Higher wage costs bring implications for rural economy

Issue Date: April 6, 2016
By Christine Souza

Confronting the reality of higher wage costs as the result of legislation signed by Gov. Brown this week, California farmers and ranchers say they expect impacts to resound throughout the rural economy.

"Employees could be laid off or see reduced work hours, and a lot of people won't be hired now," California Farm Bureau President Paul Wenger predicted. "Raising the minimum wage is going to raise all wages and will cause businesses to re-evaluate employment."

On Monday, the governor signed Senate Bill 3, a law fast-tracked through the Legislature in a week's time. The law will ultimately increase the California minimum wage to $15 an hour by 2022, after a series of incremental increases that begin in January. Starting in 2024, the minimum wage will be hiked annually for cost-of-living increases. The legislation headed off union-backed proposals that would have appeared on the November ballot.

SB 3 calls for the minimum wage to increase from the current $10 an hour, which became effective Jan. 1, to $10.50 in 2017, $11 in 2018, and additional $1 increases each year from 2019 through 2022. This timetable applies to employers with more than 25 employees, raising the minimum wage to $15 an hour by 2022. For businesses with 25 or fewer employees, implementation is delayed one year. The law gives the governor discretion to block some of the initial wage increases in the event of a recession.

CFBF Director of Employment Policy Bryan Little noted that the increase to $15 amounts to a 50 percent rise in the minimum wage during the next six years.

"This comes on top of other costs farm employers have had to absorb, for implementation of the (federal) Affordable Care Act, paid sick leave, new rules for compensating piece-rate workers—and now, the Legislature is considering an overtime bill to impose premium pay for farm employees after eight hours in a day rather than the current 10 hours," Little said.

Prices for farm products are set by the market, he said, meaning farmers can't pass along higher costs. California farmers must compete with farmers from other states and countries that have lower wage and benefit costs. In Arizona, for example, the minimum wage is $8.05 an hour; the federal minimum is $7.25.

The leader of the University of California Sustainable Food Systems Strategic Initiative, David Doll, noted that because farmers can't pass along the increase in wage costs to their customers, the additional pay for employees "has to come from somewhere."

"That puts the squeeze on farmers," Doll said. "The result could be putting farmers out of business, especially when commodity prices cycle downward. We need to address economics at the farm level whenever we have discussions of ag sustainability, and in this case, it hasn't been done."

The California Chamber of Commerce noted that not all areas of the state are enjoying economic recovery, with some regions continuing to face unemployment rates of 10 percent or more.

"If employers are not able to produce jobs under the current minimum wage of $10 an hour, they will not be able to afford to create jobs at a minimum wage of $15 an hour," the chamber said.

For many farm employers, wage and benefit costs represent the majority of production costs. Rich Hudgins, president and chief executive officer of the California Canning Peach Association, said labor accounts for nearly 70 percent of the direct costs for growing peaches.

"Higher labor costs will require growers to more aggressively pursue mechanization options for thinning and harvest, in order to remain viable in California's peach industry," Hudgins said.

Tulare County farmer Kerry Whitson, who grows citrus, grapes, kiwifruit and persimmons, said added costs from the increased minimum wage mean farmers will have to find additional ways to save—and employees will lose hours.

"We all have crops that have to be harvested, so we're going to have to find other ways to cut back and save to be able to do that and leave a profit on the other side," Whitson said. "Now, looking at overtime (legislation) and a much higher wage, you are not going to offer the bonus, you are not going to voluntarily pay over what you are supposed to pay; it is going to suck everybody down into that minimum-wage bracket and you are going to cut hours so you can stay away from any overtime."

The pending overtime legislation, Assembly Bill 2757 by Assembly Member Lorena Gonzalez, D-San Diego, is similar to other bills that have been introduced in the Legislature two previous times. Farmers say the overtime bill, should it become law, would likely reduce the number of hours agricultural employees work, thereby reducing their take-home pay.

Whitson noted that retailers and other businesses that do have the opportunity to pass along their added wage costs will do so, which will affect farm employees "every bit as much" as farmers.

"When they go to the mini-mart to get gasoline or to the grocery store, nothing is going to cost less. Everybody is going to try and pass on those costs," he said.

Wenger said the minimum wage was never established to be a living wage, and said the scheduled wage increases come as farmers and ranchers try to recover from several years of drought.

"There are so many challenges in agriculture today and now, with the minimum wage increases and with the pending overtime legislation, it's just going to make it very difficult to farm profitably in California," he said.

"California claims to have a love affair with locally grown food and the farm-to-fork phenomenon, but folks in Sacramento continue to stick the fork in the farmer," Wenger said. "The bottom line is that the people intended to be helped by minimum-wage increases are actually going to be hurt, because of reduced employment opportunities."

(Christine Souza is an assistant editor of Ag Alert. She may be contacted at csouza@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.