California Dreamin’ (Of A Higher Minimum Wage)

The news out of California on Monday (March 28) that Governor Jerry Brown, state lawmakers and labor leaders have reached an agreement to raise the state’s minimum wage to $15 an hour has the country buzzing.

Should the proposed legislation garner approval by California’s Assembly and Senate — voting by both chambers is scheduled to take place by the end of the week — the statewide minimum wage will increase from $10 an hour to $10.50 an hour on Jan. 1, 2017, then to $11 an hour one year later and will see annual increases of $1 until reaching $15 an hour on Jan. 1, 2022 (for large businesses, with small businesses set to reach that minimum wage threshold by 2023).

The $15 hourly minimum wage would be the highest in the nation, and the proposal represents a potential game-changer in the battle to raise the federal minimum wage, which currently stands at $7.25 an hour. As The Christian Science Monitor notes, the governor of New York is already pushing for a statewide hourly minimum of $15 by July 2021, while states like Maryland, Nebraska, Alaska, South Dakota and Illinois have elected to increase their respective minimum wages (albeit to lesser degrees).

With California’s recent move marking the boldest effort to date to address the wage gap affecting hourly workers, it — and the inherent pressure it puts on other states to make similar strides of their own, regardless of movement (or lack thereof) at the federal level — puts the retail industry in particular in the national spotlight. As hourly employees are, in many ways, the backbone of the retail business in its various forms, the industry now stands sharply divided over the ripple effects that California’s landmark legislation could cast across it.

A potential $15 hourly minimum wage throughout California (and increases approaching, if not yet reaching, that number in other states) is, first and foremost, welcome news among hourly retail workers, large swaths of whom regularly struggle to reconcile their income with the ever-increasing cost of living.

Reflecting on the potential wage increase in her home state of California, Oakland resident Guadalupe Salazar — a McDonald’s employee whose monthly rent of $900 is currently almost half of her take-home pay — told The Huffington Post: “It’s not just me [that will benefit]. My mom and my kids will be affected by it. And family who lives in L.A., they make only $10 [an hour].”

Taking a contrary position, however, are many retail business owners and operators who, to compensate for having to meet an increased minimum wage, may be forced to raise prices or reduce their hourly workforce overall.

“Everyone wants higher wages for folks, but if you can only raise prices so much,” Ruben Gonzalez, senior advisor for strategic affairs at the Los Angeles Area Chamber of Commerce, told Los Angeles Times. “You’re going to be forced to cut hours, cut employees, change your business model and, frankly, automate.”

Retail owners and hourly workers are not necessarily clearly divided among the “against” and “for” camps regarding a per-hour wage increase, it should be noted.

As Retail Dive points out, although the National Retail Federation (NRF) is officially opposed to the establishment of a federal wage rate for hourly workers, the organization nonetheless supports recent decisions by major chains, such as Walmart, T.J.Maxx and Gap, to raise their hourly pay to $10 minimum.

The outlet points to Costco — whose minimum hourly pay for workers is $13, with the average at $21 — as a prime example of a retail business that benefits from implementing an above average hourly pay scale, proven out in the areas of lower worker turnover and financial success.

“Costco keeps making money because they load those aisles with really high-value merchandise and pay their associates a lot of money,” Columbia University business school professor of retail studies Mark Cohen told Retail Dive. “And Costco’s associates are helpful and informed, as opposed to nasty, hostile or absent.”

An additional potential boon to retailers from an hourly wage increase that Footwear News illustrates is the evidence that higher wages lead to more spending, particularly at stores like Target, Walmart, T.J.Maxx and Ross.

“Ross Stores’ traffic and comps stand to benefit from a healthier low-income consumer given the retailer’s exposure to a lower household income customer, lower average unit retail of $10 versus [T.J.Maxx companies’] $14 to 15 and exposure to consumers on government subsidies,” wrote Cowen and Co. Analyst Oliver Chen in a statement shared by the outlet. “Specific to 2016, [Ross] is more likely to benefit than other retailers from California’s minimum wage increase to $10 from $9 and steeply declining unemployment as 25 percent of Ross stores are located within the state.”

Furthermore, according to FN, Cowen and Co. Analyst John Kernan surmised that an increase in hourly wages could also lead to more spending on the part of millennials, a highly valued consumer group that tends to frequent specialty retailers.

What remains to be determined at this point is how sustainable an increase in retail sales correlated to a rise in hourly wages can be, with the FN story also noting that some industry observers view wage increases as a factor that contributed to Walmart’s decision earlier this year to close 269 of its stores. In that situation, 16,000 employees — many of whom are hourly workers — will be affected, with some finding themselves out of a job.

At a news conference announcing California’s proposed increase of the minimum wage to $15 an hour, Governor Brown called it “a matter of economic justice,” adding, “I’m hoping that what happens in California will not stay in California but spread all across the country.”

In saying that, the governor is no doubt counting on the fact that a wage increase in his state will have only a positive impact on its retail industry and then of that in the states that follow suit and possibly across the nation. Should the pending legislation pass and not result in across-the-board benefits for businesses in the long term, the retail industry as a whole may need to work to find solutions that pass along those certainly well-intentioned, good California vibes in other ways.