Guest Post by Houman Salem
California’s minimum wage jumped to $10.50 an hour at the start of the new year. As the founder of a small fashion design house and clothing manufacturer in San Fernando, I’m not a disinterested observer in this change.
After two years in business, my company now has more than 150 clients from all over the world and 18 employees. It’s what’s known as a cut-and-sew house, part of the garment industry that generates about $17 billion in annual economic activity in Los Angeles County, including $6.9 billion in payroll, according to a 2016 industry report by the California Fashion Assn. This is the epicenter of apparel design and manufacturing in the United States; domestically manufactured clothing is more expensive, but retail and wholesale customers who care about quality and working conditions have historically been willing to pay for it.
Unfortunately, the industry is on a downward trend. Los Angeles County used to have more than 5,000 apparel factories; today, my company is one of roughly 2,000 — and many (e.g. American Apparel) are looking for a way out. One Los Angeles Times headline, quoting a California State University economist, warned that “the exodus has begun.”
The biggest reason is the minimum wage, which will rise to $15 by 2021 in the county and by 2022 statewide. I write with some hesitancy, because I’m in no way an opponent of higher pay. When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.
Here’s what the math looks like: I pay my employees $10.50 an hour, plus productivity bonuses. In addition, I pay payroll taxes and one of the highest worker compensation rates in the state. Even still, I could likely absorb a minimum wage as high as $11.50 an hour. But a $15-an-hour wage for my employees translates into $18.90 in costs for me — or just under $40,000 a year per full-time employee.
When the $15 minimum wage is fully phased in, my company would be losing in excess of $200,000 a year (and far more if my workforce grows as anticipated). That may be a drop in the bucket for large corporations, but a small business cannot absorb such losses. I could try to charge more to offset that cost, but my customers —the companies that are looking for someone to produce their clothing line — wouldn’t pay it. The result would be layoffs.
When Los Angeles County’s minimum wage ordinance was approved in July, I began looking at Ventura County, Orange County and other parts of the state. Then, when California embraced a $15 wage target, I realized that my company couldn’t continue to operate in the state. After considering Texas and North Carolina, I’ve settled on moving the business to Las Vegas, where I’m looking for the right facility. About half of our employees will make the move with us.
Nevada’s minimum wage is only $8.25 right now, so I can keep my current pay structure or possibly increase wages. Even in the event that Nevada raises its minimum wage, I’ll still be better off with reduced regulations, no state taxes, and significantly less expensive worker compensation insurance. I have had the opportunity to meet with Las Vegas city officials (including the mayor) and I am confident that we are entering a very business-friendly environment.
Still, if not for the $15 minimum wage, I’d have zero interest in leaving California. In some ways, it’s an ideal time to make clothing here. There’s a huge demand for American-made apparel, and the industry infrastructure that exists in Los Angeles — from garment makers to sewing machine repairmen — is difficult to find elsewhere. But businesses can’t operate at a loss.
Today, it’s cool to be a tech startup in Silicon Valley, but not to be an apparel industry startup in the San Fernando Valley. That needs to change. Not everyone has the inclination or aptitude to write code for Google or Facebook. Moreover, the lifespan of tech startups is shockingly short: 30% to 40% collapse and another 40% get bought, putting people continuously on the hunt for the next job. That is no way to live or to raise a family.
We need more stable, blue-collar jobs in places like the San Fernando Valley — the kind I thought I was helping create. California, however, has put up a giant “Go Away” sign. If President-elect Donald Trump is interested in learning more about the hurdles to adding manufacturing jobs in America, looking at the Golden State’s steep pay requirements would be a good place to start.
Houman Salem is the founder and CEO of ARGYLE Haus of Apparel in San Fernando.
Very sorry you were hounded out of California Houman. But there is a real, if perverse justice to it. A productive person like yourself will do even better in your new digs, California will lose a valuable wealth producer and gain in it’s place a hundred wealth destroyers. Good for both of you.
