What the commission really looked at was that there seemed to be a general consensus even among the business community that there should be a minimum-wage increase,” said Bill Dombrowski, president of the California Retailers Association and chairman of the IWC. “The question then was how much.”
Dombrowski said the commission had been up against another proposal that would bring up the floor wage to $8 an hour with an automatic cost-of-living increase annually. The proposal had been brought to the table by the California Labor Federation, a lobbying group based in Sacramento.
The five-member committee, composed of two representatives from business, two from labor and one independent, rejected the higher proposal. IWC members are Leslie Coleman of Solectron, a high-tech company based in Silicon Valley; Doug Bosco, a lawyer for a private firm in Santa Rosa; Barry Broad, a lobbyist that represents unions, and Harold Rose, a retired representative from the California Firefighters Association union.
“The people who get hurt by this are the small retailers because they are hiring people at minimum wage,” said Richard Giss, partner in the retail services group of Deloitte & Touche, noting the seasonal workforce is especially vulnerable. “Larger chains might well be above that, but it’s still going to drive up their costs. It may not have a direct impact [now] but over time, it will work its way into the salary scale.”
But Dombrowski said he doubts that the raise will severely impact the fashion industry.
A more immediate concern is the current tight labor pool caused by a surge in business expansion, a generational shift — one group is retiring and the second generation is opting not to work in garment production — and a workplace that requires greater computer skills.
“The industry’s problem right now is finding people, and they’re already paying a premium for that,” Dombrowski said.
Yet there is an upward pressure on total labor costs.
“Even if you’re paying above the minimum wage, you’re now going to feel pressure to increase [higher-wage levels] to maintain the differential,” he added.
Jack Kyser, chief economist of the Los Angeles Economic Development Corporation, said most industries will casually pass on cost increases to their customers. In the garment industry, contractors are hampered by the pressure to keep prices low.
“You’re just going to see further erosion in cut-and-sew activity,” said Kyser.
The minimum-wage increase will hit garment contractors the hardest. Smaller makers who have maintained a domestic production base to take advantage of quick turns could now be forced to go offshore.
In 1999, apparel industry employment in the state stood at 144,100, according to the California Employment Development Department. In Los Angeles County, the average was down to 101,200 in 1999 and in Orange County, the average was 18,100.
Some 5,000 apparel contracting firms operate statewide, but the number continues to dwindle as many contractors have been forced to close or move companies to Mexico in order to compete.
“I’m just praying right now,” said Joe Rodriguez, executive director of the Garment Contractors Association of Southern California, which has about 200 members. “They are killing the industry. I just lost three members last month in anticipation of the increase. The last time it passed, we lost half a dozen members.”
The latest increase, he added, will be another blow for those contractors who are already struggling. Sewing machine operators are now paid an average of $7 an hour, he reported, which is still above the current increase.
But the increase will have an impact on the entire workforce if beginners are paid a higher rate because more experienced operators will demand an increase as well, he speculated, adding that he held out hope that manufacturers would assume some of the cost.
But, he conceded, “In fact, they won’t pay more.”
Bob Reed, owner and president of Stitches Inc. in Commerce, said the increase will force him to eliminate about 20 to 25 percent of his workers who are paid minimum wage, he said, pointing out that based on the current minimum wage, the yearly salary per employee is about $15,000.
Reed’s alternative solution: automation.
“All that I can do is continue to try to become more efficient and eliminate as many minimum-wage workers as I can. If I lay off 10 employees, that would save me $150,000, which is enough to invest in new machines. The true minimum-wage worker is not a key employee to me.”
Tasks covered at Stitches by that employee base include cleaning and maintenance, finishing and hanging garments.
The impact on manufacturers will inevitably depend on company size and where its production is based.
Paul Frank Industries, an edgy youth sportswear firm based in Newport Beach, Calif., will now have to rethink its entire production strategy, according to Jeff Kikawa, vice president of production.
The company currently produces 95 percent of its sportswear domestically and uses about 12 to 15 contractors, mostly in Southern California.
“We produce domestically for shorter turn times,” said Kikawa. “Retailers have been doing a lot of in-season booking, which means that we have to turn quicker. With an increase in labor prices, I don’t know if we can make the product here for a reasonable price.”
To stay competitive, Kikawa said the company, expected to hit the $10 million mark this year, will probably be forced to double offshore production, which will affect turn times as well. The company now uses five to seven contractors in China, Hong Kong and India, primarily for novelty accessories and gifts. Kikawa said more sportswear will have to be shipped offshore initially and that the company might eventually be forced to move its entire production to Mexico.
“Out of China, there is a low quota on cotton pieces, which inhibits us. But if everything goes offshore because wages here are too expensive, the quotas will run out and we might have to make everything in Mexico,” he added.
Larger manufacturers such as Karen Kane and Hot Kiss report they don’t expect to be impacted directly with their own workforce. But, they will face an increase in labor costs among their domestic contractors.
Lonnie Kane, president of contemporary brand Karen Kane, said he expects direct labor to increase by 3 to 5 percent, noting that direct labor accounts for about 40 percent of a contractor’s costs.
“The impact will be minimal. We have been expecting this for a long time,” he said, adding that he had already incorporated the increase into his spring and summer 2001 lines. “An increase based on 40 percent of the costs is not very much money.”
Moshe Tsabag, president of Hot Kiss, a Los Angeles junior brand, also said he expected an increase in direct labor costs.
“There is obviously some impact but not to the point where it will hurt me,” said Tsabag, who, in fact, was a supporter of the rate hike. He expects the piece price from a contractor to increase by 10 to 20 percent. But, he has no plans to pass it on to the consumer.
Among retailers, the increase appears palatable, at least for now.
At Nordstrom stores in California, the increase will have almost no impact, according to a spokeswoman at the company’s headquarters in Seattle.
“It’s not going to happen on the sales floor,” said Paula Weigand, the representative. “In our restaurant division, we have a few employees starting at minimum wage. But, those people get tips. It would be easy for us to accommodate a change in the minimum wage.”
At Pacific Sunwear of California, a junior retail chain in Anaheim with 559 units across the nation, including 74 in California, some sales associates might be affected by the wage increase, but the company generally sees it as a benefit.
“It might affect some kids working in our stores,” said Carl Womack, company chief financial officer. The wages of about 20 percent of Pac Sun’s labor force, mostly ages 16 to 19, could be impacted. “But if teens have more money in their pocket and they spend a third of their income on apparel, then it’s good for us.”
Not everyone sees the glass half full, however.
“We are disappointed that we couldn’t raise it to $8, but life is a matter of choices,” said Antonio Orea, Los Angeles district manager of the garment workers’ union UNITE. “We know that $6.75 an hour is not enough for people to live on. But under the circumstances, we think it is a step in the right direction and a big help for workers in the garment industry. We will continue over time to try to make it a decent wage.”

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