Mr. Thomas is concerned for his clients, particularly restaurants, bars and nightclubs, as the move to impose local minimum wage laws in Southern California gains steam.
Labor costs account for one third of the total operating costs of most restaurants, bars and similar businesses. County or city laws that require employers to pay wages higher than the state minimum wage will necessarily increase costs of doing business, likely significantly.
Los Angeles restaurants and bars commonly already have thin profit margins; simply absorbing the expense of paying higher wages through accepting lower profits won’t be possible for many employers, particularly small ones. Instead, employers will be required to increase prices (potentially driving customers away and revenue down) or reducing staffing (that is, reducing the number of people employed or the hours employees work).
Even the Berkeley economists hired by Mayor Eric Garcetti’s office to predict the effects of a Los Angeles minimum wage law acknowledged the risks to the restaurant industry: “On the negative side, there may be a small reduction in restaurant growth during the law’s phase-in period, some apparel jobs may relocate outside the city, [and] some companies may earn lower profits . . .” (Reich, Jacobs and Bernhardt, The Mayor of Los Angeles’ Proposed City Minimum Wage Policy: A Prospective Impact Study, September 2014.)
The cost to taxpayers of enforcing a local minimum wage is receiving far too little attention. In San Francisco, the local agency that enforces their minimum wage ordinance, the Office of Labor Standards Enforcement, costs taxpayers at least $3.7 million dollars each year. In LA, the cost to enforce a local minimum wage law will be much greater, as only about 611,000 people are employed in San Francisco, while substantially more are employed in Los Angeles. The study commissioned by Mayor Garcetti failed to take into account in any respect the costs to taxpayers of local minimum wage programs.
If Los Angeles imposes a local minimum wage, it must be sanely tailored. Employers must be permitted to pay tipped employees a lower or second tier minimum wage as compared to employees earning only wages; forcing employers to pay tipped employees the same minimum wage as non-tipped employees subjects employers to expense without reason, expense too many of them can’t afford. Likewise, employers should receive a credit against the local minimum wage for the money they spend on providing employees with medical coverage or child care. An exemption or delayed phase in of a Los Angeles minimum wage law must be given to small businesses. Interns working for academic credit, workers enrolled in apprenticeship programs and others must be exempted from a local minimum wage law.
Only four months ago, the state minimum wage increased to $9.00 per hour. On January 1, 2016, the state minimum wage will increase again to $10.00 per hour. Los Angeles and surrounding cities must move thoughtfully toward setting local minimum wages, if at all, or risk doing more damage than good.