California's new minimum wage increase is pushing some businesses out of the state, at least according to one clothing manufacturer, who plans to move his operation to Las Vegas. The state's base pay increased to $10.50 on Jan. 1. It's the first in a series of hikes that will eventually set the minimum wage at $15 an hour in 2022.
That is simply too much for some employers, particularly those who compete in a global marketplace, argued Houman Salem, chief executive of ARGYLE Haus of Apparel, which is based in San Fernando. In a recent op-ed, Salem laid out the math: He currently pays his workers $10.50 an hour, plus productivity bonuses. The planned wage increase to $15 an hour in 2022, plus additional worker compensation and payroll taxes, will cost him just under $40,000 a year per full-time employee.
He competes against companies in states and countries with lower labor costs and can't pass along the expense to his customers. He would end up losing more than $200,000 a year – too much for a small business to absorb. So he's planning to move to Las Vegas, where the minimum wage is currently $8.25 an hour and expenses are lower, though he intends to keep paying his workers $10.50 an hour.
His math makes a compelling case, but there's an equaling compelling reason why California had to raise the minimum wage: It's nearly impossible to live on so little income given the incredibly high cost of housing. A new report from the state's Housing and Community Development Department says that 1 in 3 Californians pays more than half his income for housing, with less to spend on transportation, education, healthcare or to put into savings. The burden of high housing costs falls especially hard on the lowest-paid workers.
Here's the math for the minimum-wage worker of today: $10.50 an hour for full-time employees equals $21,840 a year. That's low enough to qualify for a government-subsidized apartment, but good luck finding one because there are long waiting lists for affordable units.
A worker earning $10.50 an hour should pay about $550 a month on housing. That figure is based on the U.S. Housing and Urban Development Department affordability guideline that a person should spend no more than one-third of his income on housing. But the average rent in Pacoima is $1,300 a month, according to RentJungle, which is far below the city of Los Angeles' average of $2,300. (Average rent for a one-bedroom apartment in Las Vegas is about $780 – still too much for a worker earning $10.50 to afford his own apartment.)
Two adults working full time and earning $10.50 an hour get a bit closer to affording the average rent in Pacoima, but if they have children and need to pay for child care, that's another $700 a month. It just doesn't pencil out without government assistance.
The situation won't improve much even when the minimum wage hits $15 in 2022 (or 2023, if employed by a company with 25 or fewer workers). The worker would be able to pay $780 a month in rent, which is still way less than the average rent today. Because housing construction in California hasn't kept up with demand, rents in L.A. are expected to keep rising through 2022.
California lawmakers were right to raise the minimum wage in an attempt to better match pay to the state's high cost of living. But their work isn't complete. State leaders, along with lawmakers in cities and counties, have to address housing affordability. That means making it easier to build more market-rate apartments and houses, as well as more subsidized homes for the lowest-income residents.
Salem argues that California needs more stable, blue-collar jobs, and that's true. But the reality is that $10.50 an hour is a poverty wage. Even $15 an hour won't help much in Los Angeles as long as the cost of housing remains so high.