Sept. 3 2014 09:49 AM

A tale of two cities

At Home Depot, a woman (right) counters an effort to get enough signatures to overturn San Diego’s minimum-wage increase.
Photo by Kelly Davis

In April 2013, a few months after San Jose voters passed a measure to increase the minimum wage from $8 to $10, patrons of some restaurants noticed a surcharge on their tab. One woman took to a Yelp forum to complain, posting verbatim the message at the bottom of her bill (she wouldn't name the restaurant):

"In order to support San Jose's New Minimum wage increase, we have included a surcharge of $2.50 added to your bill. Our employees thank you!" 

Others weighed in until someone finally pointed out the obvious: "It almost seems like they're blaming the extra fee on the new minimum wage. It's almost a ‘hey, San Jose raised [the] minimum wage so we have to charge you more.'" 

In the run-up to the November 2012 vote to increase San Jose's minimum wage, opponents predicted significant job loss, mainly for restaurants, and, despite some workers getting more money in their paychecks, no economic benefit to the city.

But, so far, any negative effects of San Jose's minimum-wage increase have been largely anecdotal.

"Modest, at most," is how Jim Reed, policy director at the San Jose Silicon Valley Chamber of Commerce, described the impact of the wage increase to a USA Today reporter in June. Asked by CityBeat to elaborate, he said he's heard from businesses that have had to cut staff, a couple that say they've closed because of it and, like the Yelper pointed out, restaurants that have added a new line to the bill, "passing the cost directly along to the consumer."

"Overall, we are fortunate," he says. "Our local economy is strong enough that we're doing well even with the wage hike."

Newspaper articles quote San Jose restaurant and shop owners who've had to raise prices or cut staff but also business owners who've seen no negative consequences. An Aug. 28 story by NPR's Planet Money found what's perhaps ground-zero in getting a real sense of the impacts of the wage increase: the Westfield Valley Fair mall, half of which is in San Jose and the other half in Santa Clara, which pays the lower state minimum wage. A shop manager on the Santa Clara side of the mall found it "a struggle" to keep good employees, lamenting that he's left with "the bottom of the barrel," while on the San Jose side of the mall, a business owner had happier workers but had to bump up prices and take home less in profits.

In July, the San Diego City Council passed a phased-in minimum-wage increase that would start at $9.75 in January 2015—75 cents more than the state minimum—and go up to $11.50 by 2017, when it would be $1.50 higher than the state minimum. In 2019, wage increases would be indexed to the local cost of living. San Jose's wage increases are indexed to inflation, and the wage there went up to $10.15 on Jan. 1. 

Citing a negative impact on small businesses, San Diego Mayor Kevin Faulconer vetoed the ordinance, but the City Council's Democratic majority voted last month to override the veto. That prompted a referendum drive, spearheaded by the San Diego Regional Chamber of Commerce and the California Restaurant Association, who will need to collect nearly 34,000 signatures by Sept. 17. If they're able to do that, it'll put the wage increase on hold pending the outcome of a June 2016 ballot measure.

In the debate over raising San Diego's minimum wage, supporters point to San Jose as an example of a city that raised wages while maintaining a strong economy. But is San Jose a fair comparison?

You're not going to find an apples-to-apples comparison, says Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corporation.

City Council President Todd Gloria "goes around and says things like, ‘Call the Chamber of Commerce in Silicon Valley; the sky didn't fall.' It's a very cute line, but our recovery right now in San Diego is far, far weaker than the recovery that they've experienced in Silicon Valley," Cafferty says. "I don't feel like it's a great comparison because of the context, but it's as good as any comparison."

So far, there's been only one report that claims to measure the impact of San Jose's wage increase, published by the Employment Policies Institute (EPI), a research group run by Washington D.C. lobbyist Richard Berman, whom 60 Minutes once dubbed "Dr. Evil." Recently, EPI launched a campaign to, as its website puts it, "[Hold] activists accountable for minimum wage consequences."

According to an EPI survey, 66 percent of San Jose restaurants raised prices, 45 percent cut employee hours and 42 percent reduced staffing. Read the small print and you see that the survey was based on responses from only 163 restaurants out of an initial list of 1,209 provided by the California Restaurant Association. And even of those 163 restaurants, the results are a mixed bag: The majority of respondents didn't reduce employee hours or staffing levels or scale back expansion plans.

Michael Reich, a professor and director of the Institute for Research on Labor and Employment at UC Berkeley, is a go-to guy for minimum-wage-increase supporters and has authored a number of studies showing that while raising the minimum wage might increase a business' operating costs, those costs are partly offset by the benefits of a happier workforce: increased productivity and lower employee turnover.

Reich is wrapping up a study on San Jose's minimum-wage increase and shared some preliminary findings with CityBeat. Data collected from 1,000 restaurants in San Jose and neighboring cities showed that San Jose restaurants increased their prices by 2 to 3 percent compared with those nearby, which, Reich says via email, "is, a) modest, b) in line with their payroll cost increases and c) consistent with my previous research showing that minimum-wage increases of this magnitude are absorbed mainly by modest restaurant price increases, with no negative employment effects."

The average household income in San Jose is $18,000 more than San Diego's, raising the question of whether price increases, especially at restaurants, would be less noticeable to consumers than in San Diego.

"There was a report that entry-level engineers at Google are approaching $200,000 in salary. That's a lot of McDonald's meals or dining out, pushing up demand for restaurant employment," says Erik Bruvold, president and CEO at National University System Institute for Policy Research.

Bob Brownstein, director of policy and research for Working Partnerships USA, a progressive political-advocacy group, counters that San Jose's higher cost of living instead means many folks have less disposable income. Not only that, but a recent study by the U.S. Conference of Mayors showed San Jose has a large disparity between high-wage and low-wage workers with not much in between.

"The high San Jose median [income] conceals a huge low-income population," he says. "Yet no significant changes in consumption due to price [increases] have been discovered."

Peter Brownell, research director at the Center on Policy Initiatives, a labor-backed think tank, says one needs only to look to San Jose's tourism industry to get a sense of how San Diego might fare.

"I don't think anyone would argue that [San Jose's] leisure and hospitality industry is stronger than ours, yet it has weathered the increase without job loss," he says. "Rather, they have added over 4,000 jobs in the leisure and hospitality industry since the… minimum wage went up."

Email or follow her on Twitter at @citybeatkelly.


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