Minimum Wage May Get Boost

By Roger Vincent

Jan. 6, 2006 12 AM PT

Times Staff Writer

The California business community’s long-standing opposition to boosting the state’s minimum wage is eroding -- at least for now -- amid a growing recognition that increases are inevitable and previous hikes haven’t produced dire economic consequences.

But consumers should expect to help pick up the tab by paying a bit more to eat in restaurants, sleep in hotels or buy other products and services produced by the state’s lowest-paid workers, experts said.

Several California business leaders and economists indicated this week that they would accept a higher minimum wage or at least wouldn’t fight Gov. Arnold Schwarzenegger’s proposal in his State of the State address Thursday to bump up basic hourly pay to $7.75 from $6.75 by the middle of next year.

Businesses, especially those that rely on low-wage workers, have consistently opposed such hikes for decades. They have contended that higher minimum wages would force them to lay off employees and raise prices, putting them at a competitive disadvantage with rivals in lower-wage states and countries.

Indeed, the influential California Restaurant Assn., which represents restaurant owners, is maintaining its longtime opposition to raising minimum wages while waiting to hear specifics of the governor’s proposal.

But other employers and business economists aren’t publicly objecting to Schwarzenegger’s proposal, in part because it would not include future increases based on inflation. There is also widespread acknowledgment that raises are due after holding steady since 2002.

“This is probably something that is deserved,” said Rusty Hammer, president and chief executive of the Los Angeles Area Chamber of Commerce. “As long as we know how much it’s going to be, business is going to go along with this.”

The support of business interests could make it more likely that Schwarzenegger’s proposal will win legislative approval, although organized labor plans to lobby against it on grounds that inflation indexing is necessary.

“His proposal on the minimum wage is only half a step. We want indexing,” said Art Pulaski, executive secretary-treasurer of the California Labor Federation. “Workers have lost 10% [to inflation] since Arnold came on board. It’s not enough to just give them a dollar over 18 months. It doesn’t catch them up, so we really have to index.”

The governor is proposing a 50-cent increase in October, followed by another 50-cent boost in July 2007.

Congress has not changed the federal minimum wage, currently $5.15 an hour, since 1997. But U.S. law allows individual states to set their own levels. Sixteen states and the District of Columbia have rates above the federal minimum, with Washington and Oregon leading the pack at $7.63 and $7.50, respectively.

California ranks sixth among states. Its estimated 2 million full-time workers who receive the $6.75 minimum wage each earn the equivalent of about $14,000 a year. A dollar-an-hour increase would boost that to $16,000.

Possibly also influencing California business leaders are economic reports showing that mandatory minimum wage increases have not resulted in the level of staffing cuts predicted by opponents who said many companies couldn’t afford the raises.

A new study by the nonpartisan California Budget Project in Sacramento concluded that moderate increases to the minimum wage resulted in little, if any, loss of employment.

“Most employers are already working with the lowest number of employees that they can,” said Jean Ross, executive director of California Budget Project. “Sectors that employ large shares of low-wage workers actually increased employment at a faster rate than the state economy as a whole” between 1997 and 2004.

Even in San Francisco, where the minimum wage is now $8.82 per hour and rises annually with the cost of living, raises have not adversely affected employment or resulted in business closures, said UC Berkeley economist Michael Reich.

Restaurants bear the biggest burden of minimum wage raises, he said, but employment in San Francisco restaurants has been growing faster than the general business average since the city’s wage laws were enacted in 2003.

Small increases in prices and improvements in workers’ productivity pay for the difference, Reich said. Average prices of menu items have risen about 3% more than those of restaurants outside the city on the east side of San Francisco Bay, according to a recent report coauthored by Reich.

Linking annual wage raises to the cost-of-living index “works very well,” Reich added, because increases are predictable and affect competitors equally.

Most business leaders, however, reject the notion that raises linked to inflation are predictable. They pushed the governor to veto a bill last year that would have permanently connected the state’s minimum wage to increases in the cost of living.

Business representatives still face a proposed ballot initiative that would increase the state’s hourly minimum wage to $8.75 and require cost-of-living increases after that, making the governor’s proposal less onerous by comparison.

Such a link with inflation “would be a death sentence in our minds,” said Jim Abrams, chief executive of the California Hotel & Lodging Assn., a trade group for hoteliers. That’s because it wouldn’t allow for unpredictable factors that could affect a specific industry, such as a wave of corporate cutbacks on business travel or a consumer boycott, Abrams said.

Minimum wage increases are an inevitable “necessary evil,” said the hotel group’s chairman, Wes Tyler, who manages the Chancellor Hotel on San Francisco’s Union Square.

Times staff writers Jerry Hirsch in Los Angeles and Marc Lifsher in Sacramento contributed to this report.

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Top wages

States

1. Washington $7.63

2. Oregon $7.50

3. Connecticut $7.40

4. Vermont $7.25

5. Alaska $7.15

6. California $6.75

Selected Cities

Santa Fe, N.M. $9.50