No: We Can’t Afford a $130-Million Gamble

Is a mandatory boost of the minimum wage, as proposed by Los Angeles’ so-called living wage plan, worth a $130-million gamble of taxpayers’ money? Well-intentioned actions by government officials often yield unintended consequences that wreak far more havoc than the problems they sought to solve. This proposal is one such example. It is a classic illustration of the axiom “the devil is in the details.”

The intent of this ordinance, which is applicable to city contract-holders and those businesses receiving some form of financial assistance from the city, is to raise the standard of living of those on the bottom rungs of the economic ladder. However, the proposal would add more than $100 million in taxpayer costs to a city already struggling with a major deficit.

On top of a minimum-wage increase passed by Congress and a second increase imposed by Proposition 210, this proposal mandates a third increase for selected Los Angeles businesses. Together, the increases would impose a 100% wage increase in some cases, from $4.25 per hour to $9.50 with no benefits or to $7.50 with family insurance and other benefits. The ordinance would:

* Cost Los Angeles taxpayers at least $93 million, and probably in excess of $130 million, in tax increases and program cuts.

* Force downsizing by city contractors, which would eliminate roughly 3,000 low-skill jobs.

* Allow workers to retain only 20% to 30% of the mandated raise; the rest would be eaten up by Sacramento and Washington in higher taxes and reduced benefits.

* Disproportionately harm small businesses--many of which are minority and woman-owned--because they will be unable to absorb significantly higher payroll and benefit costs.

* Put 50% to 75% of the least educated, most inexperienced workers and contractors on the unemployment line (60% of these workers are Latino and African American).

* Cripple local job-creation programs, which depend on a lower minimum wage to train the untrained and give skills to the unskilled.

In short, the very people this program proposes to help would feel the greatest negative effects.

The total impact is clearly known: It is zero net change in incomes and some loss in jobs. The city has a fixed amount of money to spend. If the ordinance increases costs to the city, then the city must cannibalize other programs. If the city will not pay the higher costs, then the contractors must bear it, and may fire workers to stay in business.

Ordinance supporters base many of their recommendations on the very short-term experience of a handful of programs recently introduced in four U.S. cities. But the Los Angeles program would be 50 times larger and more costly than any of these programs. The Los Angeles proposal establishes a wage control that is 50% higher and affects 10 times more workers than the program in Baltimore, Md.

No wage control ordinance has been in operation long enough to take full effect, let alone to fully assess and extrapolate to a city the size and complexity of Los Angeles. Ultimately, somebody--or some group--pays the price for this kind of social engineering. The first year of the limited Baltimore program was paid for by cutting meals for the elderly.

On the basis of sound, objective, empirical evidence, the Los Angeles “living wage” ordinance is fatally flawed. This measure would cause the most harm to the very people it is intended to help.