Here’s the deal, I can’t pay $20/hr and my employees can’t live on $20/hr. The compression is only increasing and when this Trump-is-here-let’s-get-happy bullshit fades we’ll all be looking at the grim facts that have been there all along. You can ignore the facts but you cannot ignore the consequences of ignoring that facts.
Tommy, cost of living needs to (and will) come down. Lots of profiteering on the backs of ordinary people about to get stripped away. Nice article
Star – seriously, you are deluded.
Gotta agree with this one, Mr. Llpoh. The racketeering and price gouging may shift industries, but it will never go away as long as we are forced to exist in a fiat currency environment.
Thanks for taking the time to write this personal narrative-very informative.
I’m surprised anything is left in Commiefornia- I guess they’re going to fix that!
There are so many losers involved with minimum wage laws. The guy I really feel sorry for is the $16/ hr guy who has worked his way up from $7 or $8/hr when he started a job, and after several years of hard work, has doubled his wage. Then one day he wakes up and finds himself, once again, making minimum wage. Everything now costs more because of the wage increase (that’s right liberals, things DO cost more if it costs more to produce something) plus if his employer is fortunate enough to hire somebody, our $16/ hr guy is only making a bit more than a new hire off the street. Maybe he will get a bit more from his employer, maybe not. Either way, the hard working employee doesn’t have much to show for his hard work.
Rojam – hard-working and employee are words that seldom should be put in the same sentence.
A person can be hard-working. Or an employee. Or if a TBP afficionado, they can be both. But generally, hard-working employee is a contradiction in terms.
Oh, I thought you knew. My fictional guy IS a TBP aficionado. I should have made that clear.
Here’s a question for the author (don’t know anyone in the industry to ask it to):
If I can walk into a business and have a 3D scan of my head made and then get a 3D printed bust of myself printed out from it, why can’t I do the same by getting a 3D scan of my body and having the dimensions sent to a business like yours along with the style clothing I want and have it made to the exact fit for me and my actual body instead of finding off the shelf stuff that never quite fits me?
Everything from work clothes to formal wear with no tailor needed. Seems labor could be kept to a minimum this way too, negating some of the rising costs and liabilities associated with it.
Surely someone somewhere must do this but I have no idea who or where.
(FWIW, I’ve had custom made orthotic inserts for my shoes and boots made this way.)
I hope Llpoh weighs in, but I think I know what he’ll say: we can’t compete with Vietnam and Bangladesh.
Iska, if we protect our border we can compete with anybody
Star – no the US cannot. A closed system will see quality, productivity, etc., drop, and the US will lose.
Why are you afraid of competition?
Iska – we can compete. But it means ending red tape, ending barriers to business, killing off welfare so that those eaters are forced to produce rather than consume. It means competing vigorously, and becoming investors instead of debt-laden. It means ending wasteful govt spending, which eats a huge portion of GDP.
Can you imagine the output possible? All the eaters produce what they eat instead of take it unencumbered by actual production? Returning hundreds of billions of wasted military expenditure into the economy instead of blowing up things overseas?
Never going to happen, of course.
So, in reality we cannot compete. There is no will. Americans are soft. As is the entire western world.
Llpoh… I can compete with anyone. Even the laziest asshole near me in the West can out-compete everyone else on the planet.
The simply need to stop having their food and paycheck offered at the point of a gun.
The Western civilian is gimped more by the effort to protect them than by inherent inability.
Anon – that is my point. The current mouth-breathers need to go to work, doing something/anything of value.
America has the ability to compete against anyone – if the chains are removed. There are literally hundreds of thousands, if not millions, of pages of regs. Something like 17,000 pages of tax law – fed only. EPA. Etc. regs ad infinitum.
Tax law could be reduced to “add 20% to each sale and send it in, less any sales tax paid on your purchases”. That way, only the final purchase atteacts the tax. And cut the balls off anyone committing tax fraud. Poof – 17,000 pages of tax law disappears, along with need for most accountants and tax lawyers.
