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Would a 33 percent minimum wage raise mean business boom or doom?

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Zack Thiesen has worked minimum wage jobs since he was a teenager. The thin 29 year old, with large sideburns and dark hair tucked behind his ears, says he's installed sprinkler heads, shoveled rocks, served drinks — he's now worked at Los Bagels in Old Town Eureka for over a year, taking weekend shifts to pay bills while he attends College of the Redwoods.

"As a working person, I've made it work," he says. He earns $9 per hour — minimum wage — and is supporting Measure R, or the Fair Wage Act, which would raise minimum wage to $12 per hour for many Eureka businesses. "It might be hard for a business to shoehorn into a budget, but it's time for them to make it work."

Thiesen doesn't have children or "significant social obligations at this point," but says a higher minimum wage would help him afford recently discovered dental needs, rising utility bills and shopping locally more often.

But Thiesen isn't just supporting the measure for his own benefit; he's studying construction technology at CR — learning a trade so he can move into better paying jobs. But the poorest working people in the community, he says, need the support of a higher minimum wage. "It relieves anxiety for the future," he says, adding that whether it's concerns about healthcare, looming car troubles, or planning for a family, being concerned about money is taxing.

"I think everybody feels that squeeze, no matter what income bracket you're in, from time to time," he says. "People earning minimum wage feel it more often."

Measure R's supporters accuse opponents of fearmongering and say the results of similar acts in other cities have boosted the economy. At least one candidate for city council says she's received vitriolic calls regarding her support for the measure. But opponents maintain that the act is a job-killer, saying it will drive local shops and restaurants out of business, and businesses out of Eureka.

The Fair Wage Act has been brewing since at least 2008, according to activist Kimberly "Verbena" Starr, who is among the sponsors known as the "Fair Wage Folks."

They have been following the efforts of similar groups on the West Coast and across the nation, forming a strategy to raise Eureka's minimum wage. After an unsuccessful bid to have the city council adopt a minimum wage increase in 2013, the Fair Wage Folks gathered nearly 2,000 signatures — enough to take the measure before voters this November.

If passed, the ordinance will set a $12 per hour minimum wage for employees within Eureka city limits who work for businesses that employ 25 or more people. It gets a little tricky, as the wage only applies to "each hour worked within the geographic boundaries of the city during that week." In other words, any business with 25 or more employees must pay no less than $12 per hour to each employee that works in Eureka.

Also included in the ordinance is a yearly increase in the minimum wage based on a cost of living index. The ordinance is modeled after similar wage increases in San Jose and San Francisco.

Minimum wage ordinances have been catching on. Seattle's city council has enacted a $15 per hour minimum wage — the highest in the nation — that will go into effect incrementally by 2017. San Francisco's minimum wage, which went into effect in 2004, has risen to $10.55 per hour with cost of living adjustments. City residents there will vote on a proposed $15 per hour ordinance in November.

It's unclear exactly how many businesses and employees Eureka's ordinance will affect if passed, but Dennis Mullins of the California Employment Development Department provided some numbers on Eureka business that give a rough idea.

Based on numbers from the third quarter of 2013, of the more than 1,400 businesses that operate out of Eureka, 142 have more than 25 employees. Forty-one of those businesses have employees that earn less than $18,720 a year on average — the amount that a full-time employee earning $9 per hour would bring home in a year.

There are 1,962 people who earned less than $18,720 in Eureka last year, but, of course, many of them may work for companies not required to raise wages; or they may earn more than $12 per hour but work less than full time.

And there are businesses based in other zip codes that have employees in Eureka, regularly or temporarily. And the figures don't account for people who earn between $9.01 and $11.99 per hour.

Those numbers also don't include city and county employees. The Journal attempted to contact Eureka City Manager Greg Sparks four times to discuss the ordinance. He did not respond. However, Sparks told the Times-Standard in September that the city anticipates paying an additional $250,000 per year if the ordinance passes. It's unclear if that figure is based solely on wage increases or if enforcement of the law would cost the city as well.

Leading the Measure R opposition is the Greater Eureka Chamber of Commerce and a freshly formed political action committee. Their battle cry is "unfair," and they've gathered support from many businesses and, perhaps implicitly, most of Eureka's city council.

In August, Linda Jo Alexander, who owns Promises Bridal and Formal Wear in Henderson Center, and Certified Public Accountant John Fullerton formed the Committee to Protect Eureka, a political action committee dedicated to defeating the ordinance.

"I was concerned initially about Measure R as soon as I heard about it," Alexander says. "It's an unfair approach to minimum wage."

