In San Jose, higher minimum wage pays benefits

Cherry Lunario, a home care worker in San Jose, says the $2-an-hour raise she got in March 2013 was not a ticket to high living.

But the 25% bump, mandated when the city increased its minimum wage to $10 from $8, did enhance her quality of life in myriad small ways, allowing her to afford dental care, modest weekend getaways and eat out more often. On Jan. 1, it went up again, to $10.15 an hour.

"It's not a huge help, but it helps," says Lunario, 49. "It makes your life a little better."

Interviews with San Jose workers, businesses and industry officials show it has improved the lives of affected employees while imposing minimal costs on employers.

The city's experience could help inform a debate over a controversial proposal backed by President Obama to raise the federal minimum wage by a roughly similar amount — from $7.25 to $10.10 an hour — that remains stalled in Congress due to Republican opposition.

San Jose is among a handful of cities, and nearly two dozen states, that have filled the void by boosting their minimum wages above the $7.25-an-hour federal minimum. Seattle last week voted to raise its minimum wage to $15 an hour over several years, the highest in the nation.

At least 30 states are considering increases as part of a movement to lift the income of low-wage workers and narrow a widening divide between rich and poor.

Nestled in Silicon Valley, San Jose is one of the nation's most prosperous cities, possibly making it easier for businesses to raise prices without suffering a drop-off in sales, says Michael Reich, the University of California-Berkeley economics professor who has been studying the effects of San Jose's higher minimum wage. Still, Reich says job growth in the city has fared well compared with similar nearby communities that did not raise their minimum wages.

And, he says, preliminary results of his San Jose study are similar to those of others he has conducted across the nation that show little effects from minimum wage increases.

Other studies have shown more dramatic effects. Early this year, the Congressional Budget Office estimated that an increase in the federal minimum wage would lift 900,000 people out of poverty but result in a 500,000 drop in employment. Opponents of the measures say they impose significant costs on businesses, forcing them to lay off workers or hire fewer people.

San Jose also is among the nation's least affordable housing markets, with average rents of $2,066 this year, and there's a big gap between rich and poor, making it well-suited to a minimum wage boost. It directly and indirectly affected 70,000 of the city's 370,000 workers, Reich says.

"It's a big difference in people's lives," says Derecka Mehrens, head of Working Partnerships USA, which lobbied for the increase. "The (wage) floor needs to be set at a rate at which people can survive."

Lunario, who worked and lived in a home for mentally disabled adults when the increase took effect, says her raise provided about $200 extra a month after taxes. She was able to afford to fix a cracked filling in a tooth after postponing dental visits for several years. She also could eat out twice, instead of once, a month, take occasional weekend camping trips with friends, and shop at Macy's instead of Ross.

Yet Lunario, who last fall got a different job that pays $12 an hour, says she still can't afford her own apartment in San Jose and is renting a room in a house.

Adira Sharkey, 22, a recent college graduate with part-time jobs as a café barista and theater box-office cashier, says the minimum wage bump will enable her to move from her parent's house to a one-bedroom apartment with a roommate. "It'll be hard, but I can do it," she says. "At this point in my life … I just want to have my own space."

San Jose restaurants, which Reich says were most affected by the pay increase, raised menu prices by an average 1.75%, according to his study. He says there has been no discernible impact on employment.

The unemployment rate in the San Jose metro area, in fact, has fallen to 5.4% from 7.4% in March 2013. The San Jose Downtown Association says the number of restaurants in the district has increased by 20% the past 18 months.

Jim Reed, vice president of the San Jose Silicon Valley Chamber of Commerce, which opposed the higher wage floor, says it has led some businesses to cut employees' hours and staff, and hire fewer workers. Overall, however, Reed said the pay increase "has not choked off our economy." The impact, he adds, has been "modest, at most."

Angelica Pappas, spokeswoman for the California Restaurant Association, says the higher minimum has hurt teenage employment because more adults are snaring entry-level jobs.

Matt Rocca, co-owner of Original Joe's Restaurant, says the increase boosted pay for waiters and busboys who were already earning tips. Noting his workers are unionized, he says the pay hike added to fast-rising health insurance and food costs. "This was just another one to push us over the top."

Rocca says the higher wage increased his costs by about $90,000 a year, forcing him to close at 11 p.m. instead of as late as 3 a.m. and lay off five of his 67 workers. He also says he recently increased prices 10%, noting the 58-year-old restaurant, the city's oldest, hasn't been profitable for the past year.

Chuck Hammers, who owns five Pizza My Heart outlets in the city with about 115 employees, says he was panicked until he realized the pay hike would also affect his competitors. To offset a 4% increase in costs, he raised the price of pizza slices by 8%, or 25 cents for a $3 slice of pizza. "Ninety-five percent of customers didn't even notice," he says, adding that his sales were unaffected.

And with wages higher, virtually no workers are leaving. "It's a huge benefit that you've got people with much more experience, and they give great service," Hammers says.

One downside, he acknowledged, is that "we're not opening up as many jobs as we used to" for teens.

Hammers also noted that the wage increase, which largely affected counter staff and delivery drivers, is forcing him to raise the pay of supervisors and cooks so they can continue to earn more than lower-level staffers. That, he says, likely will require him to increase the price of whole pizzas as well.