Time to raise the minimum wage?

by Muhammed El-Hasan, San Gabriel Valley Tribune

Marc Horton used to make what he described as a decent living, earning more than $50,000 a year as a recruiter for a private college.

Then he was laid off in 2011 and has been searching for a job ever since.

Despite having a master’s degree in marketing, Horton has only been able to find periodic office temp work for $13 an hour. With poor job prospects amid an uneven economic recovery, Horton said he might even settle for a minimum-wage job at $8 an hour.

"I may not have a choice," said Horton, 43, of Carson, who supports raising the minimum wage. "If you’re a teenager and living at home, that would be enough. But for an adult, your basic necessities wouldn’t be covered."

Depending on who you ask, raising the minimum wage would either help workers and the general economy, or hurt businesses and make it harder for people to find work and keep their jobs.

The implications of government raising wages for the lowest-paid workers – at least those who are legally employed – is at the center of political and ideological battles from Washington, D.C., to Sacramento and Southern California.

One thing both sides of the issue agree on: The sheer number of low-wage workers raises the stakes significantly. About one in eight California workers – about 2 million people – earns $8.80 or less an hour. And the vast majority of those workers are adults rather than teens at an after-school or summer job.

Over the past few weeks in other states, tensions over wages have bubbled up into strikes by fast-food restaurant employees in at least five cities, with workers demanding higher pay and better conditions. Such organized protests, in New York, Chicago, St. Louis, Detroit and Milwaukee, have not hit California.

However, California unions have been mobilizing to increase wages through legislation, ballot measures and promoting sympathetic politicians.

Because California’s minimum wage is higher than the federal mandate, what happens in Sacramento on the issue has a much greater impact on Golden State workers and businesses.

Last month, Assembly Bill 10, which would raise the minimum wage for the first time since 2008, passed the Assembly Labor and Employment Committee on a party-line vote of 5-2. By Friday, the Assembly Appropriations Committee is expected to decide whether to send AB 10 to the full Assembly for a vote.

If passed, the bill would increase the minimum wage 25 cents next year, another 50 cents in 2015 and then to $9.25 in 2016. Thereafter, it would be adjusted annually to the rate of inflation. In years of no inflation, or deflation, the bottom wage would be unchanged.

"It’s a Catch-22 now," said Jan Vogel, executive director of the Workforce Investment Board, a Hawthorne-based nonprofit that helps people find work and develop marketable skills. "A lot of places are reducing hours because of the medical benefits. So if you reduce the hours and increase the minimum wage, it will leave even fewer hours. On the other hand, no one can live on the minimum wage. So there are pluses and minuses."

The California Chamber of Commerce, for one, believes increasing the minimum wage starting next year would hurt the state’s economic recovery. The group has been fighting AB 10, citing a study by the National Federation of Independent Businesses that claims the bill would cost the state 48,000 to 68,000 jobs by 2023, with economic output cut by $4.7 billion to $5.7 billion.

Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast, said that contrary to its supporters’ claims, AB 10 would hurt employees as well.

Raising the minimum wage would mean the least skilled workers would have fewer jobs to compete for because many positions would be eliminated because they would be "unprofitable" at the higher rate, Nickelsburg said. That would be the short-term effect, he explained.

"The economics are straightforward," he said. "You raise the amount that has to be paid to someone that has the least skills, and you reduce the number of job openings for those with the least skills."

In the long run, a higher minimum wage would prompt businesses to accelerate automation of low-skilled jobs, he said, citing the replacement of parking lot attendants with self-serve terminals for motorists.

Nickelsburg said raising worker skills in an " increasingly technological society " would benefit them more than raising the minimum wage.

On the other side of the debate is economist Sylvia Allegretto, who supports an increase in the minimum wage.

Raising workers’ skills isn’t a panacea because most new jobs being created are low-skilled positions that require little training, said Allegretto, a research economist with the Institute for Research on Labor and Employment at UC Berkeley.

"The lion’s share of jobs coming on board now and in the near future are jobs requiring short-term training," Allegretto said. "We don’t have a skills mismatch. So you have to do something to make those jobs decent, good-quality jobs with benefits. … You can have a Ph.D. but, if you’re a waiter, that Ph.D. is not going to help you."

Allegretto, who testified in favor of AB 10 at an Assembly committee hearing, said the bill would help workers catch up with inflation since the last increase in 2008. She added that the bill would fall short of making up for the falling value of the minimum wage over the past few decades.

"The fact that we’ve allowed the minimum wage to erode over the decades is one reason for inequality," she said. "When nothing’s holding up the bottom and the top is exploding, a good minimum wage policy would help mitigate some of the inequalities that we see."

Allegretto challenged assertions that a higher minimum wage leads to fewer jobs, saying her institute’s research found no correlation. Other studies that did find a correlation did not adequately consider unrelated factors such as shifts in population, she said.

As for automation, businesses will automate to save money regardless of whether the minimum wage rises, Allegretto said.

