Wage bill will hurt L.A., business leaders warn

Los Angeles’ business image, already battered by high costs and other problems, will suffer further because of the City Council’s plan to require airport hotels to pay a “living wage,” business leaders and some economists said Thursday.

Although the ordinance would affect only 12 hotels, fears that it could be extended to other businesses could discourage employers from locating in Los Angeles, especially when neighboring cities and states already are more business friendly, they said.

“It’s toxic,” said David Fleming, incoming chairman of the Los Angeles Area Chamber of Commerce. “This council will do it at the drop of a hat if labor tells them to, and that’s the problem.”

The ordinance, endorsed by an 11-3 margin Wednesday, requires a second vote but is widely believed to be a fait accompli. It would, for the first time, extend the city’s living-wage rules to businesses not directly contracting with Los Angeles.

Proponents said the goal was to improve the lives of hotel workers and keep them out of poverty. Airport hotels would have to raise their minimum wage to $10.64, from the state-mandated $6.75. Hotels that reach collective bargaining agreements with workers would be exempt.

Janice Hahn, the council member who sponsored the measure, has portrayed it as an effort to help workers, not hurt the business climate. And one economist said the ordinance would have very little economic effect.

Business leaders, who said the measure played into the hands of labor leaders who were trying to organize workers at the hotels, see it as a betrayal of an earlier council pledge to limit the city’s first living-wage mandate to municipal contractors. They fear that such wage rules could be extended beyond hotels to other industries and beyond Century Boulevard.

“Los Angeles is an economic mess,” said John Husing, whose Economics & Politics Inc. advises cities on economic development issues.

“It says the government leaders either don’t care about the economy and being competitive on jobs or they don’t understand.”

Higher wages at the hotels could indirectly lead to job losses in the long run, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

That’s because businesses facing higher wages make up the costs by reducing their workforce or raising prices, he said.

Hotels are a labor-intensive business, making staff reductions unlikely. But, Adibi said, if they raise room rates, they could lose business.

“The hotels are not going to be as competitive,” he said. “Over time, you are going to lose that business, which impacts not only the hotels but other sectors of the economy. People go to Universal [Studios]. They go to eat. That’s a multiplier effect.”

But Cal State Long Beach economist Lisa Grobar said she didn’t believe the living-wage measure would have much economic effect because of its narrow focus.

She said she didn’t expect it to reduce poverty much either. That’s because minimum wage hikes are too clumsy to be effective, often going into high-income households where a student or spouse works part-time for extra money.

More effective anti-poverty measures, Grobar said, are earned income tax credits, such as those used by the federal government, 20 states and three cities, including San Francisco. They reduce the tax bills of low-wage workers without raising business costs or discouraging job growth.

“The best policy [aims] at the target population as much as possible with as little collateral damage as possible,” Grobar said.

Others said the problem with the hotel ordinance was that it would come on top of already high costs of doing business in Los Angeles.

“This is another brick in the wall of barriers in Los Angeles for business and private investment,” said Larry Kosmont, whose Encino-based Kosmont Cos. offers governments business development advice.

An annual cost-of-doing-business survey, founded by Kosmont and conducted by the Rose Institute of State and Local Government at Claremont McKenna College, ranked Los Angeles as the 16th-most-expensive major region in the U.S. this year.

The survey -- a comparison of property, sales, utility and other taxes imposed on businesses -- said Philadelphia ranked as the most expensive, followed by Cincinnati and New York. San Francisco came in at No. 8.

The least expensive major U.S. city was Las Vegas. The least expensive California city was Banning, followed by unincorporated Lake County, unincorporated Merced County and Westlake Village.

lisa.girion@latimes.com

Times staff writer Joe Mathews contributed to this report.