Fears About Minimum Wage Inflation May Be Overblown

Some business leaders’ fears about tying San Diego’s minimum-wage to inflation seem to be, well, inflated.

A California Restaurant Association executive recently dubbed City Council President Todd Gloria’s proposal to use Consumer Price Index data to raise the minimum wage beginning in 2019 potentially “disastrous” for businesses. (The current version of the measure would first gradually increase the minimum wage in the city to $11.50 over three years.)

But the inflation proposal isn’t radical. At least 20 cities and states across the nation have pegged their minimum-wage increases to the cost of living since 2001 and even some who opposed that measure in two cities acknowledge worst-case scenarios haven’t played out.

San Francisco and Santa Fe each boosted their cities’ minimum wages above state mandates more than a decade ago.

The cost-of-living-tied hikes in both cities have been much smaller than the initial increases, and more predictable.  Meanwhile, their unemployment rates remain below their respective state levels and the national level.

But business leaders still say the singular focus on one economic indicator and the possibility that sticking with just one could mean companies are faced with inflation-tied increases in the midst of an economic crisis.

In Santa Fe, which has weathered inflation-tied wage increases since 2009, critics of the provision are more anxious about what could happen than the reality that’s played out so far.

Paul Margetson, managing partner of the Hotel Santa Fe, employs about 25 minimum-wage workers and generally hasn’t objected to giving them raises.

Still, he fears a double-digit percentage increase in the cost of living and the near-automatic wage increases that would come with it.

“It’s like a train you can’t stop in its tracks,” Margetson said.

Large spikes haven’t materialized in Santa Fe or San Francisco, though.

Santa Fe’s minimum wage has increased an average of about 2 percent annually; San Francisco’s rate has been about 2.5 percent.

Both cities also went without increases for at least a year during the recession, in most cases because the Consumer Price Index didn’t go up. Then there was 2011, when Santa Fe officials failed to implement a 1.4 percent spike that should have resulted in a minimum wage hike. (The mayor at the time said it was an inadvertent mistake.)

Margetson and the California Restaurant Association still worry the trend could shift, even though year-over-year national Consumer Price Index growth rates haven’t reached double digits since 1981’s 10 percent spike.

The Santa Fe Chamber of Commerce continues to publicly oppose that city’s inflation-tied wage increases for the same reason Margetson does. The group also fears the continuing increases will make it less competitive with surrounding cities.

But at least one former opponent of Santa Fe’s wage hike says the Consumer Price Index has been a nonissue.

Beth Koch, owner of comfort food restaurant Zia Diner, said the increases haven’t been substantial and she’s come to expect them.

This year’s amounted to an extra 26 cents an hour per worker, she said.

“I know that the increase in the living wage is going to happen on a schedule,” she said. “It’s not just going to happen randomly.”

These increases have also been far less impactful than the larger initial increases in the early years after Santa Fe’s wage hike was first imposed.

Gwyneth Borden, who leads San Francisco’s Golden Gate Restaurant Association, said her city has experienced a similar dynamic.

Both the city and the companies that do business there have learned to anticipate the smaller minimum-wage hikes, she said.

“We’ve had a history of 10 years dealing with CPI,” Borden said. “It has been a market increase in the minimum wage and we feel the CPI in general is a better approach than a larger increase.”