Increased pay for low-wage workers has small New York City businesses worrying about expanding, or, in some cases, already downsizing. Others are forced to move out of the state or replace employees with machines.
As measured by jobs, food is the city’s largest manufacturing sector. Between 2005 and 2015, the food manufacturing sector has increased by 27 percent – faster than any other large US city.
These food manufacturers are the specialty food shops making artisanal pickles, cupcakes, house-cured meats, mayonnaise, coffee and hot sauce. Despite the demand for these products, businesses are having a hard time adjusting to increased labor costs.
For Rhonda Kave, owner of Roni-Sue Chocolate in the Lower East Side, the wage hike makes it difficult to be profitable with more than two employees.
“Our business has already been affected,” said Kave.
The chocolate shop now runs with a third of the employees, limited hours during the week and Kave herself works more hours per day to keep her business running.
Over in Brooklyn, an Italian sausage company is being forced out of New York. Frank De Angelis, owner of De An’s Pork Products, says he can’t keep up with the competition in New Jersey. He says that for years he has sold the cheapest Italian sausage around, but an increase in labor costs forced him to up his prices. Now he’s looking to moving out of state himself to avoid the wage hike.
“It’s coming and it’s coming big time. It’s nothing to sneeze about,” said De Angelis, “I’ve got workers here and they’re probably the best workers but I can’t pay them if I can’t do the business.
Other businesses haven’t taken action yet, but worry about what it will mean for future growth.
“If my labor cost is too high it means we don’t make any money,” said John Ratliff, founder and head butcher of Ends Meat, a Sunset Park based whole-animal salumeria.
The smaller businesses are the ones being affected most. According to a report put out by the Center for Urban Future, of the 525 food manufacturing businesses that sprung up between 2010 and 2015, 94% employed less than ten workers.
But because doing business here in New York is so expensive, moving from small-scale manufacturing to large-scale manufacturing is unlikely for most of these businesses. In most cases, real estate costs prevent companies from expanding beyond local markets.
James Parrott, director of economic and fiscal policy at the Center for New York City Affairs at The New School, sees this as only a minor speed bump. According to Parrott, wages are starting to rise anyway and there is likely to be continued job growth despite the wage hike.
“I do not think it’s going to have a catastrophic effect,” said Parrott.
On December 31, 2017, the minimum wage will rise to $12 from $10.50 for employers with 10 or fewer employees. It will rise to $13 from $11 for employers with more than 10 employees.
Five Ways Businesses are Adjusting to the Wage Hike
- Reducing staff + hours
In some cases, businesses have cut down their number of employees or the hours that they work.
- Raising prices
To account for the money now being worked into employee wages, many businesses are raising the prices of their products.
- Moving out of the city
If a business is forced to raise their prices to make up for an increase in labor costs, it loses its competitive edge against places across the state border. Sometimes making a move out of the city is the only viable financial option.
- Using automation
Humans are already being replaced by machines in many areas and the minimum wage increase is speeding up this process as employers can no longer afford to pay wages.
- Taking it on like anything other change
Some businesses see the wage hike as being no different than any other curveball thrown in the mix and proceeding as usual.