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Minimum Wage Hikes Cost Warehousing

The proliferation of state and local laws raising minimum wages will boost costs of companies that occupy industrial properties, and labor-intensive ecommerce fulfillment centers are expected to be hit especially hard.

That’s according to a report from CBRE Group, Inc., the global commercial real estate services and investment firm.

CBRE calculates that every $1 increase in average wages results in a $1 million increase in the total annual labor spend for a 500-employee facility in the United States.

Viewed another way, that level of added cost is equivalent to an increase in annual rent of $2.08 per square foot on a 500,000-square-foot industrial building, CBRE says. This represents a 37% rise from the average annual industrial rent in the U.S. of $5.65 per square foot per year.

“While the impact of rising minimum wages will vary across companies and the states and municipalities in which they operate, it’s a near certainty that ecommerce facilities will take the biggest hit,” says Spencer Levy, head of research for CBRE in the Americas.

“Fulfillment centers and other facilities that process, sort and ship online orders tend to employ twice as many people on average as do typical warehouses and distribution centers, often expanding during peak seasons to as many as four times the average workforce,” he points out.

The nationwide campaign to boost minimum wages had gained momentum by the start of 2016 when increases became effective in 17 states and Washington, D.C., with another 11 states poised to increase minimum wages over the next five years.

On April 4 the governors of both the states of California and New York signed legislation that eventually will result in a tiered minimum wage of $15 an hour, covering at least 60 million people.

In New York State the minimum wage in New York City will rise to $15 before it happens in the rest of the state. For businesses in the Big Apple with 11 or more employees, the minimum wage rise to $11 at the end of 2016, and after that another $2 for each of the next two years. (Smaller businesses face smaller increases).

California’s minimum wage will rise gradually to $15 by 2022. A problem for employers is that the new law does not preempt any of the various municipal minimum wage law changes already in place.  For example, San Francisco, like Seattle, has passed a law mandating that their minimum wage will gradually rise to $15 an hour by 2018.

Los Angeles also mandated a $15 minimum wage by 2020. When the city passed its wage legislation, it also made a gesture to help employers by cutting the business tax, resulting in a 16% reduction of that tax over the next three years.

This is expected to save Los Angeles businesses approximately $90 million in order to partially offset the effect of the wage increase.

Other major cities, such as Washington, DC, have similar minimum wage increases in the works.    

In context, the average wage for U.S. warehouse workers of $11.82 well exceeds the federal minimum wage of $7.25 and minimum wages in most municipalities, CBRE says.

However, that gap is much narrower in key industrial markets like Southern California, and the minimum wages in several municipalities across the country are on track to exceed that $11.82 average wage in the coming years.

“In addition, in tight labor markets, a minimum-wage increase can spur gains in wages higher up the pay scale,” CBRE points out. The wage level that defines who is an exempt employee is measured in multiples of the minimum wage.

On the other hand, CBRE notes that overall U.S. wage growth amounted to only 5% from 2010 to 2015, a marked slowdown from 12.7% gain from 2004 to 2009.

If and when minimum wages escalate, some industrial companies will elect to pass those cost increases on to customers. Many won’t, leaving them to consider other options for controlling their costs, the company says.

Among the options available is investing in more automation to eventually limit headcount increases.

Another possibility for industrial companies that are not tied to a specific location is scouting nearby municipalities or states with lower minimum-wage requirements or other mitigating factors on costs, CBRE observes.

“While minimum-wage increases are varied across the U.S., and some municipalities aren’t considering any changes, industrial real estate occupiers still need to be aware of the impacts of higher wages on their labor and overall occupancy costs,” says Scott Marshall, CBRE’s executive managing director of industrial & logistics, the Americas.

“Labor typically accounts for 20% of supply chain expenses, so changes in that category can reverberate across the entire enterprise.”

OSHA’s Reporting Fines Rise 400%

OSHA has raised fines for employers who fail to report serious injuries and fatalities in a timely manner by 400%.

