Outlook Bleak if Living Wage Approved, Professors Warn

By Elizabeth Schneider

August 27 -- Two leading academic critics of Santa Monica's unprecedented Living Wage ordinance on Tuesday predicted a considerably negative outlook for the city if voters approve a referendum on the November ballot that hikes the salaries of select workers along the coast.

Addressing Chamber of Commerce members at a "town hall" meeting and luncheon, Michigan State University professor David Neumark and UCLA professor Richard Sander reiterated their two-year-old objections to a ballot initiative that has sent shivers down local business owners' spines.

Sander, who in 2000 conducted a hotel-funded study on the impact of the living wage increase, told chamber members that while "a living wage has potential if it is engineered right," the City's ordinance -- which covers businesses along the coast that gross more than $5 million a year -- was "perverse."

The 80 to 95 percent of workers eligible for an increase under Measure JJ -- which would hike the minimum hourly wage from $6.25 to $10.50 plus benefits (or $12.25 if benefits are not included) -- are "tipped employees whose medium income is $50,000," Sander said, "a bizarre type of strategy to reduce poverty."

Co-founder and longtime owner and operator of King Seafood, Jeff King couldn't have agreed more.

"I've never seen a more lewd, insane, sick proposition," he said of the nation's first municipal living wage law that covers businesses with no direct economic ties to the city. "This is a job killer, a property tax killer, a landlord killer, a lender killer… no one will benefit."

If passed, King said, the ordinance would force him to shut down his lunchtime operation. As a board member of the California Restaurant Association, he said other restaurant owners "shake their heads at Santa Monica."

"They wonder, 'Could this [the living wage ordinance] really happen?'" said King. "Well, back in 1928 did people think Hitler could happen?"

While the potential fallout of a living wage increase is a far cry from the atrocities committed by Hitler, many business owners share King's concerns.

"The unskilled workers collecting the higher minimum wage don't even live in Santa Monica, they can't afford to," said Ed Lee, who owns and operates Wahoo's Fish Taco. "So the money won't even be staying in Santa Monica."

Businesses forced to pay higher wages will have to make up for the loss somewhere, Lee said. "They might have to cut back on services or make customers pay a higher premium for products."

In the end, he said, the public at large will have to absorb the cost.

It was a theory Neumark echoed in his speech.

A good argument can be made for "the city taking something back" from the big luxury beach hotels after it created policies to restrict growth in the Coastal Zone, Neumark said. But he added, "If you want to raise revenue, you increase the price of something people use regardless, like land."

His advice -- don't tax behavior that is easy to change. "When you pass a law, people find a way to get around it," he said.

Employers, for instance, could avoid the wage increase by moving their businesses outside the Coastal Zone or by cutting back their hourly wage workers, or restaurants could add a fixed gratuity, Neumark said.

"All the effects of a wage increase would be negative, but they would be slow to surface," he said. "The bottom line -- at this stage there is no strong basis" for a living wage increase.

Past research on the effects of living wage increases is "largely non-existent," Neumark noted.

"The living wage is a new phenomenon," he said. "More research and more observations need to be conducted. Without a firm basis there is some risk in passing this ordinance."

But chamber members didn't seem to need further studies to make up their minds.

"The City Council doesn't have the right to set the wages," said the chamber's executive director Kathryn Dodson. "It's an arbitrary ordinance -- it's bad for the economy, bad for workers, bad for the city."

In addition to objections raised by the business community, Dodson said that the elderly, as well as parents with children, have been voicing their concerns about the cost of implementing and enforcing the ordinance, which City officials place at $3 million a year.

"People are worried about a decrease in city services," she said. "Where is the money to implement (the living wage) going to come from?"

In response to a question from the press, Dodson said that the chamber has not come up with any alternative to Measure JJ, which opponents of the living wage placed on the ballot after the council passed the measure a year ago.

"All of our resources are going toward getting this stopped," said Dodson. "We're not supporting any particular (alternative) program."

Not invited to speak at the chamber's event, proponents of the living wage held a small news conference following the two-hour meeting at the Four Points Sheraton Hotel.

Members of the Los Angeles Alliance for a New Economy, a leading force in the living wage movement, took particular offence at several statements made by Sander during the course of his speech.

Particularly offensive -- "a vicious personal attack," they said -- was the allegation that LAANE co-founder and executive director Madeline Janis-Aparicio had discouraged Sander from applying to conduct the living wage study for the city. (The job was given to Massachusetts professor Dr. Robert Pollin, a leading advocate of the living wage who was the only applicant.)

"He was incorrect," she said. "I didn't tell him not to apply for the job."

What she did tell Sander, Janis-Aparicio said, was that conducting a study paid for by the hotels would "undermine" and "lock himself into a position."

"He has exaggerated his role and my role in all of this," Janis-Aparicio said, adding that, "there is not just one person behind this movement."