Minimum Wage vs. the Carwasheros

New York's new $15 wage floor pits man against machine.

By Jim Epstein of Reason. Excerpts:

"It's conventional wisdom among progressives that low-skilled workers like the carwasheros stand to benefit most from high wage floors. The opposite is true. The 67 percent wage hike will obliterate jobs at car washes and further the agenda of anti-immigrant conservatives—some of whom explicitly advocate for increasing the minimum wage because it reduces employment opportunities, halting future waves of illegal immigration and encouraging those already here to return to their countries of origin.

When labor costs rise, employers hire fewer people. But some liberal economists say the law of supply and demand doesn't apply to the labor market. Nobel laureate Paul Krugman claimed in a 2014 interview with Business Insider that minimum wage increases have a negligible effect on job losses because they mostly affect service-sector positions that can't be replaced by automation.

Krugman's remarks were out of touch with reality on several counts. In much of the U.S., car washes started automating a half-century ago as operators struggled to find reliable employees. In New York City, owners bucked the national trend because they could tap into a large pool of illegal immigrants willing to work long hours for little pay. Now that labor groups have succeeded in dramatically raising labor costs, the city's car washes will simply play catch-up with the rest of the country—replacing men wielding hoses and rags with nimble units of spinning brushes and massive hot air blowers. It's already starting to happen."

"Big changes came in the 1970s, when the Sherman Carwash Company came out with far more sophisticated equipment to automate the car washing process. Operators were in the market for better machines because it had become difficult to find workers interested in cleaning vehicles for a living. "That's when the revolution started," says Martin Geller, a car wash engineer and former owner with 43 years of experience in the industry. "Sometimes half the guys wouldn't show up, so you lost business. But the machines were there every day."

Operators with the means to make a significant capital investment could eliminate most of their workers. Mike's Minit Man (renamed Mike's Car Wash) was one of the first in the country to go fully automated in 1978. Founder Joe Dahm invested in state-of-the-art machinery, including powerful hot air blowers that replaced the crew charged with drying off vehicles as they exited the tunnel. The cost of a basic exterior wash at Mike's fell to just $2, but the increase in speed and volume led to a significant revenue boost. "We think those blowers set us up for success," says Mike Dahm, now the company's president."

""Nowadays more than 90 percent of car washes built in the U.S. only need about three people to run them at once,""

"In New York City, where unskilled labor is plentiful, the capital investment required for full automation didn't make sense. In the 1980s, there was a two-and-a-half-fold increase in the flow of legal immigrants coming into the U.S. from Mexico and Latin America. By 1990, about 10 percent of the foreign-born U.S. population—roughly 2 million people—resided in New York City. (There's no reliable data from this period on illegal immigration, though it tends to track the legal rate.) It thus became relatively easy for Big Apple car washes to find cheap and reliable employees."

"car wash owners came up with new ways to put these men to work, and some even converted their partially automated tunnels to full-service hand washes.

"In the 1980s, there was a shift to recognizing that there were big profits in detailing," says the anonymous source. "Detailing" means cleaning every crevice of a vehicle by hand—sometimes even the engine.

The same shift occurred in Southern California's car wash industry about a decade later. From 1990 to 2000, the number of illegal immigrants in the U.S. rose from 3.5 million to 8.6 million, according to data from the Pew Research Center—and one in six landed in the Golden State.

Car washes capitalized on the influx. From 1990 to 1997, Herschel Kilgore, a veteran consultant and designer, converted about 180 automated car washes to full-service hand washes. The equipment at these shops was often wearing out, and replacing it with 30 to 40 illegal workers capable of providing additional services was a logical business move.

Labor conditions for some of the workers were a shock to the sensibilities of progressives, however. In California, activists and public interest attorneys took notice in the late 1990s. In 2004, their efforts led California to pass A.B. 1688, the Car Wash Workers Law, which among other things required every operator in the state to obtain a "surety bond," a form of liability insurance. This made it easier for plaintiffs who won court judgments against car wash owners to collect their payouts, and led to an explosion of wage and hour litigation.

In 2008, the United Steelworkers formed the CLEAN Carwash Campaign to unionize California car washes, though it had limited success. Labor activists also began to push for better pay for workers. A big turning point came this April, when legislators in Sacramento (like their counterparts in Albany) passed a statewide minimum wage hike to $15 an hour.

