A Tale of Two Cities… and One Mall

Half of the Valley Fair Mall is in Santa Clara, CA while the other half is in San Jose. Because San Jose has a minimum wage of $10.15 while Santa Clara’s is $8.00, the stores at the mall have a problem.

Minimum Wages Issues

For some stores, the big challenge is competing for quality employees. Knowing the San Jose half paid more, the best workers went there. As a result, one Santa Clara store manager said he winds up with the “sketchy” help. Constrained from raising wages by the owner, he tried offering flexible hours to elevate quality.

Meanwhile, the Gap had the challenge of spanning both municipalities. Theoretically, that meant they could pay the people who work in Santa Clara less than those in the San Jose part of the store. But how to tell? They were actually told they could figure out how much time a worker spends in each city. Instead, they decided to pay everyone the higher wage.

Then, you have the owner of Wetsel’s Pretzels in the San Jose section who had to increase everyone’s pay. Expecting lower profits, she said she would have to take home less or lower employee bonuses but could not raise prices because of nearby Santa Clara competition. Further complicating her professional life was her Wetzel’s Pretzels store in the Santa Clara half where her employees earned less. Because she wanted to pay everyone the same hourly wage, she began rotating employees between Santa Clara and San Jose.

The National Minimum Wage Debate

On Labor Day, saying that “Obama Renews Call to Increase Pay Floor,” the WSJ  reminded us that the President’s attempt to increase the minimum wage from $7.25 to $10.10 an hour did not make it through the Senate. They also reminded us that the minimum wage is a pay floor because it prevents price from descending to equilibrium.

Below, you can see the horizontal line is a floor that keeps price above equilibrium and creates a surplus of unemployed workers.

The excess supply of worker hours reflects the jobs losses that opponents of the minimum wage hike predict.

Further affecting the national debate, individual states (and cities like Santa Clara and San Jose) have different minimum wages.

[amcharts id=”map-minimum-wage”]

Our Bottom Line

This tale of 2 cities in one mall provides a micro-version of the minimum wage debate in Congress. Expressed in a Boston Fed report, the competing arguments on both sides are persuasive. Proponents emphasize the additional spending that will be created, the minimal, if any, job losses, and their support for low wage workers. Meanwhile, opponents of a higher minimum wage cite jobs lost, higher business costs and price increases. But who is right? Some say that it all depends on which study you cite. We have some links below to both positions.