Fullerton has lived in Eureka for 35 years, and said over the phone recently that he loves the city. "[The Fair Wage Folks] probably meant well but they made this measure too radical," he says. "I'm not opposed to a minimum wage [increase] at all — I think minimum wage should be increased. There are right ways and there are wrong ways. Measure R is a wrong way."

Alexander and Fullerton aren't alone. Between July 1 and Sept. 30, the PAC raised more than $13,000 to fight the ordinance, according to campaign finance disclosure forms filed with the county elections office. Pacific Seafood, which operates out of Oregon but has a processing facility on Humboldt Bay, was the PAC's largest single donor, shelling out $3,000 to combat the minimum wage increase. But the vast majority of the PAC's donations came from anonymous donors: $10,109 in contributions of less than $100, which aren't subject to disclosure. The only other donor named on the forms was a retiree, Crystal Greene, of Beaverton, Oregon, who donated $200.

Pacific Seafood did not return calls seeking comment.

Fullerton declined to reveal the names of the approximately 110 donors, but said only 10 to 15 of them are business owners. Donating under $100 saves donors the public revelation of their support for the PAC, but Fullerton wouldn't say if they feared publicly opposing the measure. "There's different reasons for different people," he says. "Many of them don't tell me their reasons. Some of them don't want to be harassed by pro-Measure R people."

As of Sept. 30, the Committee to Protect Eureka had spent $3,718.34 on promotional materials and advertising, including $750 to a Florida signmaking business.

The PAC's website (featuring a background of Humboldt Bay's South Spit) features a list of warnings and uncited evidence of the ill effects of minimum wage ordinances.

"Did you know that upon implementation Measure R would give Eureka the highest minimum wage in California?" The website questions somewhat disingenuously. (San Francisco residents will vote on a $15 per hour minimum wage the same days as Eureka voters decide on Measure R, and Los Angeles is also considering a $13.25 per hour minimum wage.)

"Did you know that several major studies and surveys have shown the devastating effects of large sudden minimum wage increases. Job losses, benefit reductions, non-profit closures, and rapid inflation!"

Unfortunately, those studies aren't cited, but UC Berkeley researchers recently released reports on the prospective results of a higher minimum wage in Los Angeles and San Francisco, determining in each that "most businesses would be able to absorb the increased costs, and consumers would see a small one-time increase in restaurant prices. The policy's impact on overall employment is not likely to be significant."

Humboldt State University economics professor Erick Eschker said economists rely on larger-city or state-level data, because small cities like Eureka aren't studied as closely. "I've never seen anything to suggest that findings would be very different between large cities and smaller cities," Eschker wrote in an email to the Journal.

Perhaps SEATAC — a city of about 27,000 — is a better example. The Seattle suburb put into place a $15 minimum wage at the beginning of the year and, despite similar fears of a spiraling economy to follow, a Seattle Times business reporter wrote in mid-February that the increase "has not created a large chain reaction of lost jobs and higher prices."

The PAC website continues, "Did you know the city with the highest minimum wage in California also has the highest homeless population per capita in the nation?" It's unclear where this figure came from — San Francisco currently has the highest minimum wage in California, and, according to a 2013 report to Congress, ranks behind New York City in homeless per capita. It's also unclear whether there's any correlation between those claims. In fact, a homeless count conducted by San Francisco's Human Services Agency shows that the homeless population decreased from 8,640 in 2002 (shortly before the city's minimum wage increase) to 6,514 in 2009.

The Greater Eureka Chamber of Commerce issued a statement opposing Measure R in May, saying it would create an uneven playing field.

"If passed," Executive Director Don Smullin wrote, "there is no question that the [act] will result in the outward migration of employment opportunities within the city of Eureka boundaries, negatively impacting the cost and availability of services for the community. Most likely, the ripple effect will negatively impact employment opportunities countywide."

That's a common concern when minimum wage hikes are discussed: The thinking is that businesses on the edge — particularly small businesses like restaurants, which have narrow profit margins — could not weather higher costs.

Higher business costs don't just come from higher wages, Alexander says. Payroll taxes, workers compensation and unemployment insurance will also rise with a minimum wage increase, she says. "That's a huge increase for a small business," she says. "That will close businesses."

Those costs vary among industries and businesses — employers with higher turnover rates pay higher unemployment insurance, for example — but Fullerton says those costs are typically around 20 percent of an employee's wages. That means employers would be paying $3.60 per hour more for each employee, should the wages go up by $3. That would be nearly $7,500 a year for each full time current minimum wage earner.