But even at the lower rates, carwasheros in New York and California were voluntarily accepting the jobs. Why would they choose to endure such grueling conditions for such little pay? "Working at a car wash isn't an option that we think is great, but it was their best option," says Don Boudreaux, an economist at George Mason University. "So how do we make them better off by taking that away?"

WASH New York
\In 2012, the Retail, Wholesale, and Department Store Union (RWDSU), along with two affiliated groups, launched WASH New York, a campaign to unionize the car wash industry in the Empire State. It was a mammoth undertaking. "We felt that it was important for the movement to show that if these workers can organize, then any workers can organize," said RWDSU President Stuart Appelbaum in a 2014 speech.

It hasn't gone particularly well. Car washes are mostly small, independent businesses, so organizing the industry has involved fighting a succession of expensive battles. More importantly, it turns out many carwasheros aren't interested in joining a union. To date, just 10 car washes out of more than 200 in the city have signed on to join RWDSU.

WASH New York and its allies responded with a plan to make the experience of any car wash owner who resisted their efforts a living hell.

Take 39-year-old Ukrainian immigrant Marat Leshehinsky, the owner of Vegas Auto Spa, a small car wash in the outskirts of Park Slope, Brooklyn. Labor organizers started secretly meeting with his carwasheros in May 2014; in November the workers petitioned to form a union.

Leshehinsky fought them on the grounds that Vegas Auto Spa has annual revenues of less than $500,000, which means it falls outside the jurisdiction of the National Labor Relations Board. So protesters went to Leshehinsky's house in Brooklyn twice and frightened his two small children. On the second occasion, someone threw a rock, chipping Leshehinsky's front door. They also blanketed his neighborhood with a flier that included a personal photo taken from his wife's Facebook page.

On March 4, 2015, shortly before Leshehinsky finally gave up and granted his workers a union contract, RWDSU and its affiliates staged a protest in front of Vegas Auto Spa, during which two members of the New York City Council were arrested for blocking traffic.

Labor groups helped draft a new licensing law, signed by Democratic Mayor Bill de Blasio last June, that among other things will require every car wash operator in the city to obtain a $150,000 surety bond—except for unionized car washes, which only need a $30,000 bond. Since car wash owners with bad credit might not be able to obtain a $150,000 bond, unionizing could be their only path to staying in business.

The New York City Car Wash Association, a local industry group, sued to overturn the law on the grounds that the government can't "interfere in the collective bargaining process on behalf of one side or the other." In a positive sign for the plaintiffs, the city agreed to put a temporary stay on the law while the case is adjudicated. But the car wash industry has already started adjusting to the new labor climate by moving to increase automation."

"'The Circle of Life'"We decided to go exterior-only no-wiping mostly because of the labor problems," says New York City car wash owner Martin Taub. "Do we need the labor department and the unions breathing down our necks?""

"Taub says that his Manhattan location, an enormous operation that spans the whole block from 46th to 47th Street on 12th Avenue, won't remain a car wash for long. He's already in talks with real estate developers to sell the land.

Outfits in less desirable areas of the city are also converting to other uses. Cambria Car Wash in Queens just laid off 20 workers and will soon be replaced by a pharmacy and Dunkin' Donuts. Ofer Amar, the property's general manager, cites "what's coming with the minimum wage" as a major factor.

Taub's Bronx location is still full-service, but he's considering automating there as well. The location brings in more revenue than his Brooklyn car wash, but the advantage of the latter approach is that it's "headache-free," says Taub. When the minimum wage goes to $15 an hour, automating will be a no-brainer. "Since I have 15 guys on the property, I wouldn't be able to charge less than $30," he says. "Who's going to pay $30 for a car wash?"

Amir Malki, a leading car wash equipment installer in the region, says over a dozen car wash operators in New York City have inquired about putting in the necessary machinery to cut their labor costs.

One owner, who talked to reason under the condition of anonymity because he's worried about the political repercussions of speaking out about the minimum wage, says he's considering purchasing $300,000 in equipment, which would allow him to eliminate 15 of the 22 men who currently staff his full-service hand wash.

When the minimum wage goes from $9 to $15, he estimates that his expenses per wash will rise about $7 to $22, meaning he'll have to charge at least $25 to make a profit. "Now put yourself in the shoes of the customer," he says. "The first thing they'll do is wash their cars at home. Or they'll drop from washing their cars three times a month to once a month." If he automates, he figures he could lower his price to about $8. "That's the only way I can think of to survive.""