Same time, cut the balls off anyone employing an illegal, or harboring on (they are criminals after all, and harboring a criminal is illegal).
Slow ve govt spending to what is essential and which promotes the nation – basic defense and policing, infrastructure, education, and that about covers it.
It is easy. Just do it. Let the US engine run.
But never gonna happen.
Let the Hunger Games begin.
I’m on the “employee side” of this issue. I doubt very much that I’ll see anywhere near the adjustment in my income as the minimum wage earner is going to see. If that guy’s wage goes from $8.50 to $15.00/hour (+$6.50), mine will probably see maybe a $2.00 increase. The end result is that I will have LOST money and buying power, and the minimum wage earner will still be making… wait for it… MINIMUM WAGE.
I fail to see the logic here. Then again, gave up trying to figure out the CA legislature long ago…
I may not be far behind you in the Conga line leaving the “state” of California…
Agreed–it seems so simple and logical to many of us but the top tier cannot or refuses to see it.
I’ll put it a little simpler–the min wage increase comes at the expense of the middle class (again).
The top 10% are mostly unaffected as the goods and services that they patronize are not coming from cheaper, budget-minded businesses.
The poorer MAY be slightly elevated as increased wages can be spent with discretion. However I say “may” because their primary expenditures will naturally go up in costs as businesses are forced to cover labour costs.
So in the end it will be the middle class who absorb this hit. In everything from school clothes and shoes to a Sunday -after church- Dinner at a chain restaurant.
Same liberal/prog philosophy by the elites–share the misery equally among the cattle.
If you want to live in Californication the most worthless state in the union you deserve everything that happens to you. The place is a Democratic shithole that needs to be cracked off into the Pacific Ocean.
Lipoh made some good points.
While a tax cut would be nice & would help jump start the economy,stopping the onslaught of new regulation & rolling back some of the existing ones are more important.Business can adjust to whatever tax rate exists as long as it’s stable but regulation is both a job killer & a business killer.
To stop stupid new regulations,once a regulatory agency has made a rule it should have to be voted on by the elected body,whether Congress,your state legislature or city council/county commission before it can be enforced.How many times have you heard a politico say,”That’s not what we meant when we passed that law.”No more of that.
Welfare,we have to cut it at all levels.Cash assistance,food stamps,medicaid for the poor,college aid,medicare,veterans hospitals for the middle class.
Immigration-when I read the comments here there seems to be a belief that if only we stopped immigration & stopped welfare,along with killing the Fed,everything would be great again.
When blacks or non white immigrants are dysfunctional it is very noticeable to us who are white.I don’t think you guys understand the white underclass we have in this country.I would bet that it is at least 5%,possibly bigger.Even if you cut all welfare,which we will not,many of these people are not going to work.Even if they would work,you would not want many of these people working in your home or business,or cooking your food in a restaurant.We still need quite a bit of low skilled immigration.
No, Llpoh is a globalist, a Troll, and supports slavery. Pretending that slavery in Bangladesh or Vietnam is OK by saying the garment makers ‘fear’ them and can’t compete – well – that still favors slavery rahter than calling it out as evil. Blue Jeans made by slaves make a Bangaldeshi boss rich, probably very rich. Meanwhile the small biz owner has to pay actual wages to free employees in Las Vegas or Los Angeles. Every purchase of slave-made pants, shirts, shrimp, DVD players, whatever supports slavery – and so do you if you buy it.
Pete – you need to stop sniffing glue. You babbling about slavery is embarrassing yourself.
I am the most strident “buy American made” person you will ever meet. But it should be voluntary.
I have been in mfg my entire adult life. Amongst other things, I spent some years making jeans. Imagine that.
Llpoh
Pete has a good point that slave wages will continue and spread if we keep buying these products from countries that exploit and pimp out their workers.