Putting herself in the shoes of a larger business owner, Alexander says she would cut spending should the minimum wage rise. That would mean less advertising and fewer donations to community causes. If that wasn't enough, she would have to raise prices, which she says would cost her a competitive edge. Opponents fear prices of all goods would go up along with the wages.

Alexander thinks that would mean more empty storefronts, less income tax for the city, fewer jobs and a spiraling economy. "Where are our high school kids going to work? Are we just going to become tourist central?"

Thiesen says he's heard the "hamburger argument" over and over — the complaint that restaurant prices will rise if the wage increase goes up. That's cents on the dollar, he says, and not germane to the needs of minimum wage earners. "Clothes and medicine and gas and water are going up, and you're talking about fucking hamburgers?"

But proponents say not only are businesses often able to absorb costs but that Eureka's economy would be stimulated by the wage.

"Lower-wage workers are more likely than any other income group to spend their earnings immediately, in their local area," Natalie Arroyo, a candidate for Eureka's city council race that has endorsed Measure R, wrote in an email. "This increased buying power could provide a boost to many businesses here in Eureka. Higher wages also result in greater job satisfaction and lower employee turnover, so employers can save on the substantial costs of recruiting and training quality employees."

Starr agrees, saying, "All of the news is good where they have raised the minimum wage."

Arroyo's opponent in the November race, incumbent Chet Albin, was not yet a council member when the council declined to adopt the minimum wage in 2013. He did not return a call requesting comment for this story.

John Frahm, a representative for the United Food and Commercial Workers #5, which covers the Bay Area as well as Humboldt County, says the results of minimum wage increases in those cities have been positive.

In addition, he says, higher minimum wages help people get off of government assistance programs, which saves taxpayer money.

The Humboldt County Department of Health and Human Services declined to comment on Measure R, saying it was taking a "wait-and-see approach" to the possible effects on local assistance enrollment should the ordinance pass. "Hourly wage is just one factor in determining eligibility for our programs and services," wrote DHHS spokeswoman Heather Muller. "No one can say how passage of the act might impact other factors."

But studies by the Institute for Research on Labor and Employment, based out of University of California Berkeley, back up proponents' claims.

The institute released several reports this year looking at prospective impacts of proposed minimum wage ordinances in San Francisco, Los Angeles and San Diego, writing in one that, "Previous economic research, including research on San Francisco's 2003 minimum wage ordinance, has found little to no measurable effect on employment or hours from minimum wage policies.

"Instead, research evidence indicates that the costs of San Francisco's 2003 minimum wage law were absorbed through reduced worker turnover, improved worker performance and small, one-time increases in restaurant prices."

The Institute also found that, nationwide, "Low-wage workers are disproportionately enrolled in the [Supplemental Nutrition Assistance Program]," the federal program popularly (and archaically) known as food stamps. A proposal to raise the federal minimum wage to over $10 an hour would reduce SNAP enrollments and expenditures by $4.6 billion a year, the study found.

If passed, Measure R will have the largest impact on the leisure and hospitality sector: restaurants, hotels and motels. Those businesses, along with retailers, have one powerful, if undesirable, tool to offset rising costs: They can raise prices.

But that's not an option for every employer who will be affected. Jaison Chand is the operations officer for City Ambulance of Eureka, which also runs City Cab and Dial-a-Ride — a shared transit system for seniors and the disabled who are unable to use public transit. He fears both logistical complications and a loss of service will follow if the minimum wage is raised.

The ambulance service, as well as the company's communications center, won't be directly affected, Chand says — those employees already earn $12 an hour or more. But approximately one-third of his employees earn less than that.

"The Dial-a-Ride program will be most directly affected because there's no ability to raise prices," Chand says. The program is contracted using federal funds through the cities and the counties, "and they're already stretched," he says. "We're estimating the wage difference will cost $116,000 per year just for the city of Eureka to maintain service. I'm not sure how the city will to respond to that."

While the cab service can raise prices, the only way for Dial-a-Ride to absorb additional costs is to cut service, Chand says, which will affect mostly seniors on fixed incomes.

"The majority of our clientele is repeat clientele and the majority is low income that don't have other methods of transportation," he says.

Chand says the increasing state minimum wage, rising gas prices and the additional costs associated with the Affordable Care Act forced City Ambulance to eliminate two positions and cut benefits recently. "Those benefits were given to the employees pre-tax and when it's converted to wages it's not pre-tax."

