March 26, 2015

 

By ELIZABETH HSING-HUEI CHOU 

City News Service 

 

Economists sparred this week over the effects of a proposal to raise the minimum wage to as high as $15.25 per hour in Los Angeles during a city council committee hearing attended by hundreds of business people and activists. The city council is considering raising the minimum wage from $9 an hour to $13.25 an hour by 2017, to $15.25 an hour by 2019, and higher in subsequent years based on the Consumer Price Index. The economists giving presentations to the Economic Development Committee today authored competing reports on the effects of the proposed wage hike, including a city-commissioned study that concludes the benefits of the wage increase would outweigh its drawbacks, and two reports funded by labor and business groups that reflect opposite viewpoints.

 

The economists quibbled over whether the proposed wage increase would result in Los Angeles businesses moving to cities where the minimum wage is lower, possible exemptions for small businesses or nonprofit organizations, whether businesses could withstand the increased costs and whether the workers would see their standard of living go up or instead, end up seeing their jobs disappear. Many of the economists acknowledged that the wage increase would put some stress on certain industries, such as the apparel and restaurant industries, but they differed on whether businesses in those industries would be able to bounce back. Michael Reich, an economics professor who conducted the city-funded UC Berkeley study, called the minimum wage plan ``a very bold proposal ... one of the boldest yet, and of course it requires a lot of careful study to see what its effect will actually be.''

 

Los Angeles' wage hike plan is among a ``new wave of minimum wage policies put in place in states and quite a few cities at levels we have not seen before,'' Reich said. Reich's study concluded the wage hike would have more benefits than negative impacts. He dismissed the view that the wage increase would likely drive businesses to neighboring cities and said there are limited real estate vacancies in neighboring cities, and contended that Los Angeles' wage increase could actually prompt businesses in other cities to raise their wages in order to compete for qualified workers.

 

Christopher Thornberg of Beacon Economics, which conducted a study for the Los Angeles Area Chamber of Commerce, said while there is a general consensus that ``L.A. has a big working poor problem,'' the minimum wage plan ``is going to have a very bad return for this city.''

 

 ``The benefits are just too diffuse, they're offset by job losses and ultimately the costs to the economy is far too high,'' Thornberg said.

 

Thornberg said the businesses will be driven to other cities or be forced to replace workers with machines or other cost-cutting measures. Daniel Flaming, the economist at the Economic Roundtable – which produced a report for the Los Angeles County Federation of Labor -- said they concluded that ``low-wage workers in Los Angeles need higher wages for the city to be sustainable ... for low wage workers to be able to work here to provide the services that we want.''

 

They also found that ``higher wages have the potential to be an engine of economic growth, potentially having a transformational effect on low-income neighborhoods,'' and businesses would be ``challenged to adapt their business models to pay higher wages,'' Flaming said.

 

Councilman Curren Price, the committee's chair, said toward the close of the hearing that ``we always knew these reports would tell us the good, the bad and the ugly about the proposed minimum wage hike and I think that's what we heard today.''

 

Price said the hearing is ``only the start of our work, as we move our debate to the community with a series of hearings in all corners of the city.'' Price helped spearhead the minimum wage increase proposal, which was initially announced by Mayor Eric Garcetti, and called it ``one of the most critical civil rights issue of our time.'' Price said while there will be financial reasons for backing the plan, the city also has a ``pressing moral responsibility'' to adopt a wage hike.

 

Councilman Paul Krekorian expressed skepticism about the wage hike plan, saying that people living in his district's North Hollywood neighborhood often work in Burbank, a neighboring city, and would be left out of the benefits from the city's wage increase. Other council members agreed that the wage hike increase is necessary, but appeared to want to consider possible exemptions for smaller businesses or nonprofit organizations. Councilman Gil Cedillo said there are large employers in his district that pay workers higher than the minimum wage, but there are also ``an abundance ... of small businesses, immigrants, entrepreneurs, family-owned businesses that are very small.''

 

``I mean, these are micro enterprises and I do have a concern about the impact that it would have on them,'' he said.

 

``I think we have to go forward and think about all the elements. There is no doubt that we have a lot to do,'' Cedillo said. ``We have to make sure whatever rate we decide on, and whatever pace we decide on, this simply has to be done.''

 

While the debate has been set up as a battle between labor groups and businesses, the business owners who spoke at the hearing had a variety of views on the proposal. Restaurant owner George Abou-Daoud, who submitted a petition that he said was signed by more than 150 other restaurants, said the wage increase would be ``catastrophic'' to their businesses. However, Kevin Litwin, owner of parking lot company Joe's Auto Park, said the number of Angelenos living in poverty is ``eye-opening'' and said ``it's time for Los Angeles to set the example'' by ``saying no more to unfair wages.''

 

More members of the public will have the opportunity to join the debate over the proposal at three hearings held on:

 

• Thursday at 6 p.m. at the Watts Labor Community Action Committee headquarters, 10950 S. Central Ave.

 

• March 31 at 6 p.m. Van Nuys City Hall, 6262 Van Nuys Blvd.

 

• April 2 at 6 p.m. at the Museum of Tolerance, 9786 W. Pico Blvd.

 

According to UC Berkeley's mostly positive findings, the wage hike would prompt businesses to pass costs onto customers, driving down consumer demand, but this would be offset by $2.381 billion added to workers’ wages by 2019, which is expected to have a multiplier effects on spending. The UC Berkeley report also points out that 80 percent the workers affected would be people of color, and the wage increase would affect more than half of Latino workers in the city.

 

The 600,000 workers who would see their wages go up by 2019 make up about 40 percent of the Los Angeles workforce, the report said. The Beacon Economics report -- funded by the Los Angeles Area Chamber of Commerce -- contends the wage hike would kill an anticipated 73,000 to 140,000 new jobs, while a labor-funded report argues that it would result in $5.9 billion in added income for about 700,000 workers in Los Angeles and create more than 46,000 additional jobs.

Category: Business



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