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Los Angeles’ Garment Industry Frets Over Pay Hike

Los Angeles’ Garment Industry Frets Over Pay Hike & Champion of $15 Minimum Wage in L.A. Says the Rate Is Too High for U.S

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Some factories say a $15 minimum wage, slated by 2020, will drive them out of town

An employee carries finished clothing to be shipped to a customer after being manufactured at Karen Kane factory in Vernon, Calif. Los Angeles Mayor Eric Garcetti is among many proponents of the new wage law who argue it will help Los Angeles attract and retain more-productive workers, ultimately saving employers money in lower training and hiring costs. Patrick T. Fallon for The Wall Street Journal

Employees sew towels and clothing at the 5 Thread Factory in the Fashion District in downtown Los Angeles. The company opened …

The 5 Thread Factory produces garments on a contract basis for brand name apparel companies. Bolts of fabric wait to be used at the 5 Thread Factory in Los Angeles’ downtown Fashion District. Patrick T. Fallon for The Wall Street Journal

Employees unspool and cut fabric to be made into clothing at the Karen Kane factory and headquarters in Vernon, Calif. The fashion label also has operations in Los Angeles. Patrick T. Fallon for The Wall Street Journal

The Karen Kane garment factory in Vernon, Calif. The company said it plans to keep a careful eye on labor costs when selecting contractors to manufacturer clothes. ‘We’re going to have to look closer a contractors outside the city,’ said President Lonnie Kane.Patrick T. Fallon for The Wall Street Journal

Employees hand cut fabric to be made into clothing at the Karen Kane factory and headquarters in Vernon, Calif. If minimum-wage increases expand to other parts of the state from Los Angeles, ‘it’s going to be harder to produce domestically,’ said Karen Kane President Lonnie Kane. Patrick T. Fallon for The Wall Street Journal

Brian Zuckerman, CEO of 5 Thread Factory, in the downtown Fashion District in Los Angeles. With wages rising, Mr. Zuckerman said he won’t sign another lease in the city. Patrick T. Fallon for The Wall Street Journal

Under the current wage system, some 5 Thread employees do earn $15 an hour or more through incentive pay, but many less-productive workers earn far less than that. An employee hand cuts clothing pieces from a spool of fabric at the 5 Thread Factory in Los Angeles.Patrick T. Fallon for The Wall Street Journal

When $15 an hour becomes the minimum wage, 5 Thread Factory CEO Brian Zuckerman said the change would end his ability to hire lower-skilled workers and train them. An employee sews a shirt at the 5 Thread Factory in L.A. Patrick T. Fallon for The Wall Street Journal

Completed sweatshirt orders are bundled at the 5 Thread Factory in downtown Los Angeles. The Los Angeles metro area employs twice as many manufacturing workers as the Chicago or Detroit regions, with better than one in eight of them in Los Angeles County working in the apparel industry. Patrick T. Fallon for The Wall Street Journal

An employee carries finished clothing to be shipped to a customer after being manufactured at Karen Kane factory in Vernon, Calif. Los Angeles Mayor Eric Garcetti is among many proponents of the new wage law who argue it will help Los Angeles attract and retain more-productive workers, ultimately saving employers money in lower training and hiring costs. Patrick T. Fallon for The Wall Street Journal

Employees sew towels and clothing at the 5 Thread Factory in the Fashion District in downtown Los Angeles. The company opened the factory just three years ago. Patrick T. Fallon for The July 15, 2015

LOS ANGELES—Its numbers have slipped from earlier highs, but Los Angeles still boasts more jobs making jeans, jackets and other apparel than any other pocket of the country.

Manufacturers and designers now fear “Made in L.A.” is under threat from a new law set to boost the city’s minimum wage to $15 an hour by 2020.

The city’s wage law, which will raise the base pay by 50% over five years, serves as a test for urban minimum wages. Advocates say it will provide much needed help for working families but manufacturers warn it will undercut their competitiveness and drive them out of town.

Contract apparel manufacturer 5 Thread Factory, whose garments include shirts for men and women, mountain-bike gear and other products, has outgrown its two floors of space in a gritty downtown neighborhood just three years after it opened. But with wages rising, Chief Executive Brian Zuckerman said he won’t sign another lease in the city.

“The simple answer to this whole conversation is we’re moving out of the city of L.A.,” he said.

San Francisco and Seattle have already moved to establish an eventual $15-an-hour pay floor, but Los Angeles marks the first time a city with a large low-wage manufacturing base has decided to raise its wage floor so high. As a result, what happens in Los Angeles will be closely watched elsewhere. At least eight cities, including St. Louis, New York and Washington, D.C., are now evaluating their own proposals to raise the minimum to $15 an hour.

Los Angeles Mayor Eric Garcetti is among many proponents of the new law who argue it will help Los Angeles attract and retain more-productive workers, ultimately saving employers money in lower training and hiring costs. What’s more, workers will have more income to spend in the local economy.

Speaking Wednesday in Washington, Mr. Garcetti referenced a study from the Los Angeles Economic Development Corp. that found no respondents intended to relocate in response to a higher minimum wage, and only a small minority said they would reduce staff. He argued the law will be a benefit to businesses.

“When a billion dollars is put in the pocket of low-income Angelenos, they don’t put that into savings,” he said. “You’ll see that money hit Main Street in a big way and you’ll see that help businesses.”

