Hidden costs of a minimum wage increase

Whether you buy a house, a pair of shoes, or dinner out at your favorite restaurant, the sticker price is never the price you pay. The same is true for businesses calculating exactly how much a minimum wage hike might actually cost. Beyond the obvious increase in payrolls for workers who would move from around $9 an hour to more than $13 are a host of hidden costs. Let’s consider.

Anyone who’s received a paycheck probably noticed the roughly 8% missing for Federal Insurance Contribution Act (FICA) taxes. This includes a 6.2% deduction for Social Security tax and a 1.45% deduction for Medicare tax. What some people may not realize is that employers are required to match the amount deducted from each employee’s paycheck for these taxes. The employer contribution increases if a worker’s wage increases.

To keep things simple, consider an employer’s total cost for an employer who makes the current $9 an hour minimum wage and works 30 hours a week (or 120 hours a month), and how it would rise if Los Angeles accepts Mayor Garcetti’s proposed wage increases. Staring in January, an employee would earn about $150 more a month, but this would cost the employer roughly $167 more per month; a little more than $200 each year in FICA taxes alone. Similarly, by 2017 that same employee would earn around $510 more a month, but cost the employer $550 a month. This amounts to another $500 the employer must pay annually in taxes, in addition to about $6,100 more it would pay in wages. Consequently, a 47.2% wage increase for employees translates to a 47.2% increase in the cost for their employer to pay them those additional wages.

An extra $6,600 a year might seem insignificant compared to some businesses’ total revenues, but the full effect of this increased cost largely depends on a business’s size. Does a company employ 10 people, or 100? The annual difference in an employee’s cost will add up quickly.

Thus, a wage increase of $4.25 an hour would actually cost employers paying minimum wage about $4.60 more an hour. This does not factor in other expenses that increase in conjunction with wages; at a minimum employers must also account for increased premiums for general liability insurance and workers’ compensation insurance.

Minimum Wage

Wage-Based Premiums


A few dollars, a big difference

Los Angeles roots for the underdog while riling businesses with proposals to hike the minimum wage.

Garcetti announces his plan for a new minimum wage this Labor Day weekend. | LA Times

Garcetti announced his plan for a new minimum wage on Labor Day at a South L.A. park. | LA Times

Mayor Eric Garcetti says his proposal to raise the minimum wage in Los Angeles by nearly 50 percent over three years will boost struggling families above the poverty line, making the city affordable even for busboys, cashiers, janitors and others living off $9 an hour. In turn, he says, these workers will pump dollars back into the economy.

But business owners say the pay boost – which would reach $13.25 by 2017 – could trigger side effects that would endanger businesses and cut jobs. Some companies have said they would consider skipping town altogether. Restaurants and stores that depend on their locations may need to slash labor hours or take a gamble on hiking prices. Entrepreneurs might jump ship into the underground economy. Even businesses outside of the city could wither if compelled to hire L.A.-based companies at steep rates.

At the root of this debate are 3.3 million people nationwide earning the federal minimum rate of $7.25 an hour or less. According to the Bureau of Labor Statistics, half of these people range from 16 to 24 years old, and 77 percent are white.

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Minimum Wage Worker Against Increase in Minimum Wage?

De La Cruz

David De La Cruz is against the increase

Five times a week he gets on the Metro bus and heads to work. The 30 minute ride from West Hollywood to Downtown LA isn’t all bad. It gives him time to read for school or listen to music, but there’s one major drawback.

“It stinks. Like, the bus literally stinks,” said David De La Cruz, when describing his trips to work.

The 19-year-old has come to deal with it, since he can’t afford any other way to get around town. No car, no motorcycle, no bike. And no Uber.

De La Cruz makes minimum wage as a cashier at Taco Bell, where he works between 30-40 hours each week. The increase in Metro fees from $1.50 to $1.75 (or from $75 to $100 for monthly passes) doesn’t seem life-altering, but when you’re on a tight budget like De La Cruz, every quarter matters.

“It isn’t much, but it adds up. When the bus driver told me I was like ‘ah, man!’” laughed De La Cruz.

