It’s time to cut Texas, North Carolina, Nevada, and Colorado down to size.
They are among the states that are successful at siphoning jobs from California arguing they are more business friendly as well as being less costly places to conduct business.
A big part of that are wages. And while most business that relocate and expand typically pay above the California minimum wage that is now at $12 an hour on the way to $15 by 2022, the $15 benchmark the Golden State is headed is roughly twice the minimum wage of the states that peel off jobs from California.
Given that businesses that pay people in the six figures and high five figures typically also need a lot of people on the lower end of the economic scale that are closer to minimum wage, often for what they pay for minimum wage in California they can siphon off from a large pool of minimum workers in other states.
Let’s say a Silicon Valley firm that has 1,000 workers relies on 100 workers that they pay minimum wage. Assuming they are not in a California city that has a higher minimum wage than the state that is currently at $12 an hour, if they were in Texas they would be paying a minimum wage of $7.25 an hour. That’s $4.75 less per hour per employee. That comes to $3,800 more a day or $197,760 more a year that you have to pay a minimum wage employee in California than in Texas.
That in its self may not be enough to lure you to Texas. But higher minimum wage means the cost of everything your higher paid employees pay to live in Texas from dining out and gardening service to haircuts and handymen will go up. That means pressure to raise their pay.
Of course the cost of living in Texas goes up also for teachers, city employees, and other government workers. A parks maintenance worker in Dallas makes $27,160 a year or $13.05 an hour. The average Dallas police officer makes $49,461 a year or $23.70 an hour. If Texas has a $15 an hour minimum wage instead of $7.25 they’d be forced to raise the pay of employees not just to the minimum wage but beyond. Right now that parks worker is making $5.80 more than minimum wage. In a competitive job market the City of Dallas will be forced to sustain that margin. That means a park worker costing $13.05 an hour will cost $20.80 an hour with a $15 minimum wage. The $7.75 difference isn’t all. Payroll costs go up whether it is for Social Security, retirement plan or other government surcharges. Those police officers are also going to have to be paid at least that much more an hour to retain them or to recruit them.
Ultimately taxes will have to go up. Given pay and benefits are typically 75 to 80 percent of the cost of a city budget, it will take a big hit in tax increases or massive cuts in government services. Everything will go up — garbage bills, the cost of water, the cost to flush your toilet, the cost of electricity, the cost of food — you name it. Welcome to California. Wages of employees are the biggest budget item for government as well as most businesses.
All of a sudden that move or expansion to Texas isn’t that enticing.
North Carolina that likes to peel off financial services jobs also has a minimum wage of $7.25 an hour or $7.75 less per hour than where California is headed. When Bank of America abandoned San Francisco years ago as its headquarters they pointed to labor costs as well as the cost of living for their employees being less expensive in North Carolina.
Nevada, which out-subsidized California to get the Tesla battery plant and gave away more tax dollars to lure the Raiders, has an $8.25 minimum wage. That is roughly two thirds what California’s minimum wage is and $6.25 less per hour than were California will be at in 2022.
You’ve got to wonder how cheap some of those casino hotel room packages won’t be when the thousands of people they hire at minimum wage to run them are making $15 an hour. That’s a $6,250 an hour hit for every 1,000 employees. That’s $50,000 a day or $2.6 million a year per 1,000 employees in just wages alone.
Of course there are other factors that go into making decisions on whether to relocate a business such as state regulations. And while California can define overkill at times with insane redundancy and long drawn out approval processes, other states are starting to play catch up.
Housing of course is a big factor. Housing is still easier to build and less expensive to own or rent in most other states. But a big surge in minimum wage in states like Alabama that also mirror Texas and North Carolina with $7.25 an hour minimum wage will receive nice rent jolts as well as higher prices thanks to the impact of wages more than doubling for a large chunk of the workforce and the price increase tsunami it will trigger in all sectors from retail, services, construction, transportation, manufacturing and even government slamming housing.
This originally was going to be a column against a one size fits all states minimum wage push that is being pursued on the federal level. The cost of living is higher in New York and California as opposed to Texas and North Carolina. A sane argument not many people buy is that federal income taxes should be indexed and adjusted according to a state’s overall cost of living given making $15 an hour in California doesn’t allow you to rent anything much more than a room in a house but it gets you into an apartment in Alabama where the average one bedroom unit rent in a city the same size of Manteca goes for less than half of what it does here.
Although there are solid arguments against minimum wage hikes based on the fact they do cost jobs and their ultimate impact is erased due to it pushing up the cost of goods and services over the years, if you are a Californian and are against the federal minimum wage hike to $15 an hour you need to be a tad selfish and embrace it instead.
Let Texas and North Carolina lose a large part of their competitive edge and being places of relatively low cost for living thanks to an act of Congress.
Go ahead and feel the “Bern” given it was Senator Bernie Sanders who first had the courage to make a $15 an hour federal minimum wage a major national taking point.
While it would be nice for people practice what they preach — ask his campaign workers what is meant by that — a $15 federal minimum wage would benefit California by helping it become more competitive for business.
That, in turn, will benefit all California workers.
Let Congress make California more competitive by making the rest of the nation more like California.