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Professor Pollin's Junk Science and JJ Thwarts American Dream

November 1, 2002

Dear Editor,

In her recent letter, Sandie Richards trumpeted the August, 2000 report and a recent "update" from Professor Robert Pollin of the University of Massachusetts, Amherst, to support Measure JJ - the City's Minimum Wage Ordinance (LETTERS: "Jaw-Dropping Story," Nov. 1, 2002).

The City paid Professor Pollin around $100,000 for his report, which can only be charitably described as a civic embarrassment. Anyone who actually reads and thinks about the report, even the 120 academics she refers to, must conclude that it is so full of major flaws as to be almost completely useless.

Even Professor Pollin admitted during a City Council hearing that his report undoubtedly contained thousands of mistakes, although he reassured us that he didn't believe those mistakes were material. Unfortunately, many of them were.

My favorite example of the report's junk science was its approach to the rather important question of the potential impact of the law on employers. The significance of the increased costs would seem a rather simple task - determine the extent of those costs and compare them to the employer's bottom line profit. Maybe even 120 academics would see the logic to this; Pollin apparently didn't and failed on both counts.

As only one of many examples, Pollin assumed that full family health care could be provided by an employer for $1.25 per hour. Even he later admitted under questioning that this number was too low; however, he didn't think he needed to review his conclusions. The fact that full family health care now runs around $4 per hour, as reported in a recent story in the LA Times, didn't apparently seem relevant then or now -- it was not discussed in his "update."

More significantly, Pollin measured the increased costs, as he underestimated them, against total firm revenue, not profit. You would think that 120 academics, even those who are unrepentant Marxists or live in countries with failing economies, would recognize the difference between revenue and profit.

A business, such as a large restaurant, which has a profit margin of 7 percent on gross sales of $5 million, will have a pre-tax profit of $350,000. A cost increase of 10 percent of revenue, or $500,000, will obviously more than wipe out that profit, thereby jeopardizing the business. According to Pollin, however, this is a small cost increase because, after all, it is only 10 percent!

What did Pollin say when this rather obvious error was pointed out to him? Revenues are easier to determine than profits so he chose to focus on revenues. Honest.

As if the City shouldn't have been embarrassed enough by Pollin's sophomoric report, he has now proven his lack of professionalism by issuing an "update" which simply reeks with shoddy logic.

First, he concludes that only one restaurant in the Coastal Zone will fall within Measure JJ's $5 million sales threshold. He reaches this result through the following magical train of thought -- the City's sales tax receipts grew by roughly 20 percent between 1998 and 2001 and, therefore, it is logical to assume that sales for all businesses in the City increased by 20 percent. (I'm reminded of a friend of mine who, after living in Cincinnati for over a year, told me that the average temperature there was 60 to 90 for half the year and 30 for the other half.)

However, Pollin tells us that in order to avoid underestimating the number of businesses meeting the $5 million threshold, he assumes an increase in sales of all businesses of 25 percent since 1998! And voila, there we have it! The possibility that some businesses may have increased sales more than an extremely modest 6 percent a year apparently never occurred to him.

Of course, this is nonsense. Maybe he meant Broadway Deli, which has publicly disclosed its sales at around $7,000,000 or Ocean Avenue Seafood, the owner of which, Jeff King, has acknowledged that it would be covered. Oops, that's two. Or maybe he meant Yankee Doodles, The Lobster or P.F. Chang's, all of which have acknowledged being over the threshold. Oops again, that's five. (Of course he may have missed The Lobster, P.F. Chang's and the recently opened Houston's because none were open in 1998; however, his "update" also assured us that there were no new relevant businesses. Maybe he should have opened his eyes to reality.) Never does he suggest that we simply ask the restaurant owners. Maybe even some of the 120 academics would agree this would be a good idea.

Second, he rather cavalierly opines that the City need incur only $1.6 million in additional costs rather than the $2.5 - $3.0 million estimated by the City Manager. He argues that the City does not really have as many employees as it assumes, need not pay all of the raises it anticipates to be necessary, and will not need to cover the increased costs to its service contractors mandated by the law. (Of course, even $1.6 million diverted away from other social services during a period of seriously declining tax revenues should be cause for concern.)

Sandie conveniently forgets to mention that Professor David Neumark, one of the peer reviewers of the original Pollin report and the only economist who has actually published a study of typical living wage laws, thinks that Measure JJ will not only fail to accomplish the professed goal of helping low-wage workers but will introduce all kinds of perverse unintended consequences.

For example, when he spoke in Santa Monica in August, Dr. Neumark pointed to the fact that Measure JJ fails to provide a credit for tip income, meaning that high-income waiters and waitresses at restaurants and hotels will actually receive most of the increased wages. Even Dr. Pollin thought that failing to exclude tipped workers from the law would be bad policy, as did the other peer reviewer, Dr. Freeman. The Chamber of Commerce has been trying to explain this simple fact to the Council for over three years. Nonetheless, no such exclusion is contained in the law.

The fact is that the Pollin report provides absolutely no sensible basis upon which to fashion any law, much less Measure JJ. In the appraisal business, experienced appraisers can earn the appellation "MAI" which means "Member of the Appraisal Institute." However, real estate wags frequently suggest that it means "made as instructed." While this is usually unfair to appraisers, it is appropriate for Professor Pollin's work

Tom Larmore
Santa Monica

November 1, 2002

Dear Editor,

If the argument for the living wage is so good, what is the reason it is not a citywide application? Perhaps political reasons are really at work. I will not vote in favor of Prop JJ. I consider it at least racist, and clearly discriminatory.

As with affirmative action programs, it hurts the people it's supposed to "help." The Hispanic workers, who make up the majority of employees affected by Prop JJ, may not realize that they are being used by Green party backers and Unions who care less about workers, but do see more income in the form of monthly dues.

How insulting it would be to many backers of JJ if they were told, "Hey… we are going to help you get more money, because without our help, you will never make much more than minimum wage. You have been working at a low pay job for years and cannot speak English, you have little education and you will never get out of poverty unless we help you."

That is what Prop JJ says. Perhaps if the city were to "request " a business to provide English classes and courses that would teach a skill that would pay a true living wage: personal & economic freedom. Support for such a measure may not receive so much opposition.

It seems many have forgotten how to achieve the American dream. Yes, hard work is a given, but you also have to take advantage of education opportunities that are offered, develop new skills and improve the economic life of yourself and your family.

Provide yourself with true freedom. As a song lyric says, "God bless the child that has their own."

To accept handouts through your life will keep you an economic slave and pawn of the "we will help you" crowd your entire life.

Len Labounty
Santa Monica

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