Chamber of Commerce Board of Directors Votes to Oppose Los Angeles Model for Minimum Wage Increase in Pasadena
Loss of jobs, decreased hours for workers, negative impact on small business and local economy cited as determining factors in decision
At its August meeting, the Board of Directors of the Pasadena Chamber of Commerce, without objection of the members present (and one abstention), voted to strongly oppose increasing the minimum wage in Pasadena. Citing two studies performed for the Chamber and a peer-review of that work, Board members, representing small, medium and large businesses in diverse sectors of our local economy, cited potential negative impacts on the local economy, risks to employment, impacts on the local retail, hospitality and healthcare industries, as well as youth employment, in making their decision. Pasadena Chamber Board members clearly understood that imposing the Los Angeles minimum wage model in Pasadena would harm workers, local small businesses and pose a threat to our local economy.
Recognizing that only 13,700 Pasadena residents work in the city, and that a much smaller subset of those are breadwinners that earn minimum wage, Chamber Board members chose to support the Pasadena economy in opposing the Los Angeles minimum wage model here. We received analysis from graduate scholars at Johns Hopkins University and Boston College, and requested a peer review by a retired Ph.D. in economics. The conclusions were the same: raising the minimum wage in Pasadena, following the Los Angeles model, would be detrimental to our local economy, negatively impact a significant portion of our small, locally owned businesses, result in fewer employment opportunities for our economically impacted residents. Raising the minimum wage here, following the LA model, would have little, if any, impact on poverty in our city.
The Pasadena Chamber polled its members about the impact of importing the Los Angeles minimum wage model to Pasadena. While not a scientifically valid poll, 69.4% of the respondents indicated the increase to $15 per hour by 2020 would have a negative impact on their businesses. When asked, Chamber member companies said they would cope with the increased costs by reducing their workforce, cutting hours for existing workers, raising prices and not filling vacant positions.
When we passed the Living Wage Ordinance in Pasadena it was the City spending its own, and taxpayer, money, and putting sufficient funds toward keeping contractors harmless by allowing them to renegotiate contracts. Youth employees, library workers and operating companies were exempted. If the City of Pasadena were to devote funds to hold local businesses harmless, no one would object. But the reality is the City of Pasadena cannot afford the tens of millions of dollars it would cost to backfill the losses of the proposed minimum wage increase on our local businesses. A minimum wage increase would add $5000 to $8000 per year for each minimum wage employee when fully implemented.
The Pasadena Chamber solicited academic analysis of the proposed increase from two sources with no economic or political interest in Pasadena. Each study, conducted by graduate students at Johns Hopkins University and Boston College, and the peer review, concluded that transplanting the Los Angeles minimum wage model to Pasadena would result in decreased employment opportunities for minimum wage workers, significantly increased costs to local small businesses, and do little to address the underlying issue of poverty and wage inequality.
The studies done for the Chamber cited research, experience in other municipalities and demographics in concluding a minimum wage increase would be detrimental to Pasadena, its citizens, workers and businesses. According to work done for the Chamber, “Pasadena and LA differ across a variety of economic indicators that signal that LA is a much more viable and realistic candidate for the $15 minimum wage than Pasadena, and that Pasadena cannot simply follow their minimum wage plan.”
“… Pasadena residents are likely to bear the burden of a minimum wage hike through increased costs to businesses, while limitedly benefiting from the effects of increased wages due to the limited amount of workers that live in Pasadena, and the small amount of workers making less than $15,” according to the Boston College analysis.
The Pasadena Chamber Board expressed concerns about employment opportunities for people at the low end of the wage scale. There was also discussion around the impact raising the minimum wage could have on opportunities for unskilled and entry-level employees and young people. Studies done for the Pasadena Chamber consistently point to negative impacts on Pasadena workers. According to one study, “While raising the minimum wage to $15 may not be significant for some businesses within the Pasadena Chamber (such as larger, high wage and high profit retaining firms) for many local, smaller businesses that are relatively dependent on labor, raising the minimum wage becomes very significant. In the non-profit sector, where there is less flexibility in shifting revenue due to reliance on grants or donations, layoffs will be inevitable in order to mitigate the higher labor costs.”
Studies also show that increases in the minimum wage have additional impacts to local, small businesses. Payroll taxes, worker’s compensation insurance and other costs rise by a similar percentage.
Analysis conducted for the Pasadena Chamber found that, “Intervening in how a small local business sets its wages can have large effects on the amount of employees it can continue to pay, as well as with other aspects of operation.”
Again, from one of the Chamber analyses, “Because the majority (85%) of Pasadena residents work outside the city, businesses in the city will not be able to successfully pass higher labor costs onto consumers that are receiving a higher minimum wage. Thus… business will have two options – either change their structure of employment in order to keep up with the higher costs associated with labor, or move outside the city. Additionally, it is possible that since such a high percentage of Pasadena workers live outside Pasadena, they will receive these wage hikes from Pasadena, and they will pass off their increased earnings to other competing cities.”
In a survey of Pasadena Chamber member companies, 58% said they will raise prices to compensate for the increase. 52.4% said they will reduce their workforce. 46.72% said they will reduce hours for their existing workforce. 20.49% said they will consider moving their business to a jurisdiction that is governed by the California minimum wage. Our member survey is not scientific, but is does indicate how our members could be impacted and to what degree they will diminish employment opportunities to cope with an increased minimum wage.
Again, from a study conducted for the Pasadena Chamber of Commerce, “Nearly all Pasadena low-wage jobs that have high labor costs are in retail, restaurants, hotels, education and health care… labor costs currently account for about 40% of a restaurants operating costs, and a minimum wage increase to just $13 per hour would represent an increase in labor costs to 60%... After the wage increases in 2007, 58% of restaurant operators increased menu prices and 41% reduced employee hours… “
And, “…Additionally, low-skilled workers will be affected by this increase. Due to the costs associated with raising wages on small businesses, many Pasadena residents will lose their jobs, and according to existing literature on minimum wage policy, low-skilled workers will generally be the first to face layoffs.”
From the second, independent analysis performed for the Pasadena Chamber by a Johns Hopkins graduate student, “Although consumers would seem to have greater purchasing power from an increased minimum wage, businesses will raise prices to help offset increased labor costs. This will serve to nullify consumers’ increased purchasing power, should these consumers even keep their jobs in the first place.“
The study continues, “This includes general consumer goods, but also housing prices, as California’s cost of living continues to grow… coupled with price increases to offset increased labor costs, consumers may actually have reduced purchasing power when compared to before.”
Studies done for the Pasadena Chamber indicate that opportunities will diminish for youth, unskilled and inexperienced workers, those with barriers to employment and immigrants. Statistics and evidence clearly show that each time the minimum wage has been increased on a federal, state or local level, youth employment numbers have plummeted.
The Pasadena Chamber would like to see a thoughtful, independent, comprehensive economic analysis performed specific to Pasadena and our economy. The City’s interest will be best served when our elected officials have data specific to local employment, businesses, non-profits and youth employment opportunities before they consider raising the local minimum wage.
Here are links to the Pasadena Chamber economic analyses and our peer review:
