PARKS’ PLACE-You remember the story of Goldilocks and the three bears?
Goldilocks went for a walk in the woods and came across a house she thought was empty (SPOILER: there were three bears inside). When she first entered the house, she went to the kitchen and tried three bowls of porridge. The first was too hot, the second was too cold, and the last was just right.
This is how I feel about the minimum wage studies released by the LA County Federation of Labor/Economic Roundtable, University of California, Berkeley and the LA Area Chamber of Commerce/Beacon Economics. One’s too hot, one’s too cold, and one’s just right.
As with most research, you can manipulate data to show whatever desired outcome you’d like.
Renowned economists contributed to each of the studies, but even academics have to cater to the special interests funding their studies.
The first of four public hearings regarding increasing the minimum wage in the City of LA took place Tuesday at City Hall during the Economic Development Committee meeting. You can listen to the meeting here.
Let it be known, I’m actually in favor of increasing the minimum wage.Well, let me clarify. I’m more in favor of the state or federal government setting the minimum wage, NOT cities or municipalities.
Did you know that the minimum wage in California will be $10 in January 2016? This figure was set by the state. The Obama administration is trying to increase the national minimum wage to $10.10, but you know how the rest of that story goes.
At the meeting, committee member Paul Krekorian said, "with our good intentions, we don’t want to hurt anyone looking for employment …"
Ha-doesn’t he know the road to hell is paved with good intentions? Proponents of this wage increase might as well be bricklayers.
At the meeting, someone in favor of increasing the city’s minimum wage acknowledged that this increase is "not a panacea that will correct all the city’s ailments" (hmmm… kind of sounds like proponents of Charter Amendments 1 and 2 who acknowledged changing the city’s election year wouldn't be the cure-all for voter apathy, but pushed for the amendments gung-ho nonetheless).
There automatically won’t be more affordable housing, you won’t automatically be able to make that down payment on a Porsche, and if you’re unemployed at the time this increase kicks in, you most definitely won’t automatically be able to find work, be inserted to the front of the line or be more competitive then the recently laid off or fired employees due to the recent implementation of the minimum wage increase.What proponents of the increase fail to realize, or perhaps choose to ignore, is you can make $15 an hour and still live at poverty level/low income. You most likely will not be working full time. At the meeting, Rusty Hicks, the new Executive Secretary of the Los Angeles County Federation of Labor said, "let’s lift people out of poverty." The pipe dream that’s being sold about the wage increase miraculously delivering people out of the pits of poverty is a fallacy. The most recent federal minimum wage increase lifted 900,000 people out of poverty while terminating the employment of over 700,000.
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The representative from Beacon Economics brought up many sobering points. I thought it was interesting that he brought up that youth unemployment will increase as the minimum wage increases. Employers will not want to take the risk to hire unskilled, new labor at such a high cost.
They want the bang for their buck and they will get even pickier in hiring people. For a city that prides itself on its summer jobs program for teens, I think this is an important issue to consider.
Businesses are always about their bottom line and they will acclimate to drastic changes the best ways they know how. They will either increase the cost of their goods/services, reduce hours of full-time staff, lay-off staff, relocate their business to outside of LA, or close their business. It's clear that just because a business' overall payroll increases does not mean the employees will benefit with more income on their checks or in their pockets. The larger the payroll, the higher the percentage payout for social security, unemployment insurance, medical costs, workers' compensation, etc.
Some business owners who attended Tuesday’s meeting said if the increase was approved, they must get reimbursement from the state. Good luck with that.
Another interesting point that was discussed was whose economy will really benefit if LA raises its minimum wage-the city or the county?
Most people who work in LA actually live elsewhere. If wages increase in L.A., the prices of goods and services are more likely to increase as well. If things cost more in L.A. than other cities, I don’t know about you, but I would want to stretch my dollar and I would spend my money elsewhere.
Conversely, there are people who live in LA, but work elsewhere. If someone works in a city where the minimum wage is still $9, how is he/she going to afford the rising costs that come with living in LA?All economists were asking the city to capture the changes in employment, sales tax collection, etc. through a kind of data dashboard if the minimum wage increase were to pass. Some even mentioned creating a task force to make sure the increase is being enforced. This is a momentous, complicated undertaking that the City is once again saying, "gotta do something" to.
