Mayor Eric Garcetti and Council members Mike Bonin, Curren Price, Gil Cedillo and Nury Martinez have relished the political limelight for proposing that City of Los Angeles mandate a minimum wage of $13.25 per hour by 2017 and $15.25 by 2019. But with LA already the poorest major city in America, the driving force behind the move to raise minimum wage by 50% are unions whose contracts will be exempt under the new law.
There are now more union members working for government than in the private sector. The AFLCIO’s organizing strategy to regain private sector membership is to leverage their government allies to demonstrate that unions are the key to pushing wages up.
Governor Jerry Brown during the July run up to the elections last year, worked closely with the Service Employees International Union to raise California’s minimum wage from $8 to $9 in 2013 and to $10 in 2016. Brown’s action contributed to California being rated as the worst business environment for the tenth consecutive year. It also explains why California has dropped from the perennial top job creator to the third highest unemployment in the nation.
The Los Angeles City Council responded to AFLCIO union organizers demands just weeks before the elections by trumping the state with a minimum wage for the hotel industry of $15.37 an hour. The only hotels exempt from the new mandate are those that have a unionized workforce.
David Cooper of the Economic Policy Institute (EPI) argues that raising the federal $7.25 minimum wage by 39% to $10.10 by 2016 would lift tens of millions of people out of poverty by achieving parity with the inflation-adjusted value of the minimum in the late 1960s.
EPI’s study claims a federal minimum wage increase would directly or indirectly raise the wages of 27.8 million workers. The $35 billion in additional wages would then supposedly grow GDP by $22 billion and create 85,000 net new jobs. EPI points out that many corporations are posting record-breaking profits and can afford to pay better.
But minimum wage employers are not large corporations with thousands of employees. The vast majority of minimum wage earners work for local small businesses, with less than 50 employees. Most of these employees that work part time are students, take care of their family or are supplementing other income. In the restaurant industry, nearly 80% of workers that earn the federal minimum wage work part-time.
When facing higher hourly labor costs per hour, small businesses have to make tough choices, and the decision to comply tends to impact low-skilled employees the hardest. A 2012 study by Sabia, Burkhauser, and Hansen, concluded that New York State’s +31% minimum wage increase in 2006, from $5.15 to $6.75 in 2006, during a very strong economy, reduced employment by over 20% for the least skilled and least educated people in the workforce. People who needed a raise the most were put out of work entirely.
Former Director of the non-partisan Congressional Budget Office Douglas Holtz-Eakin highlights that according to U.S. Labor Department’s Current Population Survey data, 80% of minimum wage earners are not in poverty. Teens and young adults still make up 46.3% of all minimum wage earners. One third of minimum wage earners live with parents that make over $100,000. Holtz-Eakin points out that the greatest determinant for eliminating poverty is job creation, since the poverty rate is four times higher for people who aren’t working than for those who are.
Raising the minimum wage from $7.25 to $10.10 would help 900,000 get out of poverty according to the Congressional Budget Office. But such action would make it much more difficult for the other 44 million Americans in poverty to ever get a job.
With the final minimum wage ordinance expected to be submitted for the Mayor’s signature in January, only Santa Monica and West Hollywood are considering matching LA’s move. Ruben Gonzalez of the Los Angeles Area Chamber of Commerce told the Daily News that there are 40 other cities in the LA basin that will take jobs from LA. “Everywhere in the city, you can point to people who can move down the road and serve the same clientele.”
Public-sector workers had a union membership rate of 35.3% is more than five times private-sector workers at 6.7%. With unions fighting for their own survival, playing politics with the minimum wage is about all unions have to be relevant in America.
This post has been updated.