There Goes the Neighborhood

I'm losing one of my best employees to the lure of a competitor. Not a competing bail agency, but to a competing town. Yes, that's right, I've been beat out by a city — Sacramento. Not Sacramento, as in center-of-California-politics-and-public-policy Sacramento. But Sacramento, as in there's-plenty-of-homes-for-first-time-home-buyers Sacramento.

I'm sad. Eric came to work for me five years ago. He's good. Real good. He cares. He treats the business as his own. He's honest. He works hard. He's smart. He will be missed.

I'm also sad as a Santa Rosan. For Santa Rosa is losing a bright and energetic mind along with his wife and step-daughter. Better weather, better views, better food, and two good jobs were not enough to keep Eric and his family in Santa Rosa.

As long as young families feel that the American dream of home ownership is hopelessly out of reach in Santa Rosa, there will be many more stories like Eric's. An economist might call it a sustained leakage of labor. Santa Rosans might experience it as the transportation of talent to places far and wide. In Eric's case, it's an example of future leader flight.

Much has been discussed at City Hall lately about rent control. That without it, we will lose the workforce that drives a service economy. But controlling rents does not keep Eric and his family in Santa Rosa. The only way the Eric's of Santa Rosa continue to provide Santa Rosa with the benefits of their skills, talents, and efforts is more housing inventory. Some for rent, some for sale.

Instead of creating artificial conditions that focus on one aspect of the housing shortage, let's focus on fixing the fundamental causes. Let's make it easier for builders to build, which will make it easier for buyers to buy and renters to rent.

Business Lessons Lost in New Era?

My first business mentor, Bill Trussler, passed on a lesson he learned from his mentor – raise prices immediately when costs increase. The reason: customers will tolerate slight upward price adjustments. The novice merchant may try to hold on to increases, waiting for the competition to raise their prices in hopes of picking up customers looking for a bargain. Or, at the very least, trying to avoid customers wandering over to a competitor offering a lower price.

But, the lesson goes, if you wait until the increased costs erode all profit and force a price increase just to stay in business, the customer experiences shock - an increase so dramatic that she is likely to be become outraged, to feel betrayed. Once a customer feels betrayed they will no longer be your customer.

This time-tested wisdom passed down from merchant to merchant does not seem to hold in Seattle according to the results of a study undertaken by the University of Washington. In 2014, the city of Seattle passed a minimum wage law that was to begin to take effect in 2015. Wisely, in the wake of such a mandate, the city council commissioned a periodic check of the city’s vitals to be conducted by the University. The first study, done at the inception of the new law found that 62% of merchants expected prices and rents to rise because of the law. The second study, just completed, and done one year later found that prices and rents have not changed.

The first study revealed that 10% of merchants questioned wrongly believed that the jump to $15 per hour was to be immediate. In fact, the law set two standards, one by which companies employing more than 500 people were to follow, and another, slower paced standard for companies with less than 500 employees. Minimum wages are to be incrementally increased for the first set to $15 per hour in three years. Smaller employers are required to incrementally increase wages until 2021 when they will be $15 per hour. This means a minimum wage earner’s income would rise somewhere between 8% and 12% per year. California’s new minimum wage law has similar incremental increases over time.

It seems like Seattle merchants have forgotten Trussler’s rule of passing on increases as they accrue.