Thursday, August 27, 2015

Minimum wage issue stirs mixed reactions

Major cities across the country are discussing the minimum wage.  The City of Los Angeles joined the growing list approving an annual wage increase from the current state minimum of $9.00 per hour to $15.00 per hour effective July 1, 2020. 

The Los Angeles Board of Supervisors adopted a similar proposal for the unincorporated areas of the County but gave small businesses until 2022 to meet the $15.00 per hour minimum.  They also created a task force to recommend a package of initiatives to help small businesses with tax credits, reductions in the cost of permitting or business licenses fees, and streamlined permitting.

While any reasonable person knows that the minimum wage needs to incrementally increase, at least to keep pace with inflation, the current proposals have raised many questions and complexities.  To begin a regional discussion, the San Gabriel Valley Economic Partnership recently held a forum for advocates and opponents of the minimum wage increase to offer their perspectives.

Peter Dreier, E.P. Clapp Distinguished Professor of Politics and Urban & Environmental Policy at Occidental College, described the plight of the working poor.  There are three million people living in poverty in LA County.  This is a drag on the economy.  Professor Dreier believes that increased wages will move people out of poverty.  With additional money to spend, minimum wage could mean increased revenues for local businesses.

Ruben Gonzalez, Senior Vice President of the Los Angeles Area Chamber of Commerce, quoted H.L. Menken in describing the Chamber’s perspective on minimum wage - “For every complex problem there is a clear, simple and wrong answer.”  Calling minimum wage increases the politically easy answer; he believes the way to move people out of poverty lies in education and training.  

Michael Hawkins, Founding Partner of Green Street Restaurant in Pasadena, asked elected officials to remember that decisions made by governments have real life impacts on people.  He gave a real life example.  Based on his existing staffing level, his payroll, income tax and worker’s compensation tax would increase by just over $1 million if the minimum wage rises to $15.00 in 2020.  That doesn’t take into account increasing costs he may experience from suppliers who have minimum wage impacts on their bottom lines.  He doesn’t see how his revenues can keep-up even if he increases prices. That could mean fewer jobs, reduced benefits, or even closing the restaurant.

Dr. Mark Maier, Professor of Economics at Glendale Community College, supports increasing the minimum wage but believes that it needs to be at a regional level.  While the panelists didn’t agree on many things, everyone admitted it is a big problem having a patchwork of minimum wage rates across an economic region.  It’s disruptive to competition and confusing to employers, employees and consumers alike.

Some audience members were concerned about the impact on non-profits.  Non-profits can’t raise prices.  Fundraising is difficult especially for existing services.  Many believe reducing services to clients could be the only option.

Warren Buffet recently penned an article in the Wall Street Journal saying that the best means to provide a livable income for those working below the poverty line is to expand the federal Earned Income Tax Credit.  He argues it could provide everyone willing to work an income that provides a decent standard of living without distorting the market system.


Are current proposals to raise minimum wages 66 percent over five years too much too fast?  Is it a necessary moral response to wage stagnation and economic inequality? Will it reduce poverty or reduce jobs?  Will it hurt the economy or help the economy? Are there better ways to reach the same goal?  Difficult questions.  Few answers.

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