Proposed Minimum Wage Law for Santa Monica Professor Michael Reich August 18, 2015 Center on Wage and Employment Dynamics Institute for Research on Labor and Employment University of California, Berkeley www.irle.berkeley.edu
Outline Los Angeles minimum wage: model for Santa Monica Impacts on LA workers, businesses and local economy Santa Monica compared to Los Angeles Likely impacts on Santa Monica
My focus today The broad economic effects Issues for nonprofits will be addressed at a September 8 presentation.
LA minimum wage schedule; model for Santa Monica Annual increases beginning July 1, 2016: $10.50, $12, $13.25, $14.25, and $15 in 2020. Organizations with 25 or fewer employees: Can delay for one year, reaching $15 by 2021. Nonprofits that help the disadvantaged or get most of their funding from government grants: Can apply for an extra year. Indexing to inflation begins in 2022. No exemptions for tipped workers: follows state law, as do all citywide MW ordinances
UC Berkeley Los Angeles report Examined impact of proposed $15.25 by 2019 Final bill differs somewhat in level ($15) and timing by (2020) Available at www.irle.berkeley.edu
Coverage of Los Angeles law Private sector workers only: for-profit and nonprofit Excludes state and local employees, including LAUSD Excludes In-Home-Support-Service (IHSS) workers Next few slides refer to covered workers only
Proportion of Los Angeles workers getting pay increases
Minimum wage workers are concentrated in a few industries Food services, largely restaurants 17.3 percent Health care and social assistance 12.9 percent Retail trade 14.0 percent Admin. & waste management services (temp agencies, janitorial, security) 9.4 percent
Estimated pay increases for workers getting increases
How 67 percent becomes 0.9 percent Nominal increase from $9 to $15: 67 percent Statewide increase on January 1, 2016: $10 Inflation and wage increases during phase-in years: 2 percent per year Some workers are already, or on track to, earn more than $15 Most workers who will get increases are already paid over $9 today: distribution is relatively smooth in $9 to $15 range Savings in recruitment and retention costs: 15 to 20 percent Payroll share of operating costs: 23 percent Result: 0.9 percent increase in overall operating costs Higher in most affected industries: 7.8 percent in restaurants
Percent changes in business operating costs
Operating cost changes, continued
Impacts by firm size
Impact on the economy Multiple adjustment channels Reduced employee turnover and improved employee performance Automation: substitution of equipment for labor Small increases in prices and smaller decline in sales Increased consumer demand-- from wage increases-- offsets decline in sales.
Estimated net impact on LA City and LA County
Santa Monica compared to Los Angeles Higher proportion employed in accommodations, restaurants and retail suggests larger impact But higher pay in these industries suggests fewer workers will get increases, so smaller impact Even without the proposed law: Santa Monica low-wage employers will eventually raise their wages to keep their best workers from switching to jobs in LA So overall, lower impact in Santa Monica
Would $15 have higher impact in Los Angeles or in Santa Monica? Santa Monica LA City Employment Private sector 80,000 1.5 million Percent in Accommodations and Food Services 17.5 10.2 Average weekly pay Accommodations $737 $648 Restaurants $454 $369 2014 figures. Source: Quarterly Census of Employment and Wages
Effects on tourism in Santa Monica A large part of Santa Monica tourism depends on what affects tourism to the LA region. Hotel and retail prices in Santa Monica will not be affected to any measurable extent. Restaurant wages will be pulled up by competition for workers in LA restaurants. Some increase in Santa Monica restaurant prices relative to LA will occur even without the ordinance. Much of Santa Monica tourism (beach view component) is less price-sensitive than for LA as a whole. The impact of a Santa Monica minimum wage ordinance on tourism as a whole is likely to be quite small.
Final thoughts on Santa Monica Santa Monica wages will increase because of competition with Los Angeles employers Coordinating minimum wage policies on a regional basis improves fairness and reduces market distortions Santa Monica is likely to be followed by other cities in Los Angeles County