"Big, Expensive and Unwise," Opponents' Report Says of Living Wage Proposal

By Jorge Casuso

The unprecedented living wage proposal being studied by the City is "big, expensive" and "unwise" and could lead to the loss of as many as 1,200 jobs and the closure of a department store and several restaurants, according to a report released Thursday.

The $55,000 report -- commissioned by opponents of the proposal -- also predicts a fall in property values in the targeted Coastal Zone that would cost the city between $4 million and $5 million in tax revenues. It also concludes that most of the workers standing to benefit from a $10.69 an hour minimum wage are not from the very low-income families the proposal purports to help.

"Our analysis shows that even in Santa Monica's Coastal Zone, the benefits of a localized minimum wage are dwarfed by the costs," according to the report authored by UCLA law professor Dr. Richard Sander, who holds a doctorate degree in economics. "We believe the Coastal Zone Proposal would be unwise, imprudent, and ineffective in achieving many of its supporters' goals."

Supporters of the proposal which would make Santa Monica the nation's first city to require businesses with no municipal contracts or subsidies to pay a living wage blasted Sander's study and questioned his credibility.

"Nothing was surprising," said Madeline Janice Aparicio, who heads the Los Angeles Living Wage Coalition, a leading supporter of the Santa Monica proposal. "He (Sander) consistently discounts benefits to workers and overstates impacts (to businesses). To me it's alarming how biased it is."

Sander's 68-page report counters many of the conclusions reached by Massachusetts economics professor Dr. Robert Pollin, a leading advocate of the living wage who released his City-commissioned 370-page study last week. Some of the basic differences between the two studies result from using different benchmarks to determine which businesses are covered by the proposal.

Sander analyzed the original proposal by Santa Monicans Allied for Responsible Tourism (SMART), which covers businesses with at least 50 workers. Pollin, on the other hand, analyzed the proposal's impact on businesses that gross more than $3 million a year.

As a result, Sander predicts that the measure would cover 53 businesses with about 4,000 employees receiving wage increases, compared to 72 business with 2,477 covered workers under Pollin's analysis.

Sander, like Pollin, predicts that the hotels -- the primary targets of the SMART proposal -- will have the easiest time absorbing the increased costs and will likely lay off few workers. (Seven hotels are covered under Sander's analysis, 11 under Pollin's.)

Much harder hit will be the zone's three major department stores - Macy's, Robinsons May and Sears - who must compete for customers in the wider Los Angeles market, according to Sander's report.

"We believe that the competitive nature of the major retail market in Santa Monica already keeps profits near, if not below, normal levels," Sander wrote. "We believe that the absence of a financial cushion increases the likelihood that one or more of the major retail stores will leave in the wake of the ordinance's implementation."

Medium-sized retailers would have an easier time absorbing the salary hikes by raising prices because "a larger share of their business is made up of tourists, who are to some extent 'captured' customers," according to the report.

Sander takes a much grimmer view of the proposal's impact on the 18 restaurants covered in his analysis, compared to six in Pollin's. While Pollin predicts that restaurants can absorb the cost by raising prices, Sander forecasts that restaurants will lay off workers, close or relocate.

Sander also predicts "a significant amount of substitution from poor, low skill workers to non-poor, high skill workers" in restaurants as well as in other types of businesses.

"While we think few employers will engage in large-scale replacements of current staff, many will make significant replacements and nearly all will change the character and skill level of their workforces through attrition," Sander wrote. "Consequently, few of the long-term beneficiaries of the proposal would be the prototypical 'low wage' worker envisioned by many advocates of the proposal."

In fact, Sander argues that demographic data indicate that workers in the Coastal Zone making less than $10.69 an hour are not generally from very low-income families, making the proposal "an inefficient and generally ineffective method of redistributing income or helping the poor."

"Less than one-sixth of these workers live in households below the poverty line; the median household income of workers is not far below the median income of all Los Angeles households," according to the report. "Many of the workers live on the Westside, and these are, as best as we can tell, particularly affluent."

Overall, Sander predicts that the proposal could lower property values in the zone by as much as $300 million to $400 million over a period of years.

"The one thing that can't move in the long run is land," Sander said during a press conference Thursday. "If restaurants close, leasing goes down. If you have a ten percent decline in sales, it has a huge impact on demand for leased space in this area."

Sander based his study on interviews with business owners, discounting the extent of the impacts they predicted. He also used demographic data, which he says provide more accurate information than the employee interviews conducted by Pollin.

"It wasn't a random selection process, it was a researcher selection process," Sander said of Pollin's employee sample. "He probably interviewed a high number of hotel maids and immigrant workers who fit the profile of who should be helped in the coastal zone."

Aparicio called Sander's research "shoddy" and lacking adequate information to draw meaningful conclusions. She also noted that unlike Pollin, Sander doesn't provide samples of the surveys he conducted or explain his methodology.

"Where did he get his information?" Aparicio said. "He doesn't disclose any of the information. What did the survey consist of? Show that the questions aren't biased. This is the worst that I've ever seen."

Aparicio also criticized Sander's qualifications, saying the law professor (who has a PhD in economics from Northwestern University) is "a blip on the screen in terms of economics."