Los Angeles’ minimum-wage study should involve business owners
Author: Michael Saltsman
Publication Date: April 2015
Newspaper: Los Angeles Daily News
Topics: Minimum Wage
Last month, three studies of Mayor Eric Garcetti’s proposed $13.25 Los Angeles minimum wage were presented to City Council members. Labor union-aligned researchers at the Economic Roundtable and UC Berkeley painted a rosy picture of the mayor’s minimum wage plan; by contrast, the report from consultancy Beacon Economics was more nuanced, acknowledging benefits as well as significant employment costs.
The report from Beacon Economics most closely matches the academic consensus view on the negative impact of a higher minimum wage. Still, none of the reports satisfies a key request that four council members submitted late last year to the city’s chief administrative officer: Interviews with and feedback from local business owners.
The cities of Oakland and San Francisco are cautionary tales on what happens when cities fail to seek out these voices. Both cities voted in November to raise their minimum wages — to $12.25 and $15 an hour, respectively. Voters were reassured in two separate reports from the research team at Berkeley that the consequences of these wage increases would be minimal or non-existent. But subsequent reporting in the San Francisco Chronicle and other local papers exposed a dramatic gap between these predictions and the actual experiences of local business owners.
In San Francisco retailers’ operating costs were supposed to rise by just two-tenths of one percent in response to the $15 minimum wage. But when the owner of one small bookstore on Valencia Street did the math, he calculated his operating costs would rise by 18 percent — 90 times greater than the Berkeley estimate. The policy change would have proved fatal for the store were it not for a last-minute customer fundraiser; other businesses, including a well-regarded restaurant a block up the street, were not so lucky. And these are only are a sample of the disruption to jobs and business.
Across the Bay in Oakland, another report — again, by the same team at Berkeley — projected a 2.5 percent increase in restaurant prices in response to a $12.25 minimum wage in that city. The difference between this projection and the on-the-ground reality has been “striking,” according to the East Bay Express. Restaurants are raising prices by up to 20 percent, and some have eliminated the practice of tipping while raising prices in order to adapt to the new law’s costs. Meanwhile, in the city’s Chinatown, four restaurants and six grocery stores will permanently close as a consequence of the new law, according to a local business leader quoted in the Chronicle.
Stories like these should give Los Angeles policymakers pause. All three of the L.A.-specific reports agree that retailers, restaurants, manufacturers and personal service businesses will see a significant percentage of their workforce affected by the law. And the Los Angeles Times has already reported that the $13.25 proposal has city businesses like Golden Road Brewery and Corporate Impressions LA looking at expansion outside the city — or exiting Los Angeles altogether.
The City Council can’t afford to ignore the stories of job creators like these — in fact, they need to hear more of them. A follow-up study to the Berkeley, Beacon, and Economic Roundtable report would first identify businesses in the city that will be affected by the increase, and then survey the owners on a range of possible benefits and consequences of the $13.25 law. These shorter surveys could be supplemented by a smaller number of in-depth case studies, where the profit-and-loss statements of affected businesses in the city are examined to provide an unbiased estimate of a specific dollar impact.
Admittedly, a study like this wouldn’t be representative of every business’s experience in the city. But it would force council members to confront the flesh-and-blood consequences of a $13.25 minimum wage, and bring to life the dollar costs on the pages of the aforementioned reports. If the city’s representatives still decide to pass it, it’ll be with eyes wide open to what comes next.