San Jose City Initiative: Increase Minimum Wage in San Jose to $10/hr with annual increases based on CPI.
The most impressive part of this initiative is that it was started by San Jose State students as part of a class project over a year ago. If approved, the measure will raise the minimum wage from $8 to $10 an hour starting in 2013 within the city limits of San Jose. The measure also includes annual increases indexed to the Consumer Price Index (CPI). Neighboring cities’ minimum wage would remain at the state mandated $8.00 per hour.
The only cities that currently have set a minimum wage are San Francisco, Santa Fe (New Mexico) and Washington DC.
Hourly minimum wages:
Nevada: $7.25 for jobs providing health benefits/$8.25 for jobs without health benefits
Santa Fe: $9.85
San Francisco: $10.24
Generally, the argument in favor of a wage standard is that (1) wages rise too slowly in response to decreased capacity in the workforce market and (2) disparities in power between employers and employees artificially depress wages – especially at the lower end of the wage scale. A mandated minimum wage helps to correct those downward wage pressures.
The SF Argument
Since 2003, San Francisco has had a minimum wage. Currently, it is $10.24 with annual indexing. As of November 2011, the city’s unemployment rate was 7.8%, well below the 11.3% statewide rate. The argument is that what is good for SF is good for San Jose. However, SF is a major tourist destination spot, has much more substantial geographic borders (think large bodies of water… complete with sharks), and has a history of tolerating higher pricing. San Jose has none of those attributes.
What We Don’t Like
Because San Jose city borders are less well-defined than state or national borders, because labor costs (employee salaries) are usually the largest share of a small and mid-sized business’ expense, and because of the relatively soft commercial rental market in San Jose and in neighboring cities there would seem to be a likelihood that a higher minimum wage in San Jose would act as a strong disincentive for the creation of new low-wage jobs within San Jose both for existing and new businesses. Similarly, prospective new businesses intending to employ low-wage employees that are considering locating within San Jose’s borders would almost certainly prefer to locate in neighboring cities to avoid the increased minimum wage requirement. As the disparity in wages increases between San Jose and her neighboring cities (due to the proposed indexing of wages in San Jose and the absence of indexing at the State and Federal level) the disincentive to do business within the borders of San Jose would rise proportionately. Unlike San Francisco, which has a strong geographic “pull,” with a few exceptions (downtown, Santana Row and Willow Glenn) there are few locations in San Jose that could likely justify a business incurring 25% higher wage expenses. In addition to the strain on new and existing businesses, the measure is likely to also adversely affect the already depressed commercial rental market within the borders of San Jose.
Separately from the choice businesses will make (doing business or not doing business in San Jose) we fear consumers will make a similar choice. All things being equal, a 25% higher labor rate in San Jose should roughly translate to similarly higher costs to consumers (assuming the market will bear such increased cost). Logically, a consumer would therefore prefer to buy his or her hamburger in neighboring Santa Clara, Sunnyvale, Cupertino, Cambrian, or any of the other eight neighboring cities in order to avoid the higher charge. This is likely to not only hurt business, but ultimately to hurt the very workers that this measure seeks to protect (through higher unemployment rates).
Finally, when setting a minimum wage, normally one would want to raise that wage slowly – to ensure that there is not a sudden spike in wages, resulting in inflationary pressure. It seems to us that raising the minimum wage by 25% in one shot is precisely the wrong way to approach things. Add to that the fact that avoiding the higher wage is as simple as crossing over to one of a number of neighboring towns and we think this suggested policy change would be very harmful to the local economy.