The Los Angeles County Board of Supervisors (LACBOS) will soon vote on a motion to increase the minimum wage to $15 an hour by 2020 in unincorporated areas of the county that are outside jurisdictional boundaries of incorporated cities.
As the President and CEO of a Chamber of Commerce located in one of the county’s incorporated cities not subject to the wage mandate, it may seem to my benefit to have the ordinance pass under the assumption that businesses will move from high minimum wage jurisdictions to my city. Admittedly, I have had one Los Angeles business contact my office seeking to move out of LA and into Torrance following LA’s recent passage of a minimum wage increase, but there is much else at stake for incorporated cities in the county’s vote.
Should the LACBOS vote to raise minimum wage, the increase will not be isolated to unincorporated areas. A recent study conducted by the Los Angeles Economic Development Corporation (LAEDC), which analyzed data from a survey of 1,000 of the County’s businesses to assess the proposal’s economic impacts, found that of the businesses not directly impacted by the ordinance (i.e., Torrance and other incorporated cities), 66 percent plan to match the wage increase to prevent labor defect to higher wage paying areas. I find this to be an accurate portrayal of reality.
Take Kirk Rossberg for example, owner of a mid-sized business that employs 87 workers in the City of Torrance. He comments on the impact Los Angeles’s minimum wage increase alone is having on his business operations, “In order to retain our staff at Torrance Bakery, I feel that we will need to stay competitive with LA City wages. This means that the $14.00 an hour baker who has worked hard and has been rewarded with raises for his efforts will now expect to earn $19.00 an hour. He will not be happy with a dollar raise that would put him back on minimum wage.”
Raising the minimum wage to $15 an hour increases labor costs by 60 percent for minimum wage paying businesses. To keep pace with such a dramatic increase, businesses are believed to either cut jobs or pass the costs on to consumers. LAEDC’s study found the latter to be the most preferred method, with 96 percent of businesses surveyed planning to raise their prices to absorb the added costs. Rossberg says he’ll do the same. “50 percent of our revenue goes to payroll. On a good year, our profit margin is 5% so we cannot absorb this increase without raising our prices. Our best guess is that we would need to raise our prices a minimum of 31% to stay in business.”
To justify the passage of the ordinance, “Raise the Wage” proponents tout that only 6% of businesses surveyed in the LAEDC study plan to cut minimum wage employees, but this is a very narrow, first-tier thinking perspective. The LAEDC study takes the analysis deeper by noting that 87 percent of businesses raising their wages also forecast to absorb the added costs through reduced profits. In an economy with surging prices and stagnant economic conditions, consumers will be pushed to the brink as economic growth fails to keep up with inflation.
Rossberg is concerned that if his customers do not accept price increases, jobs could be lost. He states, “I would hope that jobs would not be lost but if we lose customers because of our prices, we would have to take the appropriate steps to stay in business.” Over the long run, a significant amount of jobs will be at risk in both unincorporated areas and incorporated cities in the county.
Unfortunately, smaller businesses will be most negatively impacted by the adoption of this proposal. Many small businesses are already hindered by other related laws and regulations that are dramatically increasing the cost of doing business in the state, most notably the recently implemented state law that requires three days of paid sick leave for all workers. This proposal will exacerbate these costs in a very short period of time.
When the costs of the policy are juxtaposed with the benefits of the policy, the ordinance is unjustified. Championed by its proponents as lifting Southern California families out of poverty, the ordinance’s measurable success is clearly its effect on reducing poverty in LA County. However, the LAEDC study found that the ordinance will have little effect, if any, on alleviating poverty. Specifically, of workers currently receiving minimum wage, only 28 percent live in families in poverty. The costs are there; unfortunately, the benefits are not.
by Donna Duperron
Donna is the President & CEO of the Torrance Area Chamber of Commerce. Do you have questions about or concerns for business in Torrance? Donna would like to know. Feel free to contact her at any time.