California minimum wage hike driving apparel companies from state

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Published by: Dan Calabrese on Monday April 18th, 2016

"The exodus has begun."

You pass a law that business must pay far more for a certain thing than the thing is worth, or that they can possibly recoup the value of that thing. What exactly do you think the businesses are going to do? Just take it up the rump and absorb the losses? Or find a way to do business without having to follow your mandate? If there's a way to do the latter, they will. And for garment makers who have served as major employers and a staple of the Los Angeles area economy for years, even the Los Angeles Times admits California's new $15-an-hour minimum wage has them bolting the state:

"The exodus has begun," said Sung Won Sohn, an economist at Cal State Channel Islands and a former director at Forever 21. "The garment industry is gradually shrinking and that trend will likely continue."

In the last decade, local apparel manufacturing has already thinned significantly. Last year, Los Angeles County was home to 2,128 garment makers, down 33% from 2005, according to Bureau of Labor Statistics data. During that period, employment also plunged by a third, to 40,500 workers. Wages, meanwhile, jumped 17% adjusting for inflation, to $698 per week — although that can include pay for top executives, as well as bonuses, tips and paid vacation time.

Many apparel companies say Los Angeles is a difficult place to do business. Commercial real estate is expensive and limited, the cost of raw materials continues to rise and it can be difficult to find skilled workers who can afford to live in the city. They expect things will become even more challenging after the minimum-wage hike further raises their expenses.

We've talked about this issue many times in this space. These people who show up with signs demanding $15 an hour for work have no concept of how work is valued, or of what employers need to receive back in return for their investment of that $15 - which of course is not the whole investment, because they also have to pay employment taxes and a whole host of other costs associated with employing a person.

When garment industry employment is already dropping, and skilled workers are hard to find, what could make less sense than arbitrarily raising the cost of that labor? Politicians who rip on companies for outsourcing to foreign labor should look at this closely. For years, the apparel companies used local employees, and have only stopped doing so because they've had an increasingly difficult time a) finding good ones; and b) absorbing the rising cost of people who far too often can't even do the job well.

The left scoffs at business owners who say they can't make a sufficient profit when forced to overpay for labor, as if it makes no difference whatsoever the costs you're forced to deal with in manufacturing goods. In fact, it makes all the difference. Manufacturers often have to operate on very tight margins, and it's essential for them to control their costs wherever they can. You may want them to pay $15 an hour because you consider it "fair" or because you think it's necessary for the employee's "dignity" or whatever, but if the employee can't generate enough value to make that investment a profitable one for the employer, then the employer cannot and will not pay it for long.

Here's what's coming next, by the way: Democrat politicians will try to not only ban outsourcing of foreign labor, but they'll try to make the $15 minimum wage a federal mandate so that companies like these have nowhere to go to escape it. And if that's the case, businesses everywhere won't be heading out of California. They'll be heading straight out of business.

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