Pay Hike’s Effect Likely to Be Limited

Small businesses may have taken a hit on the minimum-wage increase last week, but the tax breaks they won in the process will go a long way toward easing their political loss.

And the fact is, many businesses won’t suffer much under the mandatory pay hike.

That’s because only about 5% of the hourly work force in California and the nation receives the minimum wage. But you’d never know that listening to the half a dozen powerful small-business organizations that raised the specter of job losses in their effort to win the $6.5-billion tax-break package.

The vast majority of the state’s businesses are either family-owned and too small to afford employees, or they pay more than the $4.25-an-hour minimum. Take Mordigan’s Nursery in Farmer’s Market in Los Angeles.

“All of our employees are making more than minimum wage. . . . It’s not just barely above minimum wage; it’s grossly above minimum wage,” said Mary Bombino, who oversees 28 workers.

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Bombino said the wholesalers who supply plants to her might increase prices, but that even if they did, it wouldn’t do much to her bottom line.

Meanwhile, Bombino and other employers nationwide are likely to benefit from the package of tax breaks that Senate Republicans won on behalf of small businesses as a concession for the 90-cent increase in the minimum wage. The increase would come in two steps, to $4.75 immediately and to $5.15 a year later.

The tax breaks would liberalize business expense rules, simplify pension regulations and provide other relief. The House and Senate versions of those measures still need to be reconciled in committee.

Those measures were needed, small-business activists said, to help marginal, struggling businesses that might delay expansion, lay off employees or fold because of higher labor costs.

But last week, when the political dust had settled, even some of the fiercest wage-increase opponents had already moderated their rhetoric on the devastation the pay raise would bring.

“California is pretty typical,” said Lee Culpepper, director of federal relations for the 30,000-member National Restaurant Assn. “The market has driven up wages a lot, so there are less people who are even drawing” the minimum wage.

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The impact of higher federally mandated wages will vary according to region and individual businesses, Culpepper said. For many restaurant owners, he added, the opposition to the wage increase was partly economic and partly philosophic, driven by the belief that the market, not the federal government, should set wages.

In California, the market appears to have already set wages well above the federal minimum. According to September data from the state Employment Development Department, only 641,000 of the state’s 12.8 million workers were at or below minimum wage.

But those figures fail to take into account the underground economy, which, according to estimates by the California Franchise Tax Board, generates $2 billion to $3 billion in revenues annually. Many of those underground workers are in key California industries such as garment manufacturing and agriculture, which may suffer from the minimum-wage increase.

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Don Simon, owner of Ed Simon Ltd., a San Fernando Valley garment contracting company, said the increase will put more pressure on legal contractors like him by enlarging the pool of illegal contractors paying piece rates and less than the minimum wage.

“For the ones on the border of becoming legal and paying taxes, [the wage increase] might push them underground even more so,” Simon said. “The people who are honest--it will make it harder for us.”

Garment manufacturers might also be more tempted to ship goods to be sewn in Mexico, where labor costs will now be even cheaper by comparison, Simon added.

Bob Reed, a garment maker who employs 200 people at Stitches in Commerce, said a wage increase could force him to evaluate his staffing levels and be more cautious about hiring.

“I don’t know where it’s written that the minimum wage is supposed to be a livable wage,” he said. “I just think this is a hardship on business.”

The package of tax breaks designed to help small businesses may not aid businesses like Simon’s or like Reed’s, which are directly affected by the minimum-wage increase, said Jim Weidman, a spokesman for the 600,000-member National Federation of Independent Business, which fought the wage hike.

“The tax changes are good for a large number of small businesses--but geared to ease the pain of the specific businesses that pay minimum wage? No,” Weidman said. “There’s not a connection there really between the two.”

Meanwhile, smaller businesses might feel a ripple effect over time as their suppliers raise their prices to compensate for higher labor costs, said Culpepper of the restaurant association.

Juan Eggers, owner of a Mail Boxes Inc. franchise in Montrose, said he might raise prices if he finds his suppliers quoting him higher costs. But as with many other small businesses, he said, his sole employee already earns more than the minimum wage, so Eggers foresees no immediate impact.

Even businesses that would be immediately affected by the wage increase appeared resigned to the change.

John Tamayo, co-owner of Atlas restaurant on Wilshire Boulevard, said most of his staff is at minimum wage, and he simply plans to sit down with his accountant to see how to handle it.

“It’s just a matter of doing business,” Tamayo said. “We’re not unhappy with it. We want our employees happy.”