Labor-intensive U.S. industries like textile rental will likely follow Europe by investing in automation rather than hiring, should wage costs jump

Alexandria, VA-TRSA President & CEO Roger Cocivera testified Thursday that a proposed minimum wage hike now before Congress threatens economic growth, and will result in fewer entry-level jobs in industries such as textile rental services.

In written testimony submitted before the Workforce, Empowerment and Government Programs Subcommittee of the U.S. House Small Business Committee, Cocivera testified that raising the minimum wage would hurt small companies and employees by raising costs that would stifle growth. "The bottom line of a dramatic hike in the federal minimum wage is that it will create a significant increase in overall labor costs for textile rental businesses," Cocivera said. "On average, labor costs account for about 53.65% of a textile rental service company's overall operating costs. For businesses that typically generate profit margins around 4.8%, it is easy to realize the dramatic impact that any increase in costs-especially labor costs-will have on their overall bottom line."

As background, Cocivera cited a study by the Employment Policies Institute (Job Loss in a Booming Economy, second edition) that suggests that the 1996 wage increase of 50 cents an hour resulted in a net loss of 645,000 entry-level jobs, despite the robust economy at that time.  The hard reality for textile rental and other labor-intensive industries is that if labor costs rise too fast, U.S. companies will be forced to shift their investments to advanced automation systems. "Many textile rental companies will look to automation-which is readily available and has already occurred in Europe-to offset increased labor costs by reducing the overall number of employees," Cocivera said.  "As such, an increase in the minimum wage will lead to a reduction in entry-level job opportunities within the textile rental services industry and most other small-business sectors of the economy."

For these reasons, TRSA opposes the legislative amendment sponsored by Sen. Edward Kennedy (D-MA) that would hike the minimum wage by $1.85 over two years. Cocivera estimates that this 36% increase in the minimum wage would have a ripple effect on wages throughout the textile rental industry. These increases-coupled with the 15% yearly hikes in employer healthcare premiums that companies have experienced since 2001-would spell trouble for the industry and the U.S. economy generally.

While well intended, a federally mandated increase in the minimum wage now would backfire on employees and businesses. It represents a lose-lose situation that would diminish both jobs and economic growth.

The Textile Rental Services Association of America (TRSA) is a national trade association representing over 1,100 company locations across the nation.  Since 1913, TRSA members have provided textile maintenance and rental services to commercial, industrial and institutional accounts-over 90 percent of TRSA member companies are small businesses.  TRSA members serve hygienically clean textile and dust control items to millions of customers in commerce, industry, and other professions, from automobile service to manufacturing, restaurants and hospitals.  The textile rental industry generates yearly sales of roughly $11 billion. U.S. linen supply and industrial laundering companies employ more than 110,000 people.