It has become one of the hot-button political and economic issues of the year: raising the minimum wage. All across the country, fast-food and other minimum-wage workers are demonstrating and picketing, demanding that their pay be increased to as much as $15 per hour — or more than double what most are earning now.
Not surprisingly, President Barack Obama joined the minimum-wage debate earlier this year when he proposed raising the federal minimum wage from $7.25 to $10.10 an hour. The president and many Democrats believe this will help decrease income inequality, which is a major Democratic priority and election-year talking point.
Now, Mayor Eric Garcetti has also jumped on the minimum-wage bandwagon. He recently proposed that Los Angeles join other cities like Seattle that have raised their local minimum wage. In Seattle, an increase in the citywide minimum wage to $15 an hour will be phased in beginning in April.
Our mayor’s proposal would raise the citywide minimum wage in Los Angeles to $13.25 an hour by 2017.
So, would raising the minimum wage in Los Angeles be helpful or hurtful to our local economy? I believe it would not only be hurtful, but that it could do serious harm to our economy at a time when our city can least afford it.
After more than five years of sluggish (at best) growth, the L.A. economy is finally starting to show some signs of life. This is the time when our local government should be promoting more pro-growth initiatives in order to ramp up economic activity even more.
A mandatory near-doubling of the minimum wage would do just the opposite. First of all, it would stymie hiring by businesses of entry-level workers. It would also force many businesses to lay off some of their entry-level workers in order to cut their labor costs and retain their profit margins.
Think about it: If businesses are forced to pay entry-level workers nearly twice the wage they are paid now, what do you think they’re going to do? Hire more of them? I don’t think so.
Simple reality
This is the simple economic reality that many people like our president and our mayor don’t seem to understand. Democratic political slogans like “income equality” and “a living wage” sound nice in theory, and they play on voters’ emotions. But in the real world, business owners have to manage their costs in order to earn a profit so they can hire and retain employees. The reality is that the higher labor costs that an increased minimum wage would impose have to be paid by somebody: the business in the form of lower profits and growth, customers in the form of higher prices or employees in the form of lost jobs.
Another reality is that the vast majority of people earning the minimum wage are low-skilled teenagers who are working part-time jobs during the summer or after school — not heads of families trying to manage households.
These jobs are an important steppingstone for teenagers as they gain their first experiences in the working world. If businesses are required to nearly double their wages, they will hire fewer of them — and many teens will miss out on the valuable real-world experiences offered by such part-time, low-skilled jobs.
I’ve got an idea for our mayor that I think would be much more effective in promoting economic growth in Los Angeles than raising the minimum wage: How about focusing on improving our city’s embarrassingly poor public school system?
As you probably know, Los Angeles has one of the worst public school systems in the country. Our system is woefully ill-equipped to prepare our students for entry into good colleges – where they can get the education and training they need to land well-paying jobs that can help them live comfortable, middle- and even upper-middle-class lives.
I call on Garcetti to stop pandering to voting blocs with his ill-advised and potentially destructive proposal to nearly double the minimum wage. Instead, focus your attention on something that would actually do Los Angeles some real economic good: improving our great city’s poor public school system.
Arthur F. Rothberg is managing director of CFO Edge, which provides outsourced chief financial officer services.