Adding to Chand's fears are the potential payroll complications of having a group of employees that travels in and out of Eureka's city limits regularly.

"Our Dial-a-Ride units might start in McKinleyville and drive through Eureka to Humboldt Hill," he says. "The employee's wage would change for the time driving through and go back to a different rate when they come out on the other side."

Whether Alexander thinks Measure R is unfair to businesses or workers, she doesn't say. She doesn't employ 25 people so she won't have to pay the increased minimum wage should the ordinance pass, but she is concerned that qualified employees won't want to work for her if they can seek jobs at larger businesses that pay more.

"If it's that great of an idea it needs to be rolled out countywide," she adds.

Thiesen says he's heard the pro-minimum-wage-raise-but-not-this-one argument many times. "That makes me laugh. If this measure fails, watch and see how quickly those people get to work on the 'better way to raise wages.'"

Alexander also predicted it will be frustrating to long-term employees at businesses that would be forced to increase wages.

"What about that employee that's been at your business for six years?" she asks. "This employee's now making $12. All of a sudden, a new hire is making the same that it took them six years to make."

Chand says that could lead to low morale. "You lose the ability to continue to give raises to people at the top who have advanced over time," he says. "Over the last several years, we've had to essentially flatten our wage chart, much to the chagrin of our employees who have been around a long time. I'm sure we aren't alone on that."

Supporters say it's been too long since minimum wage has seen a significant increase, and that federal and state governments aren't doing enough. Spurred by successes in other municipalities around the state, they say the business-killing effects cautioned by opponents are overblown.

Linda Atkins, Eureka's sole councilmember to favor enacting a minimum wage raise in 2013, says a higher minimum wage has done good things in every community that's adopted one.

"I think the arguments against it don't really have any basis in fact," she says. "[Opponents say] 'It's common sense that this will happen,' but there aren't really any studies that back that up. People need better wages. It's been stagnant for so long. Legislators are unwilling to raise it high enough."

The U.S. Department of Labor has been researching the potential effects of a nationwide minimum wage increase, and reported that "while the federal minimum wage was only $3.35 per hour in 1981 and is currently $7.25 per hour in real dollars, when adjusted for inflation, the current federal minimum wage would need to be more than $8 per hour to equal its buying power of the early 1980s and nearly $11 per hour to equal its buying power of the late 1960s."

Passage of the ordinance will partly come down to perception, which some say is skewed in relation to minimum wage.

Emily Tobin and Jessica Champ work for Alexander at the bridal shop and are currently taking a break from school. They are buoyant and friendly as they describe why they don't agree with Measure R.

"McDonald's should not be a career choice," Champ says. "If you make it a career, I think you've kind of failed."

Tobin fears that people in entry-level jobs would remain in those jobs with an increase in minimum wage, not seeking higher paying jobs. She equates supporters to people looking for a handout — they seem like "bums," she says.

Opponents argue that minimum wage jobs aren't meant to sustain a living — that they are interim positions intended for young people who are working through school or gaining job experience.

But the Economic Policy Institute released a report in 2013 noting that, nationwide, among people who earn less than $10.10 per hour, "the average age is 35 years old, nearly 88 percent are at least 20 years old, and more than a third (34.5 percent) are at least 40 years old." Fifty-five percent of minimum wage earners are women.

Thiesen, who's 29, says there will always be people working minimum wage jobs. "The problem with pulling up your bootstraps is you're only helping yourself," he says. "As a country, as a community, you can't survive that way anymore."

Arroyo said minimum wage increases are an opportunity for people to steer away from handouts. "We have an enormous dependence on support programs and aid for people living below the poverty line," she wrote. "Improved wages that get people off aid programs allow people to take responsibility for their own lives and finances. ... What we are doing right now to supposedly improve our economy is not working."

Eureka voters will get an opportunity on Nov. 4 to determine the future of the city's lowest earning employees.

Minimum Wage Worker Myths

A study by the Economic Policy Institute indicates that, nationwide, low-wage workers "do not fit the stereotypes." Among affected workers, the average age is 35 years old, nearly 88 percent are at least 20 years old, and more than a third (34.5 percent) are at least 40 years old. Of affected workers, about 54 percent work full time, about 69 percent come from families with family incomes less than $60,000, and more than a quarter have children. The average affected worker earns half of his or her family's total income.

[Editor's note: A previous version of this article attributed a quote to Tobin that should have been attributed to Champ.]

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About The Author

Grant Scott-Goforth

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Grant Scott-Goforth has been an assistant editor and staff writer for The Journal since 2013.

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