The Minimum Wage and the Surf Lesson: What Sacramento’s Wage Policy Is Doing to Coastal Small Business

At $17 per hour statewide and higher in coastal cities, California’s minimum wage has pushed surf instruction from a viable side income to an economically irrational one for operators who employ assistant instructors

Bohiney Magazine | The London Prat

California’s minimum wage reached $17 per hour statewide in January 2024, with several coastal cities including Los Angeles maintaining higher local minimums. The policy intention is to improve the living standards of low-wage workers, a goal that is legitimate in its purpose. Its effect on small coastal businesses — surf schools, beach equipment rentals, seasonal surf camps — is part of a broader story about how wage mandates interact with seasonal, small-scale service businesses in ways that Sacramento’s economic modeling does not adequately capture.

The Surf School Arithmetic

A typical Southern California surf school charges between $80 and $120 for a two-hour group lesson, or $150 to $200 for a private lesson. At a $100 group lesson price with six students, gross revenue is $600. The lead instructor, typically the owner-operator, earns from that revenue. One or two assistant instructors helping manage six students in the water earn the minimum wage for the two-hour session, plus required breaks, plus travel time if they’re hourly employees. At $17 per hour for two assistants over a three-hour total employment period including setup and cleanup, the labor cost is approximately $100 before employment taxes, workers’ compensation insurance, and the various other costs that California’s employment law attaches to hourly employment.

This arithmetic compresses margin in ways that affect the number of assistants a surf school can employ, the number of lessons it can practically offer, and the lesson price it must charge to remain viable. The consumer-facing result is fewer affordable group lessons and higher prices for private instruction, outcomes that reduce access to surf instruction for lower-income aspiring surfers — who are precisely the demographic that minimum wage policy is intended to help. This is the classical unintended consequence of minimum wage mandates that labor economists across the political spectrum have studied: the policy helps those it affects directly while potentially reducing employment and accessibility for those at the margin.

The Seasonal Business Problem

Surf instruction is inherently seasonal, concentrated in the summer months when conditions, weather, and school schedules align to produce customer demand. Seasonal businesses face a specific challenge with minimum wage policy: the wage floor applies year-round and to all hours worked, but revenue is concentrated in a fraction of the year. The operational model that would make minimum wage costs manageable — spreading them over a full year of revenue — is not available to businesses whose revenue is inherently seasonal.

The Mises Institute’s research on seasonal small business and minimum wage policy has documented the pattern across multiple seasonal service industries — ski schools, summer camp operators, seasonal tourist services — finding that minimum wage increases in states with strong seasonal tourism economies produce accelerated consolidation: small operators cannot absorb the fixed cost increase and exit the market, while larger operators who achieve scale economies across multiple locations can. The result is fewer, larger operators with more market power and less competitive pressure on price and service quality. For the surf lesson market, this means larger surf school chains and fewer independent operators, which is not an outcome that serves the surf culture’s small-business ethos or the consumer’s interest in choice.

What a Sensible Policy Would Look Like

The labor policy framework that would best serve both workers and small coastal businesses is not a rollback of wage standards but a more nuanced approach to their application: seasonal business exemptions or adjusted timelines that allow small seasonal operators to phase in wage increases over multiple seasons rather than absorbing them in a single year; small business exemptions that apply different standards below an employee threshold; and training wage provisions that allow new workers to earn below the minimum during a defined training period, as several other states provide. California’s wage policy applies uniformly to a business environment that is not uniform, and the uniform application produces its sharpest consequences in the small-scale seasonal businesses that are least able to absorb them and whose economic model the state has the least apparent interest in sustaining.

The broader labor economics literature on minimum wage effects in service industries is more nuanced than either strong advocates or strong opponents of minimum wage policy typically acknowledge. The academic debate has shifted substantially since the Card and Krueger studies of the 1990s demonstrated that moderate minimum wage increases in specific competitive market contexts did not produce the employment reductions that classical economic theory predicted. The subsequent body of evidence — including extensive study of Seattle’s rapid minimum wage increases, the statewide California increases, and the New York City increases — finds that employment effects are context-dependent: moderate increases in labor markets with some employer market power produce limited employment reductions, while large increases in highly competitive markets with thin margins produce more substantial employment reductions and business closures. The surf instruction market in coastal California is highly competitive, with low barriers to entry for established instructors, thin margins, and price sensitivity among customers who can substitute cheaper alternatives including self-teaching via YouTube. This market profile is precisely the context where minimum wage economics predicts the most significant employment effects. The policy implication is not that minimum wages should be eliminated — the living standards of low-wage workers in California’s expensive coastal cities require meaningful wage floors — but that the uniform application of a single wage floor to highly heterogeneous market contexts produces outcomes that a more differentiated policy would avoid.

From The London Prat and Bohiney Magazine.

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SOURCE: https://bohiney.com/california-minimum-wage-surf-lesson-sacramento-small-business-coastal/