The $15 Minimum Wage Is Turning Hard Workers Into Black Market Lawbreakers
An in-depth look at New York's car wash industry, and the real world consequences of politicians interfering with a complex industry they don't understand.
On March 4, 2015, a group of union leaders, activists, and elected officials were arrested for blocking traffic during a protest in front of a Vegas Auto Spa, a small car wash in Park Slope, Brooklyn. Chanting "No contract, no peace!" and "Si se puede!," they had come in support of striking workers, who had walked out demanding a union contract after allegedly being subjected to dismal working conditions.
For David Mertz, the New York City director and a vice president at the Retail, Wholesale and Department Store Union (RWDSU), it was an inspirational moment in an ambitious six-year campaign to unionize the city's car washes industry.
"These workers were willing to stand out there during one of the coldest winters…literally in decades to fight for their rights and for basic human dignity," says Mertz, who was also arrested that day. "You have the ability to make change by coming together, and when you do that sometimes you find that you've got some friends on your side."
In the past six years, the car wash industry, which employs low-skilled, mostly immigrant workers, has also been the target of lawsuits for alleged underpayment of wages, including a handful of cases spearheaded by the New York State Attorney General's office. Working conditions in the industry were also cited as a raison d'être in the successful campaign to raise the state minimum wage to $15 per hour, which takes full effect at New York City car washes in January of 2019.
As Reason chronicled in a feature story in our July 2016 issue, the real world impact of the unionization drive, the lawsuits, and the $15 minimum wage has been mainly to push car washes to automate and to close down.
Two years later, there are more unintended consequences. The $15 minimum wage is fostering a growing black market—workers increasingly have no choice but to ply their trade out of illegal vans parked on the street, because the minimum wage has made it illegal for anyone to hire them at the market rate.
The minimum wage is also cartelizing the industry: Businesses that have chosen to automate are benefiting from the $15 wage floor because outlawing cheap labor makes it harder for new competitors to undercut them on price and service.
As a sequel to the 2016 article, this video takes an in-depth look at the real world consequences that result when politicians interfere with a complex industry they don't understand, enabled by media coverage that rarely questions the overly simplistic tale of exploited workers in need of protection.
A Failed Unionization Drive
"The car wash campaign serves as a model for what might be possible," RWDSU President Stuart Applebaum shouted from the podium during a December 2014 speech at the UNI Global Union in Cape Town, South Africa.
"The genesis of this campaign came out of a realization that you had an industry which was just a breeding ground for terrible conditions for workers," says RWDSU's Mertz. "We heard reports of workers working 60 or 70 hours a week."
The truth is that from the very beginning, nothing about the car wash campaign has gone as planned. After six years, organizers have unionized 11 businesses, or about four percent of the city's registered car washes. Two of them have since closed down, and the union withdrew at three more because of a lack of support from the workers. There are just six unionized shops remaining, or about two percent of the city's registered car washes.
And that number may continue falling.
"They just come and collect their fees, but I don't see an economic benefit from the union," says Ervin Par, a 37-year-old immigrant from Guatemala, who was speaking in Spanish. Par has been cleaning cars professionally for 10 years. He currently works at Main Street Car Wash in Queens, one of the city's six remaining unionized shops. Organizers have held two strikes at this location in the past few years, and in 2013 The New York Times covered allegations of worker mistreatment here.
Now, with the union contract expiring, Main Street could become the fourth car wash where the workers pressure RWDSU to withdraw, which would bring the total of unionized shops down to just five. "Among my colleagues, there's a majority that doesn't want the union," says Par.
Par shrugs off the idea that the workers at Main Street need union protection. "Protection from whom? If I don't like working here, I'll go find a job at a different place. There are many places to work where the pay the same. They don't pay more. They pay the same."
RWDSU's Mertz told Reason that he "doesn't have all the facts" on Main Street Car Wash "at this particular moment," adding that "we represent the workers there and we certainly hope that we'll be able to continue to do that."
The $15 Minimum Drives Automation
With the unionization drive floundering, RWDSU and its partners in the car wash campaign—the non-profit labor groups Make the Road New York and New York Communities for Change—shifted their focus to getting the city and state to mandate change. The union wrote and passed a local licensing bill known as the "Car Wash Accountability Act," including a provision designed to incentivize unionization, which was later struck down in federal court.
The most significant intervention championed by the union was an increase in the minimum wage to $15 per hour. This is upending the industry, but not in the way activists intended.
"We've heard over the years from employers repeatedly that anytime that we've made changes within the industry," says Mertz, "either they'd all automate, or the industry would suffer massive shutdowns. We haven't seen that happen to date."
Yet that's exactly what's happening.
Reason captured footage at a car wash in Queens that recently installed a new arch for hosing down vehicles, which will replace about four workers. (The owner granted us access on the grounds that we conceal the name and location of the business because he's worried about political reprecussions.)
Typical of New York's older car washes, this one was designed at a time when manual labor cost less than installing and maintaining machinery.
"Labor was cheap—real cheap," says Amir Malki, a second generation car wash builder. When he started in the industry in the 1980s, operators all over the city were actually dismantling machinery because rag, hose, and brush wielding men did a better job for less.
New fully automated car washes are also opening up, such as a state of the art facility near at 147th Avenue Plaza near JFK airport, with electronic gates, a self-serve vacuum, and a single manager on site making sure everything is running smoothly.
Car wash owners are choosing to automate even though it entails substantial risk. Take Best Auto Spa, located at 810 Pennsylvania Avenue in Brooklyn. Known as one of the city's premier handwashes, it draws clients who care deeply about the appearance of their cars and are willing to pay more for the human touch.
