LOS ANGELES — When Californians who earn the minimum wage get a nearly 20 percent pay hike over the next year and a half, apparel retailers and manufacturers in the nation’s largest state could pay more than a bigger salary to entry-level workers.
Though consumers would have more purchasing power to offset rising energy costs and high housing prices, the agreement to boost the hourly minimum wage to $8 from $6.75 could squeeze profit margins, raise prices and accelerate the migration of clothing production overseas.
The deal, struck Monday between Gov. Arnold Schwarzenegger and Democratic leaders in the state’s legislature in Sacramento, will increase the minimum wage by 75 cents on Jan. 1, 2007, and by an additional 50 cents on Jan. 1, 2008.
Schwarzenegger, a Republican who is running for reelection in November, had proposed lifting the minimum wage by a dollar to $7.75 over two years. The agreement is a compromise between the movie star-turned-politician and Democrats controlling the legislature who had insisted on an automatic cost-of-living adjustment to the minimum wage each year.
“I made it clear three years ago, as long as our economy is in trouble, I would not raise the minimum wage, but that has changed,” Schwarzenegger said Tuesday. State officials said the minimum wage increase would benefit low-income families, who could help the economy recover.
While several apparel retailers and manufacturers were expecting a change in the minimum wage, they hadn’t anticipated such a big jump in the first year. “The 75-cent hit in the first year is the second-highest increase in one time in history for California,” said Bill Dombrowski, president of the California Retailers Association in Sacramento, which opposed the agreement and said smaller retailers would suffer the most.
“It’s going to increase our payroll pretty substantially,” said Leon Zekaria, president of Los Angeles-based Windsor Fashions, which operates about half of its 35 junior clothing stores in the state. He said employees who currently make $8 per hour will receive a raise in proportion to the new minimum wage. “Hopefully, we’ll get [the higher costs] back in sales,” Zekaria said. “That’s not guaranteed.”
In contrast, Wal-Mart Stores Inc., the world’s largest retailer, said it doesn’t expect any impact on its California operations, which employ 65,000 people. The Bentonville, Ark., company pays an average wage of nearly $11 per hour, said Trudi Hughes, Wal-Mart’s senior manager for public affairs in California.
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Still, Oren Hayun, principal of Los Angeles-based Planet Funk, a 15-store chain selling premium denim and contemporary fashion, is optimistic the wage increase will balance some shoppers’ penny-pinching practices due to surging energy prices. “We hope that obviously the more people have of disposable income, the more they’ll be driven to the stores,” Hayun said, adding consumers have become conservative and focused more on value than they did a year ago.
The increase to $7.50 on Jan. 1 will put California’s minimum wage in a tie with Oregon’s, according to the U.S. Department of Labor. Still, California and Oregon will lag behind Connecticut and Washington, which next year will require hourly minimum pay of $7.65 and $7.63, respectively. In comparison, New York’s rate will rise to $7.15 next year. Yet San Francisco, which uses an annual cost-of-living adjustment based on the consumer price index, already mandates that employees who work two or more hours per week are paid an hourly rate of $8.82 and expects the wage to rise above $9 in 2007, according to the city’s Office of Labor Standards Enforcement. The federal minimum wage is $5.15 per hour.
Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said while the wage increase will inject more money into the Golden State’s economy, it could drive more low-skilled cut-and-sew jobs overseas. He said California had 79,700 apparel workers and 12,700 textile employees in July, down from 81,400 apparel workers and 13,500 textile employees a year ago.
“It’ll put a little pressure on our margins and a little pressure on our pricing,” said Jeff Silver, chief operating officer for privately held Jerry Leigh Inc., which produces clothing for Harajuku Lovers, Walt Disney Co. and other brands in Van Nuys, Calif. Half of Jerry Leigh’s 600 employees work in its California headquarters. Silver said although less than 10 percent of Jerry Leigh’s manufacturing is done in California, the new minimum wage will add slightly to packing and processing costs. He said he expected margins to shrink by less than 5 percent and that prices will rise 1 to 2 percent.