Berkeley’s minimum wage rose to $12.53 an hour on Oct. 1, a brief stopover on its way to $15. By the fall of 2018, the city’s starter wage will have risen 67% in just five years.
While the city’s council members quibbled over how quickly the wage should rise to $15, the city’s small businesses had a more pressing concern: How to keep their doors open when the minimum wage is set at a level without any historical precedent.
The Bay Area has been ground zero for minimum wage experiments in California. In Alameda County alone, Berkeley, Emeryville and Oakland have each pursued dramatic increases in the minimum wage in recent years. Their actions were subsequently validated by Governor Jerry Brown, who earlier this year signed legislation establishing a statewide $15 minimum wage by 2022. The Governor should have paid closer attention to the consequences in the county he used to call home before embracing the policy.
In Emeryville, an unreasonable increase in the starter wage forced otherwise healthy businesses like Match Analysis to lay off six employees–the first such layoffs in the company’s history. The Oakland increase contributed to the closure of ten restaurants in and around the city’s Chinatown, while childcare providers like Muriel Sterling were also forced to reduce staffing levels. And in Berkeley, businesses like Black Oak Books, Café Clem, and Mokka coffee shop have closed this year, laying off all employees. Each cited the city’s higher minimum wage as a factor in their closure.
It’s too soon to put a definitive number on the damage, but the early data isn’t promising. Census Bureau data show that Alameda County’s restaurant industry was booming in 2013 and 2014, experiencing 6-7% employment growth annually. In 2015, this figure was cut in half, and the growth in the number of establishments also tapered off after rising significantly in 2014.
California legislators might have thought a statewide standard would prevent these county-specific impacts; instead, it appears to have sent large labor-intensive businesses across state borders. “The exodus has begun,” warned one Los Angeles Times headline of the apparel industry consequences from a $15 minimum wage. American Apparel, which employs approximately 4,000 people in Southern California, is reportedly looking to move to either North Carolina or Tennessee. Ashley Furniture is also moving its production from southern California to lower-cost states where the federal minimum wage prevails–leaving over 800 employees without jobs.
The state university that shares a name with City of Berkeley bears some of the blame for this damage. A team of economists affiliated with the school, including Ken Jacobs and Michael Reich, confidently predicted to legislators at the city and state level that minimum wages set at unprecedented levels would have few if any economic consequences. Some of these predictions proved laughably wrong: In their Oakland minimum wage analysis, they estimated a $12.25 minimum wage would cause restaurants to increase prices by just 2.5%. But the East Bay Express reported that many Oakland restaurant owners were raising prices substantially—some by 20 percent or more.
One reason for these discrepancies between research and reality might be the team’s labor alliances. Earlier this year, the Albany Times Union published a front page expose on the “ties between Berkeley and labor interests.” For instance, the reporter cited one 2014 email where a Berkeley economist sought financial support to help “local groups engaged in work to raise the minimum wage,” including “testimony/media work” in support of their cause.
It is unlikely that Berkeley or California will choose to slow their march towards $15. At a minimum, the state should consider innovative solutions like the one proposed last year by Anaheim Democrat Tom Daly. Highly tipped employees who earn far above the minimum wage in tips alone could be paid a base wage consistent with California’s current minimum wage, rather than the higher $15 figure. They’d continue to earn substantial take-home pay, and small restaurants would face less pressure to hike prices or lay off staff.
It’s a win-win situation. But it requires political courage that’s been in short supply in the Golden State in recent years.
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Michael Saltsman is research director at the Employment Policies Institute, which receives support from businesses, foundations, and individuals.