His paychecks are spent each month on the basics: helping his older brother pay rent for their apartment, schoolbooks, and food. Finding a way to get by on $9 an hour is a grind, but he’s gotten used to it.

As a four-year-old, De La Cruz’s single mom brought their family to Los Angeles from Mexico. Even with his mom having to work several low-paying jobs to keep their heads above water, De La Cruz is certain it was the best move for the family long-term.

“Everyone says it all the time, but it really is the Land of Opportunity,” said De La Cruz when describing the United States.

De La Cruz is an English major at Cal State University, Northridge, and hopes to become a language arts teacher after he graduates. Having a Dream scholarship helps assuage his financial burden somewhat, but De La Cruz has to clock his hours each week at Taco Bell to make ends meet.

There are simultaneous initiatives in motion that aim to help people like David. While there is a ballot being circulated to raise it to $15 by 2017, Mayor Eric Garcetti’s proposal to raise minimum wage to $13.25 over the next three years has gained the most traction.

You would think if anyone would be in favor of Garcetti’s proposal to increase minimum wage in LA over the next three years, it would be De La Cruz, right?

“I’m not an economist or anything, but I really don’t think it’s a great move,” said De La Cruz. “For me it might help, but I think it would hurt just as many — or more –people than it helps.”

De La Cruz argued the customers at Taco Bell are dependent upon the prices being low, since many of them pay with their EBT cards. If Taco Bell had to pay its workers more, De La Cruz felt the prices would increase and the customers would suffer.

“And they would probably cut our hours, too!” said his co-worker Jessica as she walked by. (It was at this point I started to wonder if Taco Bell had really awesome employee benefits)

De La Cruz echoed the same sentiment, fearing a decrease in customers would lead to less hours for him and everyone else. For him, the fear of potentially losing his job outweighs the benefit of a potential increase in his hourly wage.

Critics of Garcetti’s plan have similar concerns. The LA Chamber of Commerce said on Tuesday an increase in minimum wage would “reduce, not increase the number of jobs” in the city.

Others claim if the mayor is successful it would push businesses out of LA and into neighboring cities.

Still, the reality is that for more than half of the fast food workers in America, the pay isn’t enough to get by. A joint study from UC Berkeley and the University of Illinois last year showed 52 percent of fast food workers were on government assistance, compared to 25 percent for the workforce as a whole.

“I could definitely use the extra couple bucks an hour – just to help with rent and gas,” said Walter, cashier at a local Jack in the Box who did not want to give his last name. “I hope [the increase in minimum wage] happens.”

Those in favor of the increase believe it is necessary to assist in paying for everyday items. While gas, rent and groceries have all seen price increases, wages have been static for several years.

Despite being against the Mayor’s plan, even De La Cruz had to admit he could see a benefit to an increased minimum wage. “It’d help me pay for all these bus rides,” said De La Cruz.



A Fresh and Clean Game Played by Dirt Dog

Longing to have his own restaurant for years, Philip Ozaki happily left his head chef position at Plan Check Kitchen when Richard Larios and Timothy Cam made him an offer he couldn’t refuse—-shared ownership of Dirt Dog.

photo (26)

On August 1, the three welcomed the opening of Dirt Dog, whose mission is to “provide the best and unique tasting bacon wrapped hot dogs in a community oriented social environment.”

Dirt Dog locates on Figueroa Boulevard, right north to University of Southern California. What Ozaki, Larios and Cam did is simply turning the famous Los Angeles street food into an indoor business.

“It used to be street food. People have it at midnight after partying. But now we are providing the bacon-wrapped hot dogs here all day everyday,” said Philip Ozaki, Head Chef and Chief Operations Officer of Dirt Dog.

Compared to the hot dogs served by street-side vendors, Dirt Dog is using a higher quality of ingredients and coming up with more choices of flavors. It guarantees that its hot dog is made from “100% premium all beef Nathan’s 5/1 dog, wrapped in center cut bacon, topped with grilled onions & red and green bell peppers.”

