What the Experts Say About Hotel Minimum Wage Job Loss

Last week, the Los Angeles City Council gave final approval to an ordinance that will raise the minimum wage of hotel workers to $15.37 an hour, the second highest in the nation. In July of 2015, the hike will apply to employees in hotels with more than 300 rooms, and the following year to workers in hotels with greater than 150 rooms.

In 2008, when the City singled out hotels near the airport for a higher minimum wage, the City Council agreed to do an economic analysis before raising the rate beyond the airport area. Three studies were ordered – one backed by Labor, one from Business, and a third from a firm that all parties agreed upon. Unfortunately, the City Council gave little credence to these studies. I thought it might be useful to share with you some of the conclusions of those reports.

Christopher Thornberg of Beacon Economics found that such a steep increase in the minimum wage could result in a sharp decline in the number of jobs in the hotel industry. His study found that since 2007, the number of people employed at hotels in the county has risen by 12 percent, but during the same timeframe, hotel employment has declined 10 percent near the airport (where the hotel wage base had been raised).

He concluded that as many workers might be hurt by the proposed increase as would be helped by higher wages.

Another study by PKF found that if the ordinance were approved as proposed, there would be a “direct impact on new job creation … because developers will not want to risk an investment in new hotels due to the long-term real estate risks.” The study noted that the average annual growth rate for new hotel supply in the City of L.A. is significantly below the national average, resulting in an under-supply of hotel rooms in the market.

The study reported that no new hotels have been built in the LAX Corridor, and only one in Long Beach (which was already under development), since their respective wage hike ordinances went into effect.

Even the Los Angeles Times was critical of the Council, saying that “they’ve ignored unfavorable economic studies, tuned out valid industry concerns and overridden their own existing laws in an effort to enact what is in fact bad public policy.”

I have referenced before that a UCLA study from earlier this year revealed that the City of Los Angeles has one of the worst records for job creation of major cities in the nation – worse than even Detroit and Cleveland. Since 1990, the study indicated the city had lost 3.1-percent of its employment base. There are fewer jobs in the City now than there were 24 years ago.

What people need are jobs and the opportunity to move up. It is hard for me to understand how the action that the City Council took will help create jobs.

The Hollywood Chamber had urged the City Council to not single out the hotel industry but to roll the decision into the broader discussion of the citywide wage hike now being considered. That would have been the far wiser course.

Let’s hope that the City Council has a true debate on the merits and impacts of potential wage hikes before voting on the proposed citywide ordinance later this fall.

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Leron Gubler has been serving as the President and CEO of the Hollywood Chamber of Commerce for the past 22 years. His tenure since 1992 continues to oversee the great comeback story of Hollywood.

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