Local businesses would carry the load, not city
Two economists critical of Santa Monica’s living wage proposal said the city’s ordinance would lack many of the benefits found in other cities.
Former Michigan University Economics Professor David Neumark and UCLA Professor Richard Sander told Santa Monica Chamber of Commerce members Tuesday that local businesses would bear the brunt of the proposed wage increase.
If voters approve the city’s living wage law this November, it would raise the minimum, hourly wage for low-income workers at coastal Santa Monica businesses that earn more than $5 million a year from $6.75 to $10.50 with health benefits or $12.25 without benefits. The wage for workers without benefits would increase to $13.00 after one year.
Sanders and Neumark said Santa Monica’s ordinance would likely be ineffective because it would fall heavily on private businesses instead of local governments, like those in Baltimore and Los Angeles, which have carried most of the weight of the wage increase.
In other cities, living wage laws affect businesses that are directly subsidized with public assistance or have contracts with the city.
Living wage supporters disagreed with those statements.
“It’s hard to see how it could be more targeted,” said Madeline Janis-Aparicio, director of the Los Angeles Alliance for a New Economy, or LAANE. “Low-income workers tied to the tourism trade would benefit, so I don’t see how it could be any more focused.”
The city contracted University of Massachusetts, Amherst, Professor Robert Pollin to examine its living wage proposal in 2000. His six-month study resulted in a 250-page report that concluded the proposal was feasible and would have some effect of lifting families out of poverty.
Harvard University Professor Richard Freeman later conducted a peer review of Pollin’s study, which found it was conducted properly and came to sound conclusions.
Neumark also conducted a peer review of the Pollin study, but his findings were more critical. He concluded Santa Monica’s living wage law would not lift families out of poverty.
Sander also conducted a study, which was paid for by a coalition of coastal luxury hotels and the Santa Monica Chamber of Commerce that opposes the living wage. The professor found that the living wage law would do more harm than good.
Neumark, who was paid by the chamber of commerce for his appearance Tuesday, said the living wage “tax” would fall on labor, which can easily be changed, instead of “inflexible” variables such as land or office space. Under the circumstances in Santa Monica’s proposal, businesses would find a way to avoid paying the higher rates.
“I call it the law of unintended consequences,” he said. “That’s when you pass a law that people can find a way around.”
“I call it the law of unintended consequences. That’s when you pass a law that people can find a way around.” — — DAVID NEUMARK Economist
He said the result will be that businesses will cut down on hiring new employees or expanding their businesses. He also suggested restaurant patrons could be charged a fixed gratuity to make up for the difference.
At least one local restaurant owner who spoke at the function agreed. Jeff King, owner of Ocean Ave. Seafood and several other restaurants from San Diego to Calabasas, said he would cut serving lunch so that revenues at his business would fall below the $5 million threshold for the living wage.
“This law would cost Ocean Ave. Seafood $500,000 a year,” he said. “We would rather cut 40 jobs and stop serving lunch than pay that.”
However, an employee at Doubletree Guest Suites Hotel on Fourth Street said it was unlikely many coastal employers had much room to trim. Ty Kirk, who is actively trying to help the Hotel Employees & Restaurant Employees union represent his fellow workers, said many local hotels and restaurants are already running on skeleton crews.
“At the Doubletree and other hotels where I have talked to employees, staffing is already bare bone,” he said. “They say if the wages are increased, hotels will cut staffs, but we are already way understaffed.”
Originally published in the Santa Monica Daily Press print edition on August 29, 2002. Read the original PDF.