As San Francisco is finding out, the best strategy for destroying small booksellers is to simply raise the minimum wage.
In November, 77 percent of voters approved San Francisco’s Proposition J, which will raise the minimum wage in the city to $15 by 2018. But the ramifications of that vote are already being felt. A few months ago San Francisco’s best-known science-fiction bookstore, Borderlands Books, published the following on its website:
Although all of us at Borderlands support the concept of a living wage in princip[le] and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st.
The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.
Borderlands, though, bought themselves some extra time by adopting a patronage model. As National Review‘s Ian Tuttle explains, “a crowdfunding campaign thought up by concerned customers found some 300 sponsors, all of whom agreed to pay $100 to help keep the store afloat until at least March 31, 2016.”
Crowdfunding works if you have a first-mover advantage. The first store asking customers to pay more may survive. But what about the third, thirteenth, or thirtieth?
Brian Hibbs, owner and operator of Comix Experience, says he considered that option but, as he tells Tuttle, there are two problems:
“By saying, ‘Give me money,’ you’re sort of saying you’re not viable.” Furthermore, “There’s a limitation on how much crowdfunding can be done. When you’re the tenth one, I don’t know if it’s going to be easy for you.”
Hibbs has been in business for 26 years and has made a profit in all but two of those years. Now his stores are in trouble. The first minimum wage increase kicked in last week, so Hibbs is required by law to pay his employees $12.25 per hour. By 2018, he’ll have to pay $15 an hour. The increased labor cost will add $80,000 a year in expenses.
Hibb’s stores are currently open 10 hours a day, seven days a week. On an average single-issue comic, a store can make about a dollar in profit. That means just to pay for the increased costs that are added because of the minimum wage, Hibb’s would need to sell an additional 200 comics a day—20 per hour for every hour he is open—every single day of the year.
… A number of my customers have said to me “Ugh, sorry, I voted for this, but I had NO idea it would impact a business like yours”—I think that they thought that they were standing up against multinational corporations who were exploiting their workers, rather than small community-centered local businesses who value art curation over raw profit.
Ironically, the people who thought they were hurting multinational corporations by voting for a minimum wage increase are actually helping them. Every time a small bookseller shuts down, companies like Amazon.com and Barnes and Noble soak up their business.
This is the problem with assuming good intentions will translate into good effects. By circumventing the market, the voters of San Francisco have made many of their citizens much, much worse off.
Hibb’s employees, for example, will soon be out of work. Hibbs wonders why their preferences aren’t taken into account when the government decides how much they can earn:
Most small businesses I know work incredibly long hours for relatively little pay, because they do it for love and passion first and foremost.
Finally, I do think that the wishes of the employees should be taken into consideration as well—I have staff who work this job as an adjunct to their education, or as a way of helping support themselves as they build their art careers; I have other employees who quit higher paying jobs to come work here because we actually give them agency and respect, and because it is their passion as well. As long as no one is being exploited, shouldn’t people be able to choose any wage they are happy with?
People should indeed be able to choose what wages they’ll work for. Workers often have more information about their needs and preferences than the general public, information that helps them determine what wage they can accept. But all too often their knowledge and preferences are trumped by people who are really bad at math and are shocked to find they’ve voted to put people out of work.
While it’s probably too late for the people of San Francisco, other cities can still learn a valuable lesson: If you love your local bookstore (and other small businesses), then you should reject government-mandated wage increases.