Over Half a Million Manufacturing, Distribution and Call Center Jobs are at Risk Due to California’s Minimum Wage Increase
by King White, on May 24, 2016 10:01:24 AM
The minimum wage debacle in the United States continues to draw significant controversy at the federal, state, and municipal level. As noted in our previous article Top 25 States with the Highest Minimum Wage Increase by 2018, many states have approved increases to their minimum wage. However, California’s new Fair Wage Act of 2016 takes it to a whole new level by increasing California’s minimum wage to $15 per hour by 2022. Based on a recent analysis by Site Selection Group, it is estimated that the wage increase will potentially put 518,510 workers employed in manufacturing plants, distribution centers, and call centers at risk of losing their jobs.
Low-wage occupations in manufacturing, distribution and call centers are at the greatest risk
The Fair Wage Act of 2016 calls for an increase in wages over the next six years, subject to any major economic downturns in the economy. At the current minimum wage of $10 per hour, this would mean an average annual increase of approximately 8 percent to 10 percent per year versus a typical wage escalation of 3% per year based on Consumer Price Index increases.
This legislation could prove to be a disaster from an economic development perspective when combined with the already challenging business climate in California, said King White, CEO of Site Selection Group. “The exodus of companies from California is already a problem. Economic development organizations from other parts of the country and world continue to lure California companies by offering lower operating costs, pro-employer business climates, and economic incentives,” White said.
To help evaluate the impact of the Fair Wage Act, Site Selection Group analyzed low-wage occupations in manufacturing, distribution, and call center operations to determine the potential impact by 2022. The following graph identifies the cumulative number of jobs at risk within these occupations that fall below the minimum wage in 2022 over the next six years.
Number of Jobs at Risk by Year
Distribution centers have over 300,000 jobs at risk by 2022 but have less risk due to logistics needs
California has an extremely large distribution sector presence due to the ports and consumer population density. From receiving imports from China to delivering goods to the homes of over 38 million Californians, distribution center jobs have become a blue-collar staple to California’s economy. Per the graph below, of 499,155 workers employed in these distribution centers, there are 311,508 jobs or 62 percent that are estimated to be earning less than the minimum wage in 2022. As a result, distribution center operators are going to have the greatest exposure to significant increases in their operating costs because these facilities often can’t be relocated due to logistics requirements; however, these increases in costs may cause further automation of distribution centers to help offset the increased labor costs.
Number of Distribution Jobs at Risk by 2022
Call centers have over 100,000 jobs at risk by 2022 and have the highest probability of relocation
The call center sector combines a variety of occupations including customer service representatives, telemarketers, collection agents, switchboard operators, answering services, and telephone operators. These jobs account for 296,740 workers in California of which 107,498 jobs or 36 percent will be earning less than the minimum wage in 2022. With the simple switch of a circuit, these calls can be instantaneously routed anywhere in the world where wages are significantly less than $15 per hour. As a result, the call center sector has a very high risk of job loss as the ease and cost of relocation is far less than distribution centers or manufacturing plants.
Number of Call Center Jobs at Risk by 2022
Manufacturing plants have almost 100,000 jobs at risk by 2022 and will incur the highest capital investment to relocate
The new wage law will likely mean the end of any new manufacturing plants in California, with the exception of agricultural-related production/processing operations and any other localized manufacturing. Approximately 99,504 jobs or 38 percent of the total 259,209 manufacturing workers in California will be earning less than the minimum wage in 2022. As a result, employers will likely leave California for a more favorable business climate to stay competitive. The biggest challenge facing manufacturers will be the significant capital investment and time required to relocate their plants which will make the process slower than in other sectors.
Number of Manufacturing Jobs at Risk by 2022
This is the opportunity of a lifetime for site selection specialists to help companies move out of California as they seek lower labor costs, positive business climates, better labor laws, lower taxes, and economic incentives.
The key is to find the right location that provides a long-term solution and has less probability of such dramatic legislation as the Fair Wage Act. One of the key beneficiaries of this migration out of California will be local and state economic developers who are proactively pursuing California companies. As a result, it is going to be extremely challenging for California to retain or attract wage-sensitive operations such as manufacturing plants, distribution centers, and call centers in the future.