“Exodus Has Begun”

The minimum wage hike is about to smack Los Angeles’ apparel industry businesses and jobs. The LA Times reports the ‘Exodus has Begun‘.

In Greece, 40% of companies say they want to leave the country.

Greek businesses complain of high taxation, stifling regulation, and legal uncertainty generated from the arrival of Syriza to power.

Let’s compare the two setups.

Exodus California Style via LA Times

Los Angeles was once the epicenter of apparel manufacturing, attracting buyers from across the world to its clothing factories, sample rooms and design studios. But over the years, cheap overseas labor lured many apparel makers to outsource to foreign competitors in far-flung places such as China and Vietnam.

Now, Los Angeles firms are facing another big hurdle — California’s minimum wage hitting $15 an hour by 2022 — which could spur more garment makers to exit the state.

Last week American Apparel, the biggest clothing maker in Los Angeles, said it might outsource the making of some garments to another manufacturer in the U.S., and wiped out about 500 local jobs. The company still employs about 4,000 workers in Southern California.

“The exodus has begun,” said Sung Won Sohn, an economist at Cal State Channel Islands and a former director at Forever 21. “The garment industry is gradually shrinking and that trend will likely continue.”

In the last decade, local apparel manufacturing has already thinned significantly. Last year, Los Angeles County was home to 2,128 garment makers, down 33% from 2005, according to Bureau of Labor Statistics data. During that period, employment also plunged by a third, to 40,500 workers. Wages, meanwhile, jumped 17% adjusting for inflation, to $698 per week — although that can include pay for top executives, as well as bonuses, tips and paid vacation time.

Guess Jeans, which epitomized a sexy California look, moved production to Mexico and South America. Just a few years ago, premium denim maker Hudson Jeans began shifting manufacturing to Mexico.

Jeff Mirvis, owner of MGT Industries in Los Angeles, said outsourcing was necessary to keep up with low-cost rivals. MGT, which makes apparel sold to retailers, moved its production to Mexico in the 1990s, China in the early 2000s and Southeast Asia a few years later. Its designs and samples are still made in Los Angeles, Mirvis said.

“Manufacturers really have no choice,” said Mirvis, whose father started the company in 1988. “With the rise of Forever 21 and stores like that, price points have gone down and down and down.”

California Exodus in Mid-to-Late Stage

Clearly, the California exodus is not just beginning. Rather, exodus is in the mid-to late stages.

The minimum wage hikes will simply put the finishing touches on an exodus that began long ago.

Exodus Greek Style

Via translation from Libre Mercado, please consider the ‘Syriza Effect’: 40% of Greek Companies Want to Leave the Country.

The economic situation in Greece remains critical. The Government of Alexis Tsipras proposes another hike in the standard VAT rate from 23% to 24%, further suffocating business activity.

Proof of this is that four out of ten Greek companies contemplate leaving the country, according to a recent survey conducted in late March. The high tax burden is wreaking havoc in many companies. Employers also complain of reduced legal certainty, poor access to cheap funding and the complex Greek bureaucracy.

At the moment, almost 15% of respondents say they have already moved their base of operations abroad, but many more expect to do so in the near future. Companies that decide to emigrate belong to sectors with high added value, such as those related to new technologies and health.

In July 2015 the percentage of companies that wanted to leave the country was 23%. Today the total has nearly doubled and now exceeds 40%.

Pessimism reigns among entrepreneurs, as 56% say that the economic situation will not improve for at least another five years, compared to 4% who thought so in May 2014, shortly before Syriza came to power.

80% of employers indicate that if they could start their new business, they would abroad and not in Greece.

Now that’s a mass exodus for you. And it’s one in the early stages, too. Hiking the VAT and business taxes is idiotic. There still has been no badly needed business reform.

Once again, there is no way for Greece to pay back what is promised. What cannot be done, won’t.

Mike “Mish” Shedlock