The Los Angeles metro area employs twice as many manufacturing workers as the Chicago or Detroit regions, with better than one in eight of them in Los Angeles County working in the apparel industry.

Two forces have helped stabilized employment in apparel manufacturing in Los Angeles, which was above 80,000 as recently as 2001, but after a steep decline has leveled out at about 45,000 since 2011.

One was the arrival of made-in-America brands such as True Religion and American Apparel (its recent management upheaval and losses notwithstanding). The other is the need to cater to fast-changing consumer demands, which is much easier with local production. True Religion and American Apparel declined to comment.

California’s state minimum wage is set to rise to $10 in January from $9 an hour currently. Then the Los Angeles law will push the lowest pay rate in the city to $10.50 in July 2016 and to $15 an hour by mid-2020.

That will reshape business plans at 5 Thread, where workers sew on a large, well-lit open floor, with several rows of sewing machines humming and whirring.

Under the current wage system, some 5 Thread employees do earn $15 an hour or more through incentive pay, but many less-productive workers earn far less than that. When $15 an hour becomes the minimum, Mr. Zuckerman said it would end his ability to hire lower-skilled workers and train them. He would rather move than make that change. Staying would mean that within five miles of his building, apparel makers in other nearby cities would have a large cost advantage.

The company has 20 production workers who earn a mix of both hourly and incentive pay.

A March study by University of California-Berkeley economists commissioned by the city council found that a minimum wage increase to $15.25 an hour would result in a raise for more than 600,000 workers while costing the city fewer than 3,500 jobs. The study identified apparel manufacturing as an industry most likely to be affected. Payroll costs were estimated to increase 17%, double the rate of other manufacturers.

The wage law applies only to the city of Los Angeles, but Los Angeles County is considering a similar measure for the unincorporated areas that fall under its jurisdiction.

Women’s clothing brand Karen KaneInc., which has operations in Los Angeles and nearby Vernon, Calif., plans to keep a careful eye on labor costs when selecting contractors to manufacturer clothes. President Lonnie Kane, also chairman of the California Fashion Association, said “We’re going to have to look closer at contractors outside the city.” Karen Kane employs about 200 U.S. workers, 165 of which are in the Los Angeles area.

But if minimum-wage increases expand to other parts of the state “it’s going to be harder to produce domestically,” he said. “We’ve already had conversations about importing more.”

For apparel workers, the biggest change might come from stronger enforcement of wage laws rather than from the higher wage floor itself, said Marissa Nuncio, director Garment Worker Center, a nonprofit supporting labor rights.

The new wage law requires the city to establish an enforcement division to address wage theft, which is more common in the apparel industry where workers are often paid by the piece rather than by the hour, Ms. Nuncio said.

Luz Garrido has worked in Los Angeles’ sewing factories for more than a decade. If the law allows her to earn even $50 more a week, she said that would help make ends meet for her and her daughter. But she also fears repercussions.

“Our employers, will say ‘Here we are paying you more, so you are going to have to do more and more and more’,” she said. “The pressure is going to be very intense.”

The wage law also will result in higher prices, said Steve Barraza, chief executive of Los Angeles designer and manufacturer Tianello Inc. Already as wages have increased over the past two decades, the company has focused on luxury products, which are profitable but produced in lower volumes. Those products require fewer workers to make.

“We won’t hire as many people, but the people we do hire have to be high-quality tailors,” he said.

He does fear that his suppliers, however, will move out of the city.

Brian Weitman, chief executive of STC-QST LLC, a supplier of items such as zippers, pocket linings and buttons, says the exodus is already on its way. He said clients have told him they plan to move out of downtown L.A. before the wage law is fully phased in.

The higher minimum wage he said will likely speed the conversion of the downtown area from warehouses and small factories to luxury lofts and high-end restaurants. “Five years from now, there won’t be manufacturing in the city anymore,” he said.

Champion of $15 Minimum Wage in L.A. Says the Rate Is Too High for U.S.

Los Angeles Mayor Eric Garcetti backs the move to raise the city’s minimum wage. ‘Too many people are working really hard and aren’t able to support themselves, and that just feels un-American to people,’ he said.

Los Angeles Mayor Eric Garcetti championed a newly passed law to raise his city’s minimum wage to $15 an hour by 2020. Does he recommend the rest of the country follow his lead? Not at this point.

Mr. Garcetti, a Democrat, used a speech in Washington to call on big city mayors to lead by example, and cited the minimum-wage boost as an example of what he’s done in Los Angeles.

But he said afterward that $15 an hour probably isn’t a national model.

“Different economies need different levels,” he said. “The cost of living is different and you need to cater to what works for your city.”

He added the caveat that eventually the minimum wage should reach $15 nationally, but the time needed to phase in such a change would need to be much longer than the five years L.A. plans to take.

A $15 standard has been a rallying cry for fast-food workers and other protesters advocating for a higher minimum wage. Democratic presidential candidate Hillary Clinton expressed support for that position last month.

Mr. Garcetti is lobbying neighboring communities, including Los Angeles County, to match his city’s standard. He said the failure to do so will create “pockets of poverty” in Southern California.

And he said Congress needs to raise the federal wage from $7.25 an hour, where it’s stood since 2009.

“It’d be great to raise the wage out of the basement, nationally,” he said. “But I don’t see Congress acting anytime soon.”

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