And opponents of a minimum-wage increase ignore the benefits, such as improving employee retention, thereby reducing the cost of recruiting and training new workers, she added.

About half of minimum-wage workers are in service or sales jobs. That means industries such as leisure and hospitality, retail and restaurants would be heavily impacted by AB 10.

"Restaurants are a huge, huge, huge user of low-wage workers," Allegretto said.

At The San Franciscan, a longtime Torrance steakhouse, owner Merrill Failla said a rise in the minimum wage has other financial repercussions. When his payroll increases, for example, so do his payroll taxes and workers’ compensation insurance costs, "which all adds up," Failla said.

He also would have to be "tighter" on employee hours. He said the prices he charges his customers would likely rise because the employment costs of his restaurant and those of his suppliers would go up.

In the long run, the resulting increases in prices would harm the buying power of all low-wage workers, Failla said.

"I think it has a backwards effect," he said. "If it increases the buying power of the people, then I’m for it. But I don’t think it does."

Last October, a study released by the Food Labor Research Center at UC Berkeley found that retail food prices for American consumers would rise by at most 10 cents a day if Congress approves a pending proposal to raise the federal minimum wage by 85 cents annually for the next three years. Allegretto, the UC Berkeley economist, argues that minimum-wage increases result in only "small price effects."

Restaurants and other small businesses often have slim profit margins, making a payroll increase a hardship for the owner, said Paul Little, president and CEO of the Pasadena Chamber of Commerce.

Raising the minimum wage would reduce the number of entry-level jobs, like dishwashers, which can serve as steppingstones to greater success, perhaps as a manager or even restaurant owner, Little said.

Another problem for restaurateurs not addressed by AB 10 is California’s lack of a tip credit, a policy that allows eateries to pay their servers less than minimum wage because they receive gratuities from customers, said Michael Hawkins, co-owner of Green Street Restaurant in Pasadena.

California is one of only a handful of states that do not allow for a tip credit, said Hawkins, a past chairman of the California Restaurant Association.

"So I’m going to have to pay an additional 25 cents and 50 cents and then $1.25 for people who already make $30 (an hour)," Hawkins said. "What I’d like to see them do is leave the minimum wage for tipped employees at $8 and increase the minimum wage for those that are not tipped."

Business groups, from the state chamber of commerce to the California Restaurant Association, also criticize AB 10 because it would automatically raise the minimum wage based on the inflation index – a linkage known as indexing – starting in 2017.

"It’s really the issue of indexing and tying minimum wage to a single economic factor and ignoring other things like the job market and costs," said Angie Pappas, spokeswoman at the statewide restaurant trade group.

Pappas said her association would prefer that the Legislature re-evaluate the minimum wage every few years.

Some business owners do support minimum-wage increases. Rob Seltzer, who runs a small Los Angeles certified public accountant firm, is one of 3,000 business owners nationwide who are members of Business for Shared Prosperity, a group that supports a federal minimum wage increase. Seltzer sees such an increase as a potential boost for businesses. Many of Seltzer’s clients are in the entertainment industry and would benefit from a higher minimum wage because more low-paid workers would have money to watch movies and attend concerts, he said.

"I think that for a lot of businesses, the minimum wage really isn’t something that is a negative," Seltzer said. "I think it’s a plus because, unlike upper-income people who might not be spending that money, the people at the lower end of the spectrum would be spending any more that comes in. It’s sort of like unemployment payments. Those are not going to be squirreled away."

According to a survey by Business for Shared Prosperity, two out of three small business owners nationwide support an increase in the federal minimum wage and annual adjustments to keep up with the cost of living.

However, Seltzer noted that his restaurant clients would probably be negatively impacted by a rise in the bottom wage.

The Los Angeles County Federation of Labor supports AB 10 and will "work on getting that approved for the whole state," said Maria Elena Durazo, who heads the labor group.

"We still get the push-back saying that would be terrible, a job killer, blah blah blah blah," Durazo said. "That criticism has been made over and over again and it’s never turned out to be true."

She agrees that businesses would benefit from greater spending by low-wage workers, who in turn would be less dependent on public assistance.

Durazo described Los Angeles County as the "national capital of low wages," with more full-time workers earning less than $25,000 a year than in any other area of the country.

AB 10 is just one of several labor-supported measures boosting wages over the past few years. Many of them are locally inspired.

San Francisco and some other cities, for example, have set minimum wages above the state mandate. In November, Long Beach voters approved a "living wage" measure that raised the lowest bottom pay for workers at hotels with at least 100 rooms to $13 an hour.

Hotels near Los Angeles International Airport fall under a similar living-wage measure passed by the City Council about 15 years ago.

Durazo said her organization hopes to secure a $15 living wage for large hotels across the city. The issue is a major one in the Los Angeles mayoral race, with the Federation of Labor supporting Wendy Greuel because of her commitments to increase workers’ wages.

"Income inequality is getting bigger and bigger all the time," Durazo said. "It used to be that you work full time and you’ll be OK. That’s not the case anymore."