Borderlands Books, of San Francisco, will be closing its doors. Brick-and-mortar bookstores face a tough market situation, and those that are paying San Francisco-level rents even more so. But according to the owners, the straw that broke this camel’s back was the mandated increase in the minimum wage. From Borderlands blog:
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal 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.
Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.
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. …
Although the major effects of the increasing minimum wage won’t be felt for a while, we’ve chosen to close now instead of waiting for two reasons. First, the minimum wage has already increased from $10.74 per hour to $11.05 (as of January 1st) and it will increase again on May 1st to $12.25. Continuing to pay the higher wage without any corresponding increase in income will expend the store’s cash assets. In essence, the store will have less money (or inventory) six months from now, so closing sooner rather than later makes better business sense. But more importantly, keeping up our morale and continuing to serve our customers while knowing that we are going to close has been very painful for all of us over the past three months. Continuing to do so for even longer would be horrible. Far better to close at a time of our choosing, keep everyone’s sorrow to a minimum, and then get on with our lives.
A few thoughts…
The store has been paying its employees minimum wage. Now, there is debate amongst economists as to the overall employment effects of increasing the minimum wage. We expect demand for low-wage labor to fall in response, but figuring out by how much is tricky, since labor markets are complicated – workers of different skill levels can be substituted for each other, higher wages can lead to some increase in the demand for goods and services from local businesses, and so on. But that some people might find themselves out of work is, I think, agreed. On the far right, some argue that this is unambiguous evidence that minimum wages are a bad thing. Others, like Noah Smith in this post, recognize that whether we think increasing the minimum wage is a good or bad policy, there are going to be some workers who lose out.
The store has been paying its employees minimum wage. Last year during the time Amazon was the number one villain of the cultural world (before being replaced by Spotify), I read many, many posts about the helpful, friendly, very knowledgeable staff at brick-and-mortar bookstores. But minimum wage labor is unskilled labor, doing basic retail manning-the-cash-register duties. I’m not sure these stores are everything some people have made them out to be.
Borderlands might be a bit optimistic on the cafe side of the business. How, exactly, do coffee prices ‘drift up’ from a rise in the minimum wage? How does customers’ willingness-to-pay for coffee change? If it is possible to increase prices in the cafe, why hasn’t he done so already?
Is increasing the minimum wage good policy? That takes a really long answer, so let me just note a few points. It helps people who are working at minimum wage and who keep their jobs. It hurts people who lose their jobs. It might be a trade-off worth making, but it is a trade-off. Some of the people it helps are poor. But not all of them – some of the beneficiaries will be teenagers living at home in reasonably well-off households, doing some weekend work. So in terms of anti-poverty policy, it is not tightly targeted. No policy is perfectly targeted, but that is worth keeping in mind. My Canadian-biased preference for anti-poverty policy is universal, comprehensive publicly-provided health insurance. I can dream.
And finally, back to Amazon. The second part of Noah Smith’s comment is that for all the benefits from being able to buy books online, it means some real losses, like the end of a favorite local store. In truth, although the store owners point to the minimum wage, the small bookstore business has been precarious for a long time, ever since the rise of the ‘big box’ bookstores (which pre-dated the rise of Amazon). That is going to be especially true for markets with very high costs of real estate, for a business that is pretty space-intensive (you can’t compete with Amazon without inventory; you can’t have inventory without floor space). I think a bit too much weight is being given to the minimum wage here. Paying cashiers $15 per hour (not yet, but soon) instead of $10.74 put a bookstore out of business? There’s a lot more to it than that.
Thank you!