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House Sauce Dirt Dog with Dirty Fries/ By Jingyi Wang


Within the first month, more than six websites have reached out to Dirt Dog and wrote about them, including LA Weekly and Cue The Critic. This Wednesday, Jack F.M. (93.1) will also join Dirt Dog to give free hot dogs.

Bacon-wrapped hot dog has never drawn so much attention before, however, it does not make any difference to the condition of traditional hot dog vendors.

Los Angeles Times published a story suggesting that the weak economy forces more Angelenos become street vendors.

According to the research group, Economic Roundtable, 43 percent of the vendors in Los Angeles prepare and serve food-related products. Their sales can add up to $42 million a year.

Unfortunately, street vending is still fighting for its legal permission to come out of the shadow. 271 citations were issued against sidewalk vending during last fiscal year, however, the number surged to 286 only for the first quarter of 2014.

Officials’ opinion varies on legalizing street vendors or not. The major concerns are the potential costs of the enforcement system, the upcoming costs for maintaining the clean streets where street vendors operate their businesses, and also the potential tax revenue.

Prices of the merchandise sold by street vendors are usually negotiable. Therefore street vendors become the major shopping destination of many low-income families. The Economic Roundtable also suggests that every dollar earned by LA street vendors will finally generates economic impacts of $1.6 on the local economy.

Enjoying the legal permission to make street food, the three owners of Dirt Dog haven’t forgot to repay the community that supported them.  They decide that for each quarter, 10% of their profits will be put into community services.

Similar to investing the community, Ozaki firmly believe that investing the workers in the restaurant is going to reward more than what you expected.

photo (27)

All the workers at Dirt Dig are part-time workers. They work 24 to 40 hours a week. / By Jingyi Wang

“If you are treating them well, they will treat your customers well. Then more customers will be happy to eat here,” Ozaki said.

When new customers step in Dirt Dog, they will never feel lost in the menu. A waitress is always holding a menu and ready to explain everything on it. Many customers would like to spend several minutes with her before placing the order, and end up having the most satisfactory choice.

On Yelp many reviews mention their superb customer service, one of which even writes: “Customer service at its finest!”

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Ozaki, Laoris and Cam are glad to see that their investment is paying back. “It took us 2 months to hire people,” Ozaki said. “We interview 3 or 4 people everyday,” Laoris added.

Finally they hired 15 workers, and offered them salary all above the minimum wage.. When talking about the possible rise of minimum wage from $9 to $15, he admitted that the major cost of Dirt Dog is on labors. The cost on ingredients and marketing only account for about 10% of its whole spending.

“But we are ready to pay them more and we have already paid them more than most of the businesses here,” Ozaki said. He said after the workers in nearby businesses getting to know that they offer a better salary, there are new workers come in everyday to seek their job. And he has already hired more than four workers who used to work for their neighbors in the plaza.

“Even the manager of Five Guys wants to come here,” Ozaki said proudly.

Dirt Dog now opens from 11 a.m. to 10 p.m. but in two months, Ozaki said they will start to open at 7 a.m., serving breakfast and getting license to sell liquor for the late night hours.

No matter how the economy changes, the three owners are very ambitious and confident about Dirt Dog’s future.

“We definitely have a backup plan and but for now we are doing alright and the sales is getting better and better,” Ozaki said confidently.



Swells in cell phone business

With a growing number of cell phone repair stores in Los Angeles, how do they grasp their competencies, how do they survive, when new technology updates and brings new phones to the market every year?

In a 1500-square-foot store on South Figueroa Street in Los Angeles, Nathan Kim sat in front of his work station all alone, covering his eye with a head loupe magnifier and installing the last tiny round widget on the back of an IPhone screen. As soon as he finished up, he put the screen aside, away from the pile of different brass and gray widgets sprawled all over the desk.


Nathan Kim, owner of LA iPhone Repairs

Kim opened the iPhone repair store after he graduated from the University of Southern California with a bachelor’s degree in computer science. Seeing the fast updates and replacements in the cell phone market, many people like Kim were attracted by the potential profits and opened phone repair service stores.

