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Thursday, June 02, 2005 | Businesses that were forced to raise wages under Los Angeles’ living wage law in order to keep their city contract by and large did not discontinue bidding for municipal business or lay off employees as a result of increased personnel costs, an economic impact study released Thursday showed.

The report also found that income boosts generated by the 1997 law went to poor workers who needed it the most.

The results of the University of California study shed light on the labor issue just weeks after the city of San Diego passed a contentious living wage ordinance of its own. On April 12, the City Council and members of the public debated for nearly six hours a wage requirement for companies that do a certain level of city contract work before the council narrowly approved the proposal by a single vote.

Under San Diego’s living wage ordinance, workers from qualifying firms will earn $10 an hour if they are also granted health insurance, or $12 if they are not, beginning in the 2007 fiscal year. About 2,000 workers are expected to benefit in San Diego.

Los Angeles city’s living wage law stipulates that workers this year be paid $8.78 an hour if they are provided with health insurance or $10.03 an hour if they are not. About 9,600 workers were given wage hikes as a result, and 2,200 workers have had their health care coverage expanded, the report showed.

Eighty-two employers and 320 workers affected by the ordinance were surveyed over four years. Among the findings for Los Angeles:

– The researchers concluded that the affected employers cut jobs by less than 1 percent since the living wage law was enacted.

– About 70 percent of the workers can be considered low-income because they fall below a self-reliance standard that measures the costs of living. Only 4 percent are teenagers and 86 percent work full-time.

– Staff turnover rates at living wage firms were at 32 percent compared to 49 percent for similar non-living wage companies. Researchers said that firms have an easier time retaining employees by paying them better, and that on average 16 percent of the cost of the increase was recovered because of the lower turnover rate.

– Living wage employers’ costs for training new workers has stayed the same while that expense has increased for non-living wage firms.

– New hires by living wage firms are more likely to have more formal training (22 percent) than before the law was enacted (12 percent). The authors pointed to this statistic as a sign that taxpayer-funded work by the private sector was becoming more efficient.

– The $1.25 health care differential in Los Angeles was not enough to initiate health plans for workers because job-based individual health benefits in California cost an average of $1.49 an hour. San Diego passed its law with a health care differential of $2.

– Most workers surveyed in Los Angeles after the law passed still qualified for anti-poverty programs like Section 8 housing and food stamps.

Local living wage supporters said the study verifies the arguments they’ve made about the law’s benefits and should quell some of the business community’s concerns.

“We’ve had anecdotal experience before, but now we have some pretty good data,” said Donald Cohen, executive director of the Center on Policy Initiatives, a progressive think tank. “We’ve believed if you put money into people’s pockets that good things occur.”

Mitch Mitchell, vice president of public policy at the San Diego Regional Chamber of Commerce and a critic of the law, said taxpayers should be concerned that increased personnel costs will be passed onto them, but the study’s authors said that city contracts in most cases carry enough clout to force bidders to cut costs elsewhere.

Mitchell also predicted that forcing companies to pay higher wages will drive away small businesses from bidding on city contracts.

“You’ve heard from our small business members that they are less inclined to bid on a contract that includes a mandated wage,” Mitchell said. “Of the businesses that bid, how many have 50 employees or less, and is that higher or lower now?”

UCLA professor and co-author David Runsten said that firms bidding on city projects are significantly larger than before the law was passed, but that small businesses are still a large portion of the contractors. Of all the firms that contract with the city now, 61 percent have 50 employees or fewer and 43 percent have 20 employees or less, Runsten said.

Companies that qualified for the living wage requirement in San Diego included service contractors with contracts of $25,000 or more; entities that received $500,000 or more from the city, like the San Diego Convention Center; city facilities like Petco Park, Qualcomm Stadium and the iPayOne Center; entities that receive more than $75,000 in hotel tax money; and nonprofit organizations that do at least $25,000 in city business and have at least an 8-to-1 ratio between the highest and lowest salaries paid.

In Los Angeles, affected companies include service contractors that do $25,000 or more in business with the city; firms that receive more than $1 million in city funds; firms that operate concessions on city property; and entities that operate on city-leased land like the Los Angeles Airport or Staples Center.

Baltimore, Md., was the first city to adopt a living wage law in 1994, and since then more than 120 local governments have followed suit. San Diego was the last major city in California to pass such a law.

The full report is available

Please contact Evan McLaughlin directly at

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