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Friday, Mar 29, 2024

Cities Underplay Pay Advantage

Now that Los Angeles is sharply raising its minimum wage, it might be expected that nearby cities with lower minimums would seize on the wage differential to poach companies. Not so fast. Several economic development officials across the greater San Fernando Valley are playing down L.A.’s decision to raise its minimum wage, saying they have reputations for being business friendly and don’t particularly need to market themselves as havens for low-wage businesses. “That is not part of our pitch,” said Tom Lorenz, a Glendale city spokesman. “We have a handful of reasons we share with potential businesses that want to come here that have nothing to do with the minimum wage.” Last month, the L.A. City Council approved raising the wage from $9 to $10.50 an hour starting July 1, 2016 with additional increases to $15 by 2020. Businesses and non-profits with 25 or fewer employees have until 2021 to comply. L.A. Mayor Eric Garcetti, who had proposed raising the minimum to $13.25 by 2017, has indicated he will go along with the increase. Business groups such as Los Angeles Area Chamber of Commerce, the Valley Industry & Commerce Association and the Los Angeles County Business Federation, or BizFed, opposed the increase fearing it would drive business away. A study conducted by L.A. consultancy Beacon Economics for the L.A. Chamber warned of just that, noting Los Angeles “borders over 30 other municipalities where the cost of doing businesses would be much less expensive.” And a survey released last month by BizFed found that 35 percent of the L.A. companies that responded would react to a minimum wage increase by either cutting positions or employee hours. BizFed Chief Executive Tracy Rafter said it was a matter of “survival” for businesses regardless of where they are located. She noted that she recently attended an event in the Santa Clarita Valley about a proposal to raise the minimum wage countywide. In attendance were other economic development groups, chambers of commerce and representatives from Santa Clarita. “There was a discussion of businesses moving from the unincorporated areas to the city of Santa Clarita to avoid minimum wage issues,” she recalled. ‘800 pound gorilla’ But the Council’s action is occurring at a time when there is a national dialogue on income inequality and a push by labor advocates for a “living wage” to help lift workers from poverty. Already such pressure prompted the Council last fall to raise the base pay for workers at the city’s largest hotels to $15.37 per hour. And the nation’s largest retailer, Wal-Mart Stores Inc., announced in February it would increase the lowest wage paid to its 500,000 workers to $9 in April and follow that next year with a $10 minimum. Los Angeles is not the first city to raise its minimum wage to $15, but it is the largest. In November, voters in San Francisco passed Proposition J that calls for hourly wage hikes that will reach $15 in 2018. Seattle is on a faster track, with a $15 an hour wage for businesses with 501 or more employees starting Jan. 1, 2017 and for businesses with less than 500 employees on Jan. 1, 2019. And the Los Angeles County Board of Supervisors is studying whether to increase the minimum wage for unincorporated areas from $9 an hour to $13.25 or $15.25. In contrast, the California minimum wage – which most cities follow – is currently at $9 an hour and increases to $10 an hour Jan. 1. It’s a differential that has not gone unnoticed by businesses. Brian Gabler, assistant city manager and director of economic development in Simi Valley, said that in late May the city was in discussions with three companies – one in Northridge and two in Chatsworth – interested in moving to Simi Valley. One brought up the minimum wage, but the city still has no plans to make the matter part of its marketing strategy. “While Simi Valley will not highlight the minimum wage issue as there are very valid and compelling reasons for and against, it is another component in comparing the cost of doing business in the two cities,” he said. Indeed, the matter is a sensitive issue. Jason Crawford, marketing and economic development manager with Santa Clarita, said that city would not comment on the minimum wage. And Holly Schroeder, chief executive of the Santa Clarita Valley Economic Development Corp., a non-profit that works with the city, said her group was not having direct conversations with businesses in Los Angeles. She noted that businesses are generally dependent on keeping their employees happy, and Santa Clarita already has a reputation as a business friendly city. “The public leaders in the valley understand that and listen to what business says and incorporate their positions when making public policy,” she said. Lorenz, in Glendale, said the city does highlight its lower costs, but instead likes to point out how it has no gross receipts tax and no business license tax. By contrast, Los Angeles places a $5.07 tax per $1,000 in gross receipts on businesses. That amount will eventually decrease to $4.25 in 2018. Christopher Thornberg, founding partner of Beacon Economics, said cities that are not playing up the difference in minimum wage were making the right decision. “I am not surprised and from a marketing standpoint I don’t think you should,” said Thornberg, calling it the “800 pound gorilla in the room.” Businesses are well aware of the wage issue, he said, and cities can more subtly pitch their advantages by describing themselves as business friendly. He also said neighboring cities such as Burbank and Glendale are trying to attract office and entertainment type jobs that pay much higher wages. “The kind of companies they are marketing to the minimum wage is not that big of a deal because they are not going to pay minimum wage to a lot of people anyway,” Thornberg said. Cost of wages No matter what the cities marketing plans, Beacon’s study found that L.A. will risk slowing down job creation by raising the minimum wage. Its model forecast job growth of 1.8 percent per year for the next five years and adding 150,000 new jobs. With an increase in wages, that growth would be cut in half at best and decrease to 0.1 percent at worst, adding only 10,000 to 77,000 new jobs over five years. Economists with UCLA and the University of Georgia did a peer review of the Beacon report, as well as similar reports on the minimum wage by the University of California at Berkeley and Economic Roundtable, a Los Angeles non-profit policy research institute. The review found that while Beacon’s methodology in determining the impact on job growth was plausible it did not find it “realistic.” Still, local business groups said that increasing the minimum wage should be done on a state or federal level, where the minimum has been $7.25 for going on six years. “A patchwork of different levels is not conducive to a positive business environment,” said Santa Clarita’s Schroeder. Rafter, from BizFed, was more direct in her opinion. “City by city, or county by county, is chaotic and disruptive and costly,” she said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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