What a $13.09 Minimum Wage Would Do to Small Business

A faction of the City Council, led by Councilman David Alvarez, would prefer to keep the debate over raising the minimum wage among themselves.

They’ve shown they’d like to put the move on a high-speed rail toward Council approval without a vote by the people. But this is an important issue for the local economy, and there has simply not been enough public debate to warrant potential approval in just two months.

My sister and I own Downtown Ace Hardware, a small business with 16 employees. We agree that the minimum wage is too low – all of our hourly employees are paid above minimum wage. But we have serious concerns about the proposal and how it is being presented to the public.

READ MORE: Maximizing the Minimum Wage

Council President Todd Gloria has said 200,000 minimum-wage earners will benefit from increasing the minimum wage to $13.09. This is only partially true. In reality, when the minimum wage benchmark goes up – whether it’s to the $9 level the state will roll out this July, or $13.09 in 2017 – it increases the entire hourly wage pay scale.

If an employee currently earns $10 per hour, $2 or 25 percent above minimum wage, when the minimum increases to $9, in theory the value of that employee should increase to $11 or $11.25 an hour. When it goes up to $13.09, that employee would rightfully expect to be paid $15.09 or $16.36 per hour.

So the cost to businesses wouldn’t just be the payroll increase for 200,000 workers – it would be a bump up for 767,000 workers (assuming San Diego has the same ratio of hourly to salary workers as the U.S.).

And where are we supposed to get the money to pay these increases? Small businesses aren’t hoarding cash in off-shore accounts. The answer is price increases. My sister and I have already calculated that to go from the current $8 minimum wage to $13.09, we would have to raise our store’s prices by 20 percent. Wages would go up as buying power goes down. This seems counterproductive.

Another concern for the broader economy: Proponents of the wage increase have said businesses won’t leave San Diego just because of the hike. For the majority of businesses, that may be true.

But businesses might be more concerned about the choice customers will make not to shop in San Diego. Fifteen percent of our most loyal customers live outside city limits. With a 20 percent price increase, will they continue to come into San Diego to shop, or will they decide to in their communities – La Mesa, Chula Vista, National City, Santee, and so on – where the prices will stay lower? They might not want to drive to the Gaslamp Quarter to eat at restaurants where prices are higher. Out-of-town visitors might choose hotels in Coronado, Encinitas or Carlsbad where rates are lower over San Diego accommodations.

We have to wonder whether new businesses will open in the city. Over the past year, Pam and I have been researching and negotiating to find new store locations in Little Italy and San Carlos. But we stopped those negotiations this week, and told the Ace Hardware corporate office we will only consider opportunities outside city limits.

Proponents of the increase use SeaTac and San Francisco as examples of how the wage increase doesn’t impact business. If you look more closely, you’ll find that in SeaTac the wage increase only applies to hotels with 100 or more rooms and parking lots. All of 1,600 workers are affected.

The minimum wage in San Francisco increased this past January to $10.74, nowhere near the $13.09 Gloria is proposing. And San Francisco took 10 years to get to $10.74 with 1 to 3 percent increases annually. That includes two years when there was no increase due to the recession. The city intelligently managed the increase, but it looks nothing like what’s proposed in San Diego.

My hope is that Pam and I will be able to look back five years from now and say, “Hey, that wasn’t so bad. We survived.” But the reality is we will very likely be out of business.

Harry Schwartz owns Downtown Ace Hardware. Schwartz’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.