In L.A., there are about 40 similar stores searchable on Google Maps. Some stores try to keep their locations concealed. Some of them run in apartment complexes; others provide door-to-door services by making appointments with repairers via phone or Craigslist (a classified advertisements website).

“They are doing home business without a proper license,” Kim said when he found an “iPhone screen repair” service on Craigslist. “This only costs $39 to fix a screen, while I charge $65.


Kim’s working station. Electronic Registration certificate hanged in front of this desk.

“If there is any problem, they won’t be responsible for that, and their customers will become the victims.” The license he referred to was an Electronic Registration certificate issued by DCA (Department of Consumer Affairs), which hung in front of his work station.

Cutting the cost and keeping the business small but efficient are the core strategies for most store owners. Running the store in an apartment would be less nerve-wracking and probably cost less money than subletting a commercial property. Having only one or three people running the store would also allow each person to take home a larger share of the pie. Also, finding good retailers to supply continuously with cheap phone parts would help a lot.

Regardless the labor cost during repairs, phone parts suppliers have the greatest power of controlling the prices. “When the iPhone 5 was first released, the part (screen) cost about 180 bucks. Now it’s 80 bucks,” Kim said.

Every time a new phone came out, large demand would promptly cause the suppliers to lower the prices of the old phones’ parts. Particularly, the value adjusted a lot when iPhone 5 was released.

“There was a mass production of them (iPhone 5 parts) – the screens, the back plates, the batteries. Everybody needed them. Everything was super cheap,” said Herbert Reyes, the owner of All Wireless World located at East Hollywood. “Repair, that’s the best thing (to earn profits).”


Screen replacement for phones of different brands @ Kim’s LA iPhone Repairs

China, the world’s factory floor, has become the biggest supplier behind these dispersed phone repair stores in L.A. “They (parts and accessories bought from Chinese retailers in L.A.) are pretty much the same quality you will get for $35 from somewhere else,” he said.

Purchasing large amounts of parts will give buyers cheaper prices than buying a single part. Thus, the cheaper prices the store owners could get from retailers, the cheaper prices they would sell to their customers. Kim offered the customers discounts depending how the prices vary. Reyes chose a new path by providing a customer discount once they did a check-in or a review on Yelp (an online service to provide consumers with information about local businesses). He would also evaluate the prices offered by the others on Yelp, and then lower his price $5 to $10 below than the average price.

The phone repair business is extremely competitive in L.A., which forces many business owners to compete with the lowest price that they can offer. Most business owners are confident and positive about their competencies.

Since cell phones have become an essential needs for most people, customers who come into the stores mostly need to get their phones fixed as quickly as possible. Having a background in Computer Science and engineering, Kim said he knew the basic structure of the phone, which made him an experienced, fast phone-fixer.

“My customers tried to fix their phone in other places but they didn’t know how to fix it; they didn’t know how to fix water damages,” he said. “I’m pretty sure they will have some problems whenever there is a new phone coming out.”

When the iPhone 5, 5C or 5S first came out, Apple did not only upgrade their iOS systems and cover them with better-looking cases, it also changed their interior design, which made the phones easier to fix.

“The first time I opened an iPhone (4), it took me 4 hours to open it and 2 hours to close it,” Reyes said. “Now I can do it within 20 minutes. (The screen of) iPhone 5 is actually much easier to fix, because you don’t have to take everything apart.”

As iPhone 6 and 6 Plus have been released on Sept. 9, most of the business owners are unsure about what will they do if someone bring a broken 6 or 6 Plus to their stores. Reyes said he would contact his suppliers to make sure they had the parts, so that he could get prepared for any upcoming damages to these new phones.


Harbert Reyes’ All Wireless World and his employee.

“I will get myself an iPhone 6. And I will open it to see which part goes with which,” Kim said.

Regardless of dealing with technological difficulties, Reyes values customer services more than anything else. “As long as you do really good customer service, people will come to you,” he said. “There is a well-established strong connection between me and people.”

To make extra profits, many owners like Kim and Reyes expand their businesses by selling accessories, such as phone cases. “People will get a phone, and they will need accessories,” Reyes said. “There is always something to sell.”