INSIDE TAXES COMMENTARY -- December 15, 1996

Proposed 'living wage' is costly, self-defeating

The proposed "living wage" mandate in Los Angeles would be costly to taxpayers and to those who would find fewer entry-level jobs.

Public employee unions, sponsors of the proposal, are motivated to block competitive service delivery contracts with the private sector. Under terms of the living wage mandate, only businesses complying with higher labor costs would be able to bid on city contracts.

City Councilwoman Jackie Goldberg's proposal would be one of the most far-reaching wage-and-benefit mandates imposed in the United States. Certain private firms must pay employees at least $7.50 per hour and provide family health insurance, or pay them $9.50 per hour without benefits. It would apply to businesses with city service contracts of at least $25,000 or those receiving grants, low-interest loans or financial aid of $100,000 or more.

The order of magnitude may be in dispute, but there is no debate over the fact that such a mandate would require more tax dollars to do the same jobs. Government would become even more expensive, and Los Angeles would become an even more costly business environment. There also has been talk of a larger goal of organized labor's Living Wage Coalition: a general, uniform mandatory wage requirement throughout Los Angeles city and county.

Rival studies agree that the plan would add many millions of dollars of expense to the city's already troubled budget. It will cost the city $130 million annually, according to an analysis by Spectrum Economics, Inc., of Palo Alto, whose chair, Richard C. Carlson, says it is "bad news for small business and low-income, unskilled workers."

The Spectrum study was commissioned by the Los Angeles Area Chamber of Commerce. It underscores arguments by Mayor Richard Riordan and the Coalition to Keep L.A. Working, an array businesses, including minority-owned small businesses. They say increased costs would eliminate jobs and hurt the region's economic recovery from the recession.

The proponents' study has projected $93 million in additional annual costs.

Goldberg's proposal to the City Council, mirrored by a proposal in the county by Supervisor Yvonne Burke, comes on the heels of minimum wage increases at the federal and state levels. With voter approval of an initiative last November, the state minimum wage will become $5.75 an hour, or 60 cents above the federal level.

Another wage mandate, especially without evaluating the impact of recent increases on the creation of entry-level jobs, would be wrong.

It would send the wrong message: Setting up shop in Los Angeles or expanding existing businesses would be more expensive.

The timing of such a proposal could not be worse. State and local policy makers are scrambling to come up with more jobs to get people off the welfare rolls under new national welfare reform law. This wage mandate would result in fewer entry-level jobs.

Well-meaning, perhaps, but this movement is an ill-advised threat to the overall economy.