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New Minimum Wage Could Pose Threat to “Made in LA”

Los Angeles wants its workers to earn a living wage, but the move to pad their pockets may prove detrimental to the city’s already dwindling manufacturing sector.

The Los Angeles City Council voted in May to phase in an increase to the city’s minimum wage from its current $9 an hour to $15 by 2020. The idea is that with more money, less workers are likely to need government aid and the added incentive might foster additional work pride, and ultimately, boost productivity.

Cutting right to the chase, however, Brian Weitman, chief executive of trims and pocket lining supplier STC-QST LLC told the Wall Street Journal, “Five years from now, there won’t be manufacturing in the city anymore.”

Weitman, who has already had clients tell him they would flee downtown L.A. before the wage rate reaches $15, said the increase could cause a transition in the city hub from a place of warehouses and factories to one with luxe lofts and pricey eateries.

And he isn’t the only one who fears for the city’s industry because of the higher minimum wage.

“Although the intentions of local government leaders are in the right place, my suspicion is that the “Rush to $15” isn’t going to end well for current minimum-wage workers, businesses, and perhaps even investors,” said Sean Williams, a contributor for financial services firm The Motley Fool.

Williams gave three main reasons the rate hike could prove a poor move: workers may be earning more in wages, but their employers might start cutting back on intangible pay benefits like health insurance to accommodate the cost; businesses might just opt to cut hours; and job cuts are fairly likely if the new wages cut into profit margins to the point of loss—which is also likely.

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Lastly, and counter to the goal of bettering L.A.’s manufacturing sector, some businesses, as Weitman also noted, will simply pick up and leave.

“High minimum-wage laws could also encourage new businesses to open up shop elsewhere. We’ve witnessed U.S. companies look overseas for cheaper labor in an effort to cut costs; there’s no reason to suspect they won’t do the same thing within the United States, too,” Williams explained on The Motley Fool website. “For Seattle, San Francisco, and Los Angeles [which are instituting wage increases], it could mean a considerably tighter labor market with few new businesses opening up. In other words, job demand could far outstrip supply, making it veritably impossible for the unemployed to find work.”

Employment in apparel manufacturing in L.A. was roughly 80,000 in 2001, but that number since took a nosedive and now hovers around 45,000, according to the Wall Street Journal.

Some workers fear the increased pay will mean increased demands from employers, and other sector stakeholders realize the jump could mean a rise in prices which could see companies start reevaluating their product mixes to air on the side of more profitable, and hiring fewer people.

In a speech on Wednesday, L.A. Mayor Eric Garcetti argued in favor of the new ordinance and cited a Los Angeles Economic Development Corp. study that found no respondents indicating an intent to relocate because of the higher wage, and only a small number that said they would reduce staff, the Wall Street Journal reported.

Garcetti also said the bigger pay won’t see low-income Angelenos adding money to their savings accounts—they’ll be putting those dollars into local businesses.