The $15 minimum wage means that this business model is no longer viable. So the owner of Best Auto Spa, who asked not to be named because he's worried about the political repercussions, is transforming his business from the equivalent of an artisanal bistro to just another fast food joint. Two years ago, he installed $200,000 worth of equipment, which allowed him to lay off eight workers.
Now he's facing another policy change that would further increase his labor costs. Employers are currently allowed to attribute a portion of the tips earned by their workers towards meeting the minimum wage requirement. New York State is seriously considering a proposal to eliminate the so-called tip credit. If that happens, come January, the owner says he'll have no choice but to give all these employees a pink slip and go fully automated.
Labor Lawsuits Lead to Closures
Not every car wash owner is willing to take on the risk and expense of automation, and there's another option: Exit the business and relinquish their land for more profitable uses. That's also happening at many New York car washes, such as Woodside Car Wash at 69-02 Queens Blvd., and Cambria Car Wash at 208-15 Linden Blvd., also in Queens. A couple years ago, Cambria converted to a pharmacy and a Dunkin' Donuts because, the owner says, labor costs were rising.
Several car washes have closed after their owners were sued for paying off the books, such as Harlem Hand Wash at 2600 Adam Clayton Powell Jr. Blvd, J.V. Car Wash at 4778 Broadway, and NYC Auto Spa at 70-65 Queens Blvd. At each of these locations, dozens of low-wage jobs disappeared.
The Minimum Wage Protects Incumbent Businesses
Another unintended consequences is that for business owners who choose to stick it out and automate, the $15 minimum wage actually protects them from competition by making it harder for new car washes to open up.
"Solely from being a businessman, the increase in the minimum wage makes my business so much easier—the best thing that could happen to me and I think to the industry," says Jack Belinsky, the manager of a new car wash in Queens. (Belinsky is also the vice president of the Association of Car Wash Owners.)
The car wash that Belinsky manages—the owner asked that we not publish the name or address of the business because he's concerned about political repercussions—opened last year at the site of yet another labor-heavy operation that closed following a wage and hour lawsuit. The new owner converted it to a fully automated exterior-only car wash, meaning customers are left to vacuum the interiors of their own vehicles.
"We used to do the same thing with 25 people, and now I'm doing it with two," says Belinsky.
By making cheap labor illegal, the $15 minimum wage made it possible for Belinsky to downgrade his service. "Before if I go exterior, my competition would say, 'ah, he went exterior and I'm still full-service so I'll take all his customers,'" Belinsky says. "That never gave me a chance to go exterior. Now everybody is forced to go exterior because of this crazy law and the minimum wage $15 per hour. It evened out the field."
The Industry Moves Underground
"These workers have few options and little power, RWDSU President Stuart Applebaum said in his December 2014 speech. "They live in the shadows."
The irony is that progressives have pushed the car wash workers further into the shadows.
The $15 minimum wage amounts to government prohibition of low-wage work. And yet just making something illegal won't stop able-bodied men with few alternatives from meeting a market demand for their services.
Since many legitimate car washes can no longer hire them, workers are going to the streets, where it's all cash, no tax, no unions, no workers comp, no insurance, and certainly no wage floors.
"The economy has led us to this situation to have to work washing cars in the street," says Fausto, an illegal car wash worker who asked that we only use his first name. He's part of a three-man operation washing cars on the curb out of a van for about $15 a pop.
"The customers prefer us," he says, "because when they come with bird droppings, or whatever, we clean it up. The machine can't do that.
Fausto has lived in the U.S. for 19 years, and still sends a portion of his earnings back to the Dominican Republic to help support his wife and children.
"Every week or 15 days, I send $100 for food and other expenses," he says. "I cover their necessities from here."
A Devil's Bargain
Legitimate car washes—left with no choice but to lay off workers who provide hand washes prized by customers, to install expensive machines, and to plaster their walls with operating licenses—are clamoring for the government to enforce the law and shut down the illegal operators.
"How can I compete with these guys when they're paying cash," car wash owner Stuart Markowitz said in 2015 testimony at City Hall, imploring Mayor Bill de Blasio (D), who was in attendance, to work with him to shut down the "bad operators."
"'We worry for the workers, look at the laws we made,' says Belinsky, mimicking a politician. "But if those rules are not enforced, those laws are toothless—they only hurt the good guys."
David Mertz concurs, telling Reason that the legitimate owners have a right "to be furious."
"You can also make the argument that you should allow some people to skirt the law, to skirt the regulations that are meant to protect workers in an effort to give people work opportunities," Mertz said. "That's a devil's bargain."
Or maybe the real devil's bargain is championing a set of policies that sound good at a rally, but that in the real world jeopardize the livelihoods of the working poor.
Which brings us back to Vegas Auto Spa, the Brooklyn car wash that progressive activists made an example of back in 2015. Shortly after the car wash unionized, the owner started planning his exit strategy. Two years later, he found a buyer, who kept it running for one more year. Today Vegas Auto Spa is shuttered, and the ripple effects of the entire movement have been to destabilize an industry, pushing the men and women who worked in it even deeper into the shadows.
Written, shot, edited, and narrated by Jim Epstein.
Photo of Democratic U.S. presidential candidate Hillary Clinton greets unionized car wash workers at the Hi-Tek Car Wash in the Queens borough of New York City, U.S. April 18, 2016. REUTERS/Mike Segar
Photos of Council Member Carlos Menchacha's arrest. William Alatriste for the New York City Council
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