Proposition JJ -- A Failure of Policy

By Tom Larmore

In his recent book, "I'll Be Short," former Secretary of Labor in the Clinton administration Robert Reich challenges the nation to renew our fundamental "social contract" -- that anyone willing to work hard has the opportunity to earn a better life for themselves and their families. While the book is a little too partisan for my taste, Reich is onto something.

There is no doubt that the broad middle class which has sustained us for almost 400 years is diminishing and that we are drifting into a two-tiered society with the lower tier fighting against greater and greater odds. While we remain the land of opportunity compared with most other parts of the world, which is why people remain willing to endure risks and hardships to come, we have to recognize the existence of an increasingly large class of low-wage workers struggling to build a better life.

The question is not whether this problem exists -- it does. And while many of us may not currently be directly affected by it, for the sake of our future and that of our children and grandchildren, it cannot be ignored.

All of this is relevant to the City's Minimum Wage Law -- Proposition JJ -- because many of its supporters of that law sincerely believe it will help. Unfortunately, good intentions do not necessarily make good laws.

In assessing Proposition JJ, Santa Monica voters are not being asked to express an opinion about low-wage workers but on a specific law which, I believe, will not only fail to ease the burden of low-wage workers but will create several new problems. How can this be?

First, by increasing the minimum wage required to be paid by some Santa Monica employers by over 80 percent, JJ threatens to price many unskilled, inexperienced entry-level workers out of the market, including Santa Monica's young people. As Reich notes in his book, "Raise the minimum wage too high and you might deter employers from hiring many low-skilled workers."

The same point is made by Dr. Alan Blinder, a former Vice-Chair of the Federal Reserve Board and Al Gore's economic consultant during the 2000 presidential campaign. In his book "Hard Heads, Soft Hearts," Dr. Blinder observes that raising the minimum wage "simply raises the price of unskilled and inexperienced workers. Employers naturally react by hiring fewer of them."

This problem is augmented by attempting to almost double the minimum wage in a small portion of a small city. Those businesses subject to the law will have little difficulty finding workers whose productivity justifies the higher price, thereby shutting out others and shunting them off to compete for jobs elsewhere.

Second, by failing to include a credit for tips received. The ten or so restaurants likely to be covered by the law will be economically devastated unless exempted. Their tipped employees are typically paid minimum wage because they receive the overwhelming bulk of their income in tips. However, JJ fails to take this into account, forcing many employers to substantially raise wages for tipped employees already making $50,000.

This is also true for the four hotels west of Ocean Avenue regularly demonized by supporters of JJ. Because almost all of their employees, other than bellmen, wait staff and bartenders, are already paid at or above the level JJ requires, over 90 percent of the additional wages will go to tipped employees.

Third, by including the City as an employer. Unlike typical "living wage" laws, JJ requires the City to pay the higher wages. At the same time, it must absorb more administrative costs through enforcement, pay higher costs to service contractors who are required to comply with the law, and risk reduced revenues through a sliding economy. The City Manager has estimated these costs at around $3 million in the first year alone. What programs will suffer as the City attempts to add this to the loss of $8 million in revenue due to the drop in tourism caused by 9/11 and general economic conditions?

Fourth, by failing to focus on the needs of Santa Monica residents. JJ does almost nothing to help local residents unless they happen to be employed in the Coastal Zone. And this is a very small number indeed. So while JJ will rob the City of millions of dollars that could be used for social programs directed towards Santa Monica residents, it does almost nothing for our own low-wage workers. Shouldn't this be our first priority?

Those supporters of JJ who are sincere live in a fantasy world where all that is needed to raise the wages of current workers is a governmental decree. Even Robert Reich recognizes the fallacy in this argument. JJ is not the solution -- it is not even an intelligent approach -- to the problem of low-wage workers and deserves to be rejected.