September 7, 1999

Members of the City Council

City Hall

1685 Main Street

Santa Monica, California 90401

Re: Proposed "Living Wage" Ordinance

Ladies and Gentlemen:

This letter is submitted by the Chamber’s Committee on Job Opportunities and Business Solutions (JOBS) in connection with the "living wage" proposal which you are being requested to study by an organization referring to itself as Santa Monicans Allied for Responsible Tourism (SMART).

As I am sure you are aware by now, the Chamber’s Board of Directors, joined by the Main Street Merchants Association, has unanimously opposed the SMART proposal. The Chamber does not question the validity of the goal sought to be achieved. Unquestionably all of society, including businesses as well as individual workers, benefit from the ability of those workers to advance economically. Where we disagree is in the likelihood of this proposal to achieve this result. JOBS believes that the suggested approach will prove counterproductive costing job opportunities for many of the very workers sought to be assisted while, at the same time, jeopardizing many businesses and negatively affecting Santa Monica residents and social service agencies through increasing prices and declining tax revenues.

Many of the reasons for our opposition are set forth in some detail in the attached Appendix. In summary, the proposal represents a drastic increase in the minimum wage for affected employers which cannot possibly be absorbed through a reduction in profits. Some will be forced out of business and others will, in an effort to survive, reduce the size of their work forces, replace low-skilled workers with others having greater skills and more experience, and raise prices.

The SMART proposal will inevitably lead to lay-offs of some employees currently being paid wages below the mandated level and the elimination of job opportunities for those attempting to enter or re-enter the work force. Rather than reduce the need for these workers and their families to rely on public assistance, that need will be increased and many of those hoping to start building for a career or achieve a higher level of compensation will, instead, be precluded from doing so and gradually replaced by workers with greater skills.

The economic realities are such that even Robert Pollin and Stephanie Luce, outspoken supporters of "living wage" ordinances, conclude that if the ordinance adopted in the City of Los Angeles were applied as a minimum wage requirement throughout Los Angeles County, "We would have to take seriously the possibility that, if everything else about the economy stayed the same, such a large increase in total compensation could create widespread employment losses." (Pollin & Luce, The Living Wage, The New Press (1998), p. 134. Their solutions to this problem are all national in scope. Recall also that the Los Angeles ordinance mandates wages of $7.25 per hour when benefits are provide, fully one-third below those mandated by the SMART proposal.)

Pollin and Luce also conclude that businesses such as restaurants and hotels which employ a large percentage of low-skilled, low-wage workers will be necessarily impacted by even a wage increase as modest as that mandated by the Los Angeles ordinance and that, "Municipal governments will therefore have to expect some pass-throughs of living wage costs by these firms." (p. 125) We have failed to detect any suggestion in the SMART proposal of financial incentives to impacted businesses from the City. In fact, just the opposite attitude has been expressed with the fallacious suggestion that the City has already provided subsidies to these businesses. The fact is that resources utilized by the City for improvement of the Promenade, Santa Monica Place and other portions of the coastal zone would not have been possible without the presence of the very businesses being demonized by SMART.

The ordinance you are being requested to study tonight was developed by an insular group convening in relative secrecy over an unknown period with no attempt to consult with the Chamber or any other employer or business organization until after the proposal’s formulation had hardened. As a result, it has been conceived and delivered from a single point of view which reflects a lack of understanding of fundamental economics and a naïve disregard of the conflict between intent and inevitable consequences. We believe that the process which has been followed to date has been fundamentally flawed due to its failure to include representatives of all interested groups.

If the Council adheres to SMART’s request and retains a consultant to study the SMART proposal, there will be little hope of achieving any kind of consensus on a final approach. Instead, we recommend that the study be conducted by a special commission consisting of representatives of all interested groups including business, labor, residents and social service agencies, such as Chrysalis, which are involved in job placement. This commission should be assisted by City staff, including individuals designated by the City Manager and the City Attorney, and have the authority to retain an economic consultant. In this manner, perhaps a new proposal can be recommended to the Council which will be supported by all aspects of the community instead of just one. Such an approach has been successfully utilized by the City in a variety of contexts, including review of the City’s Charter, studying appropriate methods of dealing with the homeless, and establishing procedures for City funding of community groups.

The Chamber and JOBS believe that this proposal is anything but smart because it will prove to be negative for those who provide jobs and those who currently hold them as well as for Santa Monica residents. Therefore, we recommend starting where this process should have begun in the first place. If we fail to even attempt to work in good faith together, the result is likely to be bitterness and strife.

Sincerely,

Thomas R. Larmore

Chair, Committee for Job Opportunities and Business Solutions