Proposed Minimum
Wage Law for Santa
Monica
Professor Michael Reich
August 18, 2015
Center on Wage and Employment Dynamics
Institute for Research on Labor and Employment
University of California, Berkeley
www.irle.berkeley.edu
Outline
• Los Angeles minimum wage: model for
Santa Monica
• Impacts on LA workers, businesses and
local economy
• Santa Monica compared to Los Angeles
• Likely impacts on Santa Monica
My focus today
• The broad economic effects
• Issues for nonprofits will be
addressed at a September 8
presentation.
LA minimum wage schedule;
model for Santa Monica
• Annual increases beginning July 1, 2016:
$10.50, $12, $13.25, $14.25, and $15 in 2020.
• Organizations with 25 or fewer employees:
Can delay for one year, reaching $15 by 2021.
• Nonprofits that help the disadvantaged or get most of their funding
from government grants:
Can apply for an extra year.
• Indexing to inflation begins in 2022.
• No exemptions for tipped workers: follows state law, as do all citywide
MW ordinances
UC Berkeley Los Angeles
report
• Examined impact of proposed $15.25 by
2019
• Final bill differs somewhat in level ($15)
and timing by (2020)
• Available at www.irle.berkeley.edu
Coverage of Los Angeles law
• Private sector workers only: for-profit and nonprofit
• Excludes state and local employees, including
LAUSD
• Excludes In-Home-Support-Service (IHSS)
workers
• Next few slides refer to covered workers only
Proportion of Los Angeles
workers getting pay increases
Minimum wage workers are
concentrated in a few industries
• Food services, largely restaurants
percent
17.3
• Health care and social assistance
12.9 percent
• Retail trade
14.0 percent
• Admin. & waste management services
(temp agencies, janitorial, security)
9.4 percent
Estimated pay increases for
workers getting increases
How 67 percent becomes 0.9
percent
• Nominal increase from $9 to $15: 67 percent
• Statewide increase on January 1, 2016: $10
• Inflation and wage increases during phase-in years:
2 percent per year
• Some workers are already, or on track to, earn more than
$15
• Most workers who will get increases are already paid over $9
today: distribution is relatively smooth in $9 to $15 range
• Savings in recruitment and retention costs: 15 to 20 percent
• Payroll share of operating costs: 23 percent
• Result: 0.9 percent increase in overall operating costs
• Higher in most affected industries: 7.8 percent in restaurants
Percent changes in business
operating costs
Operating cost changes,
continued
Impacts by firm size
Impact on the economy
Multiple adjustment channels
Reduced employee
turnover and
improved employee
performance
Automation:
substitution of
equipment for labor
Small increases in
prices and smaller
decline in sales
Increased consumer
demand-- from wage
increases-- offsets
decline in sales.
Estimated net impact on LA
City and LA County
Santa Monica compared to Los
Angeles
• Higher proportion employed in accommodations,
restaurants and retail suggests larger impact
• But higher pay in these industries suggests fewer workers
will get increases, so smaller impact
• Even without the proposed law: Santa Monica low-wage
employers will eventually raise their wages to keep their
best workers from switching to jobs in LA
• So overall, lower impact in Santa Monica
Would $15 have higher impact in Los
Angeles or in Santa Monica?
Employment
Private sector
Percent in Accommodations
and Food Services
Average weekly pay
Accommodations
Restaurants
Santa Monica
LA City
80,000
1.5 million
17.5
10.2
$737
$454
2014 figures. Source: Quarterly Census of Employment and Wages
$648
$369
Effects on tourism in Santa
Monica
• A large part of Santa Monica tourism depends on what
affects tourism to the LA region.
• Hotel and retail prices in Santa Monica will not be affected to
any measurable extent.
• Restaurant wages will be pulled up by competition for
workers in LA restaurants.
• Some increase in Santa Monica restaurant prices relative to
LA will occur even without the ordinance.
• Much of Santa Monica tourism (beach view component) is
less price-sensitive than for LA as a whole.
• The impact of a Santa Monica minimum wage ordinance on
tourism as a whole is likely to be quite small.
Final thoughts on Santa
Monica
• Santa Monica wages will increase because of
competition with Los Angeles employers
• Coordinating minimum wage policies on a
regional basis improves fairness and reduces
market distortions
• Santa Monica is likely to be followed by other
cities in Los Angeles County