A rule that went into effect Jan. 1, 2015 requires employers to notify OSHA within 24 hours after a worker is admitted to a hospital, suffers an amputation or loses an eye due to a work-related accident.

The long-standing requirement to report work-related fatalities to OSHA within eight hours remained unchanged (AA, 12-15-14, P. 5).

Until this March the recommended maximum fine for failure to report was $1,000, with reductions for small businesses and for certain circumstances.

The new recommended unadjusted penalty is $5,000. OSHA area directors also can increase the fine to $7,000 for such reporting violations to impose a “necessary deterrent effect.”

The guidance also permits its area offices to conduct monitoring inspections of employers that were not inspected after contacting OSHA to report a serious injury, but who had promised to conduct internal investigations and correct hazards.

OSHA promises that it will not use company internal investigation reports to cite hazards they uncovered if workers are not exposed to serious hazards and diligent corrective steps were taken.

The agency notes that in 62% of the more than 10,000 reports it received in 2015 employers were instructed to investigate the incident themselves.

OSHA believes that a substantial number of injuries are not being reported. It concluded this by looking at various factors, including the number of injury claims submitted to state workers’ compensation programs, which OSHA says indicate employers may be underreporting at a rate of over 50%.

CA Bill Targets Uber Contractors

A bill recently introduced in the California state legislature would allow independent contractors who drive for companies like Uber and Lyft to organize for the purpose of bargaining over pay and benefits.

The bill would permit contractors who perform their work through an online hosting platform (such as a mobile app) to organize and negotiate as a group, boycott or critique business practices, communicate with customers and the public, and report any practices believed to violate the law or adversely affect workers or clients.

The bill would also allow for a “members-only” collective bargaining relationship where the workers would only need 10 or more individuals working via the hosting platform to say they want to negotiate as a group with the company.

The California Labor Commissioner earlier had ruled that an Uber driver was defined as an employee in a decision being appealed by the company. The state’s unemployment insurance board also holds that Uber drivers are employees.

In addition, a class action suit against Uber by some of California drivers has been allowed to continue to trial by the 9th Circuit U.S. Court of Appeals.

In late January Lyft agreed to settle a class-action lawsuit for $12.25 million that had been brought three years ago by some of its California drivers who also sought reclassification as employees.

At the end of last year, the Seattle city council enacted a local ordinance over the objections of the mayor that grants drivers working for Uber and Lyft the right to unionize. The U.S. Chamber of Commerce is challenging that law in court.

In the past the courts have interpreted federal antitrust law as prohibiting independent contractors from banding together to, in effect, fix prices for their services by negotiating compensation for what are legally small independent businesses.

It also is believed that federal labor law bans states and cities from redefining who can organize.   

Chemical Outlook Points to Growth

The Chemical Activity Barometer expanded 0.1% in March following a revised 0.2% decline in February and 0.1% downward revision in January, perhaps indicating a possible economic rebound.

The data – regarded as an established leading economic indicator for the U.S. – is measured on a three-month moving average (3MMA). The CAB is reported each month by the American Chemistry Council.

Accounting for adjustments, the CAB remains up 1.5% over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7% year-over-year gain from 2014.

The council said that on an unadjusted basis the CAB jumped 0.9%, thus ending three consecutive monthly declines (AA, 3-15-16, P. 3).

The CAB consists of four primary components covering a variety of indicators: production; equity prices; product prices; and inventories.

In March, production-related indicators were better, ACC said, with improvements in plastic resins used in packaging and strengthening construction-related resins, pigments and related performance chemistry.

Equity prices significantly gained in March, joined by a firming in product prices, the council reported. Although inventories were negative, new orders appear to be steadying and turning around.

In a separate report, the ACC Specialty Chemicals Market Volume Index rose 0.1% on a 3MMA basis in February after a 0.1% gain in January.

ACC said weakness in 2015 centered on oilfield chemicals and a few other segments that weighed on overall volumes. Of the 28 specialty chemical segments, 17 expanded in February, with adhesives, construction chemicals and electronic chemicals experiencing the largest gains (1% and over).

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