Modesto businesses weigh in on state plan for minimum wage hike

As California is poised to increase its minimum wage from $10 to $15 an hour, three Modesto business owners are raising concerns that this will hurt local businesses, doesn’t make sense in the economically challenged Northern San Joaquin Valley and could hurt the very workers it is intended to help.

And the head of the University of the Pacific’s Center for Business and Policy Research said while the increase could improve the lives of low-wage workers, it has the potential of being far more disruptive in the Valley because of the higher proportion of low-wage workers than in the affluent Bay Area.

“If everything goes well, basically, it’s an income redistribution from employers and consumers to low-wage workers,” center director Jeff Michael said. “If it doesn’t go well, you’ve got a situation of significant changes in employment and displacement. Some workers get higher pay, but others get less hours or lose their jobs.”

The Legislature approved Senate Bill 3 last week, which calls for increasing the minimum wage. Gov. Jerry Brown is expected to sign the bill into law Monday. It calls for the minimum wage to rise from $10 to $15 by 2022 through a series of annual increases. The minimum wage would increase from $10 to $10.50 on Jan. 1, 2017; then to $11 on Jan. 1, 2018; and then $1 annually until reaching $15. Businesses with 25 or fewer workers won’t have to start the increases until Jan. 1, 2018.

The governor can delay the annual increases if the economy weakens. Once the minimum wage is $15 for all employees, it would increase by as much as 3.5 percent annually based on inflation.

Higher wages would be a game changer for one worker.

Angeline Salazar said she earns $10.25 an hour working the front desk at the Best Western Town House Lodge in downtown Modesto. She said she is grateful to her employer, who she said treats her like family and makes sure she works 40 hours a week, but said earning more would make a huge difference.

Salazar said she could get off the treadmill of living paycheck-to-paycheck and provide a better life for her children. “Every one of us in low-end jobs are trying to get somewhere in life,” she said.

Advocates for the wage increase say it will help the state’s lowest-paid workers and their families and help the economy because these workers will spend their additional earnings, creating more demand for goods and services. The Governor’s Office says nearly 2.2 million of California’s roughly 7 million hourly workers are paid the minimum wage.

The three Modesto business owners said they recognize the need for workers to earn good pay but believe this proposal is not a good fit for the Valley.

“Restaurants work on a very small profit margin,” said Edwarda Alderete who owns Verona Cucina Italiana with her husband in McHenry Village and has 18 employees who make the minimum wage. “We have no choice but to pass it on to the consumer. But you wonder how much they can afford. You don’t want to price yourself out of the market. That is our biggest concern.”

“It’s kind of a wait-and-see thing,” she said. “Modesto, the economics of Modesto, the Central Valley, I don’t see how it is justified paying that kind of pay for someone just starting out in the (restaurant) industry.”

Steve Rank – who owns Rank Investigations and Protection Inc. – said there are other costs associated with the minimum wage increase, including higher payroll taxes and workers’ compensation costs as well as higher costs from suppliers that pass on their costs of paying their workers more.

Rank, whose services include security guards and neighborhood patrols, said he starts his employees at the minimum wage and increases their pay after they complete training and based on their assignment, work history and skills. He said a $15 minimum wage makes sense in the Bay Area because of its higher cost of living, but not here.

“I’m sure we are going to pass these costs on to our clients,” he said about the higher minimum wage. “It will have an impact. They may ask for reduced services. I see this having a ripple effect in the business community for some time. Our people deserve a living wage. They absolutely do. But it’s what the economy dictates.”

Ray Pogue – who owns the Grand Events and The Party Guys stores in Modesto and a second Party Guys store in Stockton – said it was difficult for his business to cope with the most recent minimum wage increase, in which it rose from $8 to $9 in July 2014 and then to $10 in January.

Pogue said he had to reduce employee hours, negotiated a rent reduction with the landlord at one of his stores, passed on some of the higher labor costs to consumers through higher prices and ate the rest through lower profits. He said he cut his pay by 20 percent.

Now he wonders how he will absorb a $5 increase. “We don’t have an answer yet,” he said. “We’re talking to fellow business owners and figuring out how to get by.”

Pogue said his business competes with the national chains, such as Target and Wal-Mart. He said the higher minimum wage puts him and other local business owners at a disadvantage because the chains can more readily absorb the higher labor costs. Pogue said a $15 minimum wage also makes it more difficult for him to have the number of workers he needs to offer better customer service than the chains.

He said the majority of his roughly 45 employees make the minimum wage, and the majority are 17 to 22 years old. They work at his stores as they finish high school and college, earning money and life and job skills. Pogue said he worries he won’t be able to offer that opportunity to as many young people.

UOP’s Center for Business and Policy Research estimates that once the minimum wage reaches $15 it will affect 45 percent of the workers in Stanislaus County, 47 percent in San Joaquin County and nearly 58 percent in Merced County. By contrast, it would affect nearly 26 percent of workers in Santa Clara County and 31 percent in Alameda County.

Michael, the center’s director, said that means it will affect all of the minimum wage workers as well as those earning as much as $17 an hour. He said as the minimum wage rises, employers will face pressure to increase the wages of those who make slightly more. The rising minimum wage will be felt most keenly in restaurants and agriculture.

Michael said this also is an opportunity for Valley communities to start a discussion about how the higher minimum wage will affect them. He said that discussion should include how to increase the education and skills of workers. He said it’s imperative that workers are able to generate $15 an hour in value for their services.

This story was originally published April 2, 2016 at 3:43 PM with the headline "Modesto businesses weigh in on state plan for minimum wage hike."