Trump, his wife and daughter are still taking advantage of third world slave workers which is wrong on every level. You are right that we should “Buy American” but look around, that just is not happening. We are digging our own grave and killing the middle class.
So, B – you know fucking best. You would deny the people their right to buy from whoever they choose, because you know best.
That is fucked up. People need to be allowed their own decisions. Otherwise, you get taxes on soda pop, because people know better than you.
Llpoh- I did not say restrict people from buying from any distribution outlet or country of origin. Just saying people are still buying Chinese,Mexican, Pacific Rim etc. manufactured goods and really don’t give a shit about buying American. Meanwhile the usual suspects (elites/corporations) are exploiting slave wages.
If you disagree with that, I can’t help you.
Unfortunately,this is going to become common if we do not turn things around.
An article about Teamsters pension plans seeking permission to cut benefits to already retired workers.
http://www.thenewamerican.com/usnews/congress/item/24970-teamsters-pension-plans-seek-massive-cuts-to-retirees-to-stay-solvent?utm_source=iContactPro&utm_medium=email&utm_campaign=TNA+Top+Daily+Headlines&utm_content=TNA+Top+Daily+Headlines+Jan+3+17
I am afraid that when the cost of living really comes down the obesity epidemic will also dissapear. Along with a lot of people. Maybe that’s what we need
I’m a little discouraged that comments didn’t ID two largest business obstacles: Gov’t spending (NOT gov’t revenue) and the hyper-expansion of the parasitic lawyer class in the U.S.. Address those issues and everything else takes care of itself.
I mentioned that stuff. In some detail.
In the US “rag industry,” an employer must have cheap labor, government protection (defense industry contract rules, for example) or a high sales price quality niche to compete with the likes of Vietnam and Bangladesh. The writing has been on the wall for decades that the industry, as with many menial production industries, has been progressively painted into a coffin corner.
Trump’s answer is to institute government protection, another band-aid. The answer is that living standards must come down for workers to compete. That being politically unacceptable in “wealthy” America, government has unsustainably staved off collapse by printing money while accumulating, along with workers, massive debt. The climax won’t be pretty.
Cheeseeater is right.
Pretty simple to me. There should be no minimum wage. The employer offers said job for x amount. Employee takes it or not.
Greetings,
As someone that owns a company that manufactures here in California, I’d like to chime in.
The inequality here is breathtaking with a full 50% of our workforce making $20,000 a year or less. This makes for about the worst income equality you could ever imagine as the hillsides and beaches are covered in mansions and are always in view of the working poor or just the poor. Naturally, they are unhappy as it is rubbed in their faces every moment of every day.
Next, California may call itself a progressive place but it isn’t. The status of the poor isn’t much higher than a death camp inmate and armies of State workers and enforcers must be employed or the inmates would instantly burn this place down. These KAPOS demand ridiculous pay, benefits and pensions to maintain this inequality. As I write, California has $500,000,000,000 in unfunded pension liabilities or $90,000 per household.
To extract enough wealth to fund their KAPOS, the State must make anything that is taxable as expensive as possible. You could buy a home with cash and your taxes would be higher than most peoples mortgages in the fly-over States. Raising the minimum wage, too, gives the State more income to tax.
I have a fix for much of this and it goes like this:
Everyone must carry insurance on their homes if they have a mortgage. Even as a renter, insurance is often mandatory as well. I would place at the top of every insurance form that unlicensed contract work instantly voids the policy and no policy equals no home. After all, the real owner is the bank and maybe they don’t want a bunch of half literate clowns rewiring their home or planting a bunch of trees destined to fall over and kill someone.
Enforce insurance law and the illegals would have to leave which would free up a ton of housing and give the millennials something to do as a lot of jobs would open up in construction, food service and lawn care.
Follow this up by forcing all public employees into the 401k game and let them manage their own retirements.
These first two items would get the ball rolling.