Business & Economy

Minimum wage: LA City Council committee recommends new timeline for small businesses (update)

Two workers at A and A Wiping Cloth cut old linens into rags for use in janitorial and automotive services.
Two workers at A and A Wiping Cloth cut old linens into rags for use in janitorial and automotive services.
Brian Watt/KPCC
Two workers at A and A Wiping Cloth cut old linens into rags for use in janitorial and automotive services.
Jeremy Berg calls himself a "third-generation rag man". His grandfather started A and A Wiping Cloth in the 1940s.
Brian Watt/KPCC


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Update 7:06 p.m.

The Los Angeles City Council’s Economic Development on Wednesday recommended steps for raising the citywide minimum wage to $15 per hour by 2020, with a one-year lag time for businesses with 25 employees or fewer and for some nonprofits.

The recommendations are a compromise reached after months of study and debate and present a slower timeline for raising the wage than earlier proposals.

Mayor Eric Garcetti first proposed raising the wage last fall to $13.25 per hour by 2017, and some council members proposed continuing on to  $15.25 by 2019. 

In the schedule approved by the Economic Development Committee, beginning in 2016, the minimum wage in the City of Los Angeles will increase annually as follows:

Effective Date Wage
July 1, 2016 $10.50
July 1, 2017 $12.00
July 1, 2018 $13.25
July 1, 2019 $14.25
July 1, 2020 $15.00

The schedule for businesses with 25 employees or fewer delays the wage hikes for a year:

Effective Date Wage
July 1, 2017 $10.50
July 1, 2018 $12.00
July 1, 2019 $13.25
July 1, 2020 $14.25
July 1, 2021 $15.00

“I think it’s very important that our smaller businesses have more time for implementation of wage increases, and we insured that today,” council and committee member Paul Krekorian told KPCC. “The more gradual implementation and the more gradual increases over the next six years are very important steps to make this a much more sustainable policy while still lifting up our working poor.”

While council members were pleased with the compromise, business groups took issue with a provision that would peg wage increases after July 2022 to a 20-year average of the Consumer Price Index. Stuart Waldman, President of the Valley Industry and Commerce Association, said that fails to take into account many economic and natural factors.

“We could be in the middle of a recession and have an earthquake at the same time, and businesses would be forced to give raises to their employees,” Waldman said. “That means they’d probably be laying off a few more people than originally planned.

The Economic Development committee’s recommendations must be approved by the full city council, which could consider them as early as next week. 

Earlier

As Los Angeles City Council continues to study and debate a citywide minimum wage hike, the council's Economic Development committee will debate a "range of options" for small businesses and non-profits during a special meeting Wednesday afternoon. 

The original plan came last fall from Mayor Eric Garcetti: to raise the wage from $9 per hour to $13.25 by 2017.  Some council members took that another step further:  $15.25 by 2019.  But recently, Councilmember Paul Krekorian proposed raising it more gradually, especially for businesses with 5o employers or fewer.

"Smaller businesses have a harder time adjusting to rapid increases in the minimum wage through price changes and so on," Krekorian said Monday on KPCC's Air Talk.  "It’s harder for them to catch up, and the likelihood of job loss in small businesses because of the minimum wage is greater." 

Krekorian serves on the Economic Development committee, which has held public hearings on the wage increase. There, business owners have shown up to warn of the trouble it could cause them.

Among them was Jeremy Berg, who owns A and A Wiping Cloth near Boyle Heights. Berg drove to a recent hearing in Watts to explain that the wage hike is forcing him to consider laying off employees, moving outside Los Angeles, even outsourcing. 

"We are without a doubt a penny business," Berg explained. "Not a nickel and dime business, but a penny business.  Our profit margins are extremely thin."

Berg's company recycles discarded linens, turns them into wiping cloths, and sells them to local mechanics, painters, carpenters and janitors. Berg calls himself a "third generation rag man" since his grandfather started the business in the 1940s. He often buys damaged sheets and tablecloths from laundry services and hauls them back to his 40,000 square foot warehouse.  A team of 40 employees sorts the old linens and cuts them into rags. 

He explained to KPCC how the "pennies" add up using a hypothetical pound of distressed linen.  He typically buys it for 15 cents a pound, and sells it for 40 cents a pound. The steps in between, however, add up.

"I have to drive to pick it up, take it off of the truck, find the rags, sort it out, cut it, put it in a box- which costs five cents a pound - put tape on it and then… drive it to a customer in…Colton, which is far away."  

After all of his overhead costs have been accounted for, he says, his profit amounts to just two cents per pound of cloth. 

Berg says he takes in more than 7 million pounds of old linens each year, providing relief to laundries who need to get rid of the old material and keeping it out of landfills. He has more than a thousand customers, but because he pays 28 of his 40 employees minimum wage, he’s worried that the company will suffer if the minimum wage rises to $13.25.

By his estimate, it would cost him nearly a quarter million dollars a year.  If he raises prices to cover that, he worries that his customers would look for cloth elsewhere. Then if sales drop, he would need fewer workers. 

"If I lay off four or five people, that’s going to save me $125,000 a year," Berg said.  

He's considering finding a facility outside Los Angeles. A and A Wiping Cloth is what some economists have called "a border business," located very near the city limits. Berg knows Los Angeles county is also considering raising the wage for the unincorporated areas, but he said it shouldn't stop there.

"If the state of California and Governor said ‘We are all going up to 15 bucks in 2020, and that every year it’s going up $1 until we get there,' I wouldn’t be so worried because everyone would be in the same boat," Berg said.

This story has been updated.