Without further ado, here’s my porridge rating system of the minimum wage studies:
Too hot:
You ever been so hungry you’re in a rush to eat and you heat something up so hot you burn yourself once you dig in? You left with a tongue burn and now you’re pissed off.That’s what the Economic Roundtable’s study (underwritten by the LA County Federation of Labor) embodies to me.
Surprise, surprise… their study found if LA increases the minimum wage, there will be milk and honey for everyone- more than we can stand. Some jewels from the study:
"Public assistance expenditures will be reduced by $313 million a year because higher wages will lift workers out of poverty."
"We estimate that 10,000 eligible persons in Los Angeles City will reduce their convictions under Proposition 47 and gain access to much broader employment opportunities."
"Raising the minimum wage will be an engine for economic recovery in low-income neighborhoods and build a more inclusive, sustainable economy across the city."
Too cold:
The University of California, Berkeley’s Institute for Research on Labor and Employment had to kind of ice themselves this time around. As you may remember, they previously issued a study in September 2014 that favored Mayor Eric Garcetti’s initial minimum wage increase to $13.25 by 2017. When the minimum wage study went out to bid again, they came right back and people were concerned about them being chose as the best bid to conduct this $15.25 report. Nothing much to see here, just day-old porridge.
Some notes from the study:
"On the cost side, we find that employers will pass on their increased operating costs to consumers via prices, after accounting for savings from reduced employee turnover. As a result of these price increases, consumer demand in Los Angeles will decrease by $592 million by 2017 and $1.128 billion by 2019 (nominal dollars)."
"In the present context, although higher wage costs inside the city border might lead some firms to relocate outside, the minimum wage policy could also lead prosperous firms that would reap the benefit of higher productivity to move inside the border. Firms just outside the border may also find that their workers will find it more attractive to switch to firms inside the border that offer a higher wage. For this reason, we can expect wages to rise just outside the border, reducing the sharp policy discontinuity.
“Finally, higher wages might lead some Los Angeles residents to move to other areas that have lower housing costs, but it could also lead to some suburban residents to move inside the city to be closer to higher paying jobs."
Just right:
Honesty and transparency is so hard to find nowadays, especially when it comes to such a contentious issue like raising the minimum wage. Beacon Economics’ study (underwritten by the LA Area Chamber of Commerce) hits the spot and is honest about the real effects that may come should this wage increase pass.
Some points from the study:
"By Beacon Economics’ calculations, if the plan is put into place, it will reduce job growth in the City from an expected 1.8% per year for the next five years to less than half that and potentially eliminate growth altogether. In other words, expected job growth would go from 30,000 jobs per year to somewhere between 2,000 to 15,000 jobs."
"To survive, businesses facing higher costs will do a number of things. First, they will shift as best they can to a less labor-intensive business model. For example, they may purchase a labor–saving piece of equipment to reduce the number of workers they need to accomplish a certain task. They will additionally have to raise their prices by some amount. This will, by definition, reduce the amount of business they do which will in turn reduce the amount of labor they will hire. In short—a higher minimum wage in this context means fewer jobs."
"Roughly 30% of the jobs losses will hit workers who have not had the opportunity to earn a high school degree, and who make up some of the lowest income workers. For these workers the loss of a job will be potentially catastrophic in today’s still weak labor market."
I strongly encourage all business owners, community members and employees to attend these minimum wage meetings. There needs to be an honest discussion of the pros, cons and overall impacts that come with increasing wages. Union members are already foaming at the mouth to have Council pass a minimum wage increase with little substantive research so we need as many non-special interest backed voices in the conversation as we can get.
It is my personal opinion that a new minimum wage ordinance must be measured, spread over several years, surgical enough to benefit the truly needy, but avoid benefitting those employees that are on minimum wage plus commission or tips.
It should also concentrate on the city's economy and employees who are residents of the City of Los Angeles, truly balance the needs of both the business owners and the employees and be accompanied by a extensive job creation program which may include both minimum wage and wages below minimum wage.
Minimum wage public hearings:
Thursday, March 26, 6 p.m. at the Watts Labor Community Action Committee headquarters, 10950 S. Central Ave.
Tuesday, March 31, 6 p.m. at Van Nuys City Hall, 6262 Van Nuys Blvd.
Thursday, April 2, 6 p.m. at the Museum of Tolerance, 9786 W. Pico Blvd.
(Bernard Parks is Los Angeles Councilman for the 8th Council District. He is also former Los Angeles Police Chief. He can be reached at [email protected] )
-cw
CityWatch
Vol 13 Issue 27
Pub: Mar 31, 2015
