Businesses Can Absorb Living Wage Costs, Report Finds

By Elizabeth Schneider

Oct. 20 -- An update of a City-commissioned study released last week found that despite the recent recession and the economic blow dealt by the September 11 terrorist attacks Santa Monica businesses can absorb the costs of the living wage ordinance on the November ballot.

On Thursday, Robert Pollin and Mark Brenner, the University of Massachusetts, Amherst professors who authored the original study two years ago, told a group of colleagues at UCLA that the city's tourism industry and hotels have "almost fully recovered from the sharp four month downturn of September (to) December 2001."

The updated study found that a total of 47 businesses would be covered by the living wage ordinance, which requires businesses in the Coastal Zone that gross more than $5 million annually to pay workers at least $10.50 an hour if benefits are not included.

Of the businesses covered, 11 are hotels, one is a restaurant, nine are retail stores and 26 are categorized as "other," according to the update. An estimated 2,000 workers concentrated in the city's high-end beach hotels would be covered, the update found.

The original report -- which assumed the threshold would be $3 million in gross annual receipts -- had found that five restaurants and 13 retail stores would be covered. The number of hotels is the same in both reports.

Pollin's findings differ dramatically from a report released last week by UCLA Professor Rick Sander, who found that the ordinance on the November 5 ballot would cover 100 businesses, including 14 hotels (instead of 11) and 10 restaurants (instead of one).

Opponents of the living wage called Pollin's report "fiction" and said that it did not account for the new restaurants that have opened in the coastal zone since his initial study was conducted.

"It's typical Pollin fiction," said Tom Larmore, a spokesman for the Chamber of Commerce. "It (the findings) would be a surprise to the many (restaurants) that clearly are covered."

Pollin's update -- prepared by the Political Economy Research Institute (PERI) at the request of Mayor pro tem Kevin McKeown -- relied on 1998 figures for gross receipts as a baseline and factored in sales tax receipts for the city, which grew roughly 20 percent between 1998 and 2001. Taking a liberal view of the growth, Pollin increased the gross receipt data by 25 percent.

Sander said he based his findings on a 2001 commercial database and interviews with businesses that would likely be covered by the measure, which is the nation's first municipal wage law covering private businesses with no direct financial ties to the city.

Pollin's update found that while the majority of the 2000 findings remain the same, a dramatic shift has occurred in the workforce, where a larger proportion of workers are poorer then they were two years ago.

About 85 percent of the workers and their families, compared to 75 percent in 2000, are currently below the California Budget Project's basic needs threshold, according to the update.

In addition, Pollin found that there has been a significant increase in the proportion of workers who are non-white, including Hispanics (86 percent in 2002, up from 78 percent in 2000) and Hispanic only (71 percent in 2002, compared to 60 percent in 2000.)

Pollin's report suggests three ways the hotels -- which employee 70 percent of the workers affected by the ordinance -- can absorb the cost of Proposition JJ (estimated to be about $1 million per hotel). They can raise prices, increase productivity or shift the distribution of the hotels' revenues.

"Businesses can pass the 10 percent cost increase on to consumers by slightly raising prices," said Pollin, who is outspoken about his support for a living wage and is considered one of the leading experts in the field.

Since well-paid workers are happy workers, productivity will inevitably increase, while employee turnover will drop. Businesses also can cover the costs by shifting the distribution of their revenues in favor of low-wage workers.

A crucial point, said Pollin, is that hotels covered by the ordinance continue to raise room rates -- from $160 in 1994 to $230 in 1999 -- and demand for rooms has not decreased.

Opponent's arguments that the measure violates a free market are not valid, said Pollin.

"The ordinance can't violate free market principals given the growth restrictions already in place," he said, noting that a voter approved ordinance bars any new hotels along the coast.

At his UCLA lecture Pollin outlined the three major factors leading to the surge in the living wage movement across the country.

The movement, Pollin said, began in Baltimore when a number of soup kitchen volunteers realized that more and more of the clients had jobs -- "a simple observation," Pollin said.

People still needed extra support even though they were employed. An increase in the outsourcing of labor and "the collapse of the minimum wage" have all led to the need for a new mandate for low wage earners.

In 1968, the minimum wage peaked at $8.14 (in 2002 dollars), Pollin said. In 2001, the national minimum wage was $5.15, while in California it was $6.75, the highest in the country.

"That's a 37 percent drop since 1968 even though production rates have continued to increase," he said.

Reason enough to support a living wage mandate, Pollin added.

The key question, Pollin said, is "does it [living wage ordinance] achieve its intended effects?"

Proposition JJ "gets people above the poverty line but still way below their basic needs income," Pollin concluded. "But it's a step."

Jorge Casuso contributed to this report.

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