Local restaurant chain owner Jeff King has accepted what appears to be the inevitable: an increase in the minimum wage that he will have to pay many of his 1,800 employees.

It doesn't mean that he likes it.

"We know the minimum wage is going to go up and it's going to affect our budget," said King, founder of the King's Seafood chain of restaurants in Southern California and owner of the upscale Water Grill restaurant in downtown Los Angeles. "It's just hard to plan right now because we don't know what the wage is going to be."

King is among the thousands of business owners in L.A. and throughout the state who are bracing for a hike next year in the state's current minimum wage of $6.75, a hike that will hit the hospitality, restaurant and retail sectors particularly hard.

These businesses have already been hit hard by rising costs of fuel and basic materials and are facing the prospect of a slowing economy.

Nonetheless, most businesses and business organizations are resigned to the political reality that the state's first minimum wage increase in five years is in the offing. But they are strongly opposing an effort to institute annual increases in the minimum wage.

"We think it's a reasonable increase and a compromise that will serve the state, workers and the business community as long as there are no annual increases," said Gary Toebben, the new president and chief executive of the Los Angeles Area Chamber of Commerce.

Muted response
Toebben's reaction was typical of business leaders throughout the region last week as negotiations intensified between Gov. Arnold Schwarzenegger and Democratic leaders in the Legislature.

Both sides agree that an increase in the state's minimum wage from the current $6.75 an hour to $7.75 an hour is warranted. The last increase was five years ago and everyone is acutely aware that voters are growing increasingly discontented about the rapidly rising cost of living.

But Democrat lawmakers are pushing to have the minimum wage increased every year tied to the inflation rate, a move that Schwarzenegger and the business community oppose.

"We are very much against the indexing of the minimum wage to inflation. It turns the minimum wage into a benefit like Social Security instead of a floor for wages, like it was originally intended," said Lonnie Kane, president of Karen Kane Inc., a local women's garment manufacturer.

Schwarzenegger has tried to get around this deadlock and pass just the one-time increase on his own by resurrecting an obscure state commission that has the power to set minimum wage levels. But as a recent hearing of a special wage board showed, even that appears to be deadlocked around the same issue.

The action has not just been taking place in Sacramento. Earlier this month in Washington, a move by Congress to raise the national minimum wage to $7.25 an hour from the current $5.15 an hour died in the Senate after Democrats and some Republicans objected to other provisions in the bill, including repealing the estate tax.

The bill also contained a provision much sought after by business: overriding state laws that require employers of workers who receive tips to pay the full minimum wage to those workers. Six states, including California, currently require tipped workers to be paid the state minimum wage.

However, with nervous Congressional Republicans heading home for the summer recess and facing a testy electorate in the fall, there may be a move to bring back the politically popular minimum wage legislation.

All this leaves employers somewhat nervous about the issue. Few employers were willing last week to talk publicly about the minimum wage, for fear of being perceived as opposed to raising it.

"Nobody wants to talk about this, nobody gets good publicity by saying they're against minimum wage increases," said Joe Rodriguez, executive director of the Garment Contractors Association of Southern California.

The association represents between 100 and 200 garment manufacturing contractors who have heavy concentrations of minimum wage employees in their workforces. Rodriguez said that most of his employer members are opposed to any increases in the minimum wage given the intense competitive pressure from offshore garment makers.

"The reaction is very bad: Any increase is harmful to our members in the domestic apparel producing industry. Raising the minimum wage will probably be the last straw that prompts several of our members to just give up," he said. Others may cut back on hiring or cut individual hours worked.

What's particularly discouraging, Rodriguez said, is that the increase will come without any corresponding increase in productivity. "In this industry, a lot of people are guaranteed the minimum wage and then paid by the piece. If you work eight hours a day and produce almost nothing, you still get paid the minimum wage," he said.

Job effect
But most industries with heavy concentrations of minimum wage workers are in the hospitality or service sectors and cannot move their operations to China or other overseas locales. And how they might respond to a minimum wage increase is very much in dispute.

Business owners and trade groups, along with many economists, maintain that if you raise the minimum wage, employers respond by hiring fewer workers or cutting back on hours worked.

"It's simple. You increase the cost of something, and businesses will make less usage of that product. The same principle applies to labor costs," said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.

But proponents of raising the minimum wage say there's no evidence that past minimum wage increases have actually translated into job losses.

"The overwhelming evidence is that raising the minimum wage does not result in layoffs. In fact, more often than not, the net number of new jobs created increases," said Angie Wei, legislative director of the California Labor Federation.

Adibi countered that raising the minimum wage likely prevents jobs from being created, though that effect is difficult to measure. Also, many employers say that if the minimum wage is hiked, that increases the pressure from those receiving just above the minimum to have their wages raised, too.

"Let's say I have someone earning $8 an hour, which is now $1.25 above the minimum wage. When the minimum wage goes to $7.75 an hour, that person is going to want their wage raised $1 too. It's the escalator effect," garment maker Kane said.

King, the restaurant chain owner and incoming chair of the California Restaurant Association, said he has no intention of reducing jobs or hours among his employees.

"We're not going to cut back, no matter what happens," he said. "But we will want to do more with less people, so that means that after the minimum wage increase hits, we will do less hiring than we might otherwise have done."

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