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On Southern California

State Minimum-Wage Hike to Hit Many Sectors

Labor: Though the increase will more closely reflect what many Southland businesses already pay, some will face tough choices.

October 25, 2000|James Flanigan

How will the higher minimum wage decreed by California's state government Monday--a $1 hike over two years to $6.75 an hour--affect the working poor, small businesses and the Southern California economy?

The answer is that it will save taxpayers a little money by adding a little more to the costs of some businesses. Yes, taxpayers have a hand in the matter, because the minimum wage is as much a political issue as an economic one.

For workers earning the current minimum wage of $5.75 an hour--$11,900 a year--the 50-cent wage hike next year will put a little more money in their pockets but then take some of it away by reducing the cash assistance those workers get from federal and state welfare.

It might surprise many people to learn that the average wage of a working welfare recipient in Southern California is $7.20 an hour. It would take a wage of $8.74 an hour to get a single mother with two kids off public assistance, says Lynn Bayer, director of the Department of Public Social Service, the Los Angeles County agency that administers federal and state welfare.

Even at $8.74 per hour, or $18,179 a year, a single mother with two kids--the typical welfare-receiving worker--would still get some food stamps and Medi-Cal health coverage for the family, Bayer explains.

The legal minimum today does not really fulfill the original purpose of a national wage, decreed in the Fair Labor Standards Act of 1938, to assure every worker a minimum standard of living and to maintain purchasing power in a Depression-wracked economy.

But then for most businesses, especially in the thriving economy of Southern California, the minimum wage is irrelevant. "I have never paid a minimum wage on any construction site," says Patrick Green, owner of concrete plants in the South Bay.

Average wages in construction are about $22 per hour, in movie production more than $37 per hour.

But some businesses will face tough choices--restaurants, for example. Entrepreneur Linda Griego, the onetime head of Rebuild LA who owns the Engine Co. 28 restaurant in downtown Los Angeles, describes the effect on her business precisely. "The restaurant works 76,000 hours a year with 55 employees, so the minimum-wage hike will add $60,000 to $76,000 in costs in a $3-million-annual-revenues business," Griego says.

"And the wage hike will mean a greater-than-10% increase in workers' compensation insurance and health benefits," she adds.

Lunch and dinner patrons will pay some of the added cost in higher prices. But there are limits to how much prices can rise without discouraging customers.

Likewise in other Southern California industries, it's a question of who pays the living wage--employers, customers or taxpayers. Basic garment manufacturing in Los Angeles employs more than 100,000 people at wages of less than $7 an hour. "Unless apparel companies or retailers pay us more for our products, some of the companies will close their doors," says Joe Rodriguez, head of the Garment Contractors Assn. of Southern California.

But in Orange County, says economist Esmael Adibi of Chapman University, "our garment industry does higher-priced work, for St. John Knits, surf wear, swimwear." So fashion buyers ultimately pay higher wages for garment workers in the county, where 2.5% unemployment makes labor scarce--and higher-priced--for most jobs anyway.

Economists used to say that minimum-wage laws discourage employers from taking on new workers. But opinions have changed, reports Daniel J.B. Mitchell, a professor of labor economics at UCLA's Anderson School. Now minimum-wage laws are seen as ways to get a little more for low-wage workers without disrupting larger economic patterns.

Still, Mitchell says, minimum wage laws are not as good an idea as collective bargaining agreements between employers and employees. "Minimum-wage laws are too broad. In collective bargaining, the particular needs of employers and workers and the industry can be taken in account."

Times are changing. Southern California has never shown much enthusiasm for collective bargaining --until recently, when union organizing has been energized by a new social movement for the living wage. Living wages--higher than the legal minimum--have gained acceptance in Los Angeles and 50 other cities nationwide in the last five years. Los Angeles, for example, demands that all businesses selling services or products to the city pay workers close to $8 per hour. Yet businesses bidding for city contracts haven't objected to that ordinance. Why not? Because the city, in effect, is telling the contractors to charge more so that taxpayers shoulder the burden of supporting the working poor.

The living-wage movement, joined by churches and other groups, has helped "by giving low-wage workers, who feel powerless, the idea that they have a right to a living wage," says Maria Elena Durazo, head of the Hotel Workers Union Local 11.

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