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Earlier this month, Council President Todd Gloria, Councilwoman Sherri Lightner and hardware store owner Harry Schwartz came together to announce a new proposal to raise the minimum wage to $11.50 per hour. I’ve been a part of this discussion since February. This is the best option for our city.
Days before the special mayoral election, I read a story that mentioned then-candidate David Alvarez had backed raising the minimum wage to $14.50. I did some quick math and saw that an increase of $6.50 (from $8 to $14.50) represented about 60 percent of my profits. Small businesses are often valued at two-and-a-half to four times their yearly profits, so a reduction in profits of this level would have substantially devalued everything I’ve worked for over the past two decades.
I would have been one of the lucky ones. As the owner of six UPS stores in San Diego, my business is much less reliant on labor than businesses like restaurants. I know this because I owned Sea Rocket Bistro in North Park from 2008 through the end of 2013. Over the course of the entire project, the business lost $70,000. Not bad for five years of hard work.
At the same time, the servers averaged $30 per hour in pay, and the kitchen staff made about $12 per hour. The much-debated tip credit would have done two things. First, it would have allowed servers to make an average of $24 an hour while we reduced our salary costs and earned some profits. Second, it would have given us the option of increasing pay to the kitchen staff. My guess is that there are many restaurants out there that get by with a very low profit margin that would go out of business with a large increase in the minimum wage.
It’s easy for an advocate of increasing wages to simply say, “Raise prices.” Some businesses may be able to do that; others may not. In my situation, UPS sets prices nationally on shipping, which accounts for about half my sales. I have control over pricing for the rest of my sales – mailboxes, packaging, copies, etc. I’ll have to raise those prices disproportionately to make up the difference, and only time will tell whether customers accept my price increases or head to my less labor-intensive competitor FedEx Office.
Other examples of less labor-intensive business that could benefit this way are places like Costco where items are moved by the pallet load instead of stocked individually, counter service restaurants or restaurants that buy more prepared foods instead of making dishes from scratch.
When more labor-intensive businesses raise their prices, they may be pushed out of the market. We’ll be left with more Costcos and Olive Gardens and fewer North Park Hardwares and Sea Rocket Bistros.
READ MORE: Lessons From Seattle’s Minimum Wage Fight
With the proposed $11.50 an hour, we’ve finally arrived at a place where both sides can come together to say, “This is going to be tough for some businesses, and it’s going to be tough for some minimum wage workers, but it isn’t going to do us in as a city.”
Seattle is in the midst of an economic experiment that we in San Diego should be happy we are not a part of. How will an economy react to $15 per hour? No one knows for sure, but it won’t be pretty. Gloria’s latest proposal prevents San Diego from becoming the next big, disastrous experiment.
Dennis Stein owns six UPS stores in San Diego. Stein’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.