Some businesses struggle to adapt, but others — including Starbucks — could see long-term benefits

By Beige Luciano-Adams

Less than a year after Santa Monica approved an ordinance bringing minimum wage increases in line with the city and county of Los Angeles — incrementally, to $15 by the year 2020 — the issue continues to inflame the perennial tussle between workers’ rights and employers’ bottom line.

The Santa Monica City Council voted in January to raise the minimum wage by 50 cents to $10.50, a change that took effect in July. The statewide minimum wage is set to reach $15 by 2022 for large businesses, and by 2023 for smaller operations.

At “Surviving the Reality of the California Economy: A Wakeup Call,” a panel discussion hosted by the Westside Council of Chambers of Commerce on Sept. 13, local business owners joined lawyers, economists and politicians to parse the impact on employers.

Panelists warned that fast-paced regulatory changes are leaving employers vulnerable to litigation and bureaucratic entanglement — and little room to adapt. Automation, workforce reduction and higher prices, many argued, won’t stem the red ink, especially for smaller businesses.

Bob Brandt, owner of the Red Car Brewery restaurant in Torrance, described taking on extra duties instead of filling new positions.

“As an owner, you will do whatever it takes to meet payroll,” Brandt said. “We’ll cut costs wherever we have to, we’ll leave positions open. …You’re going to see labor take a bit of a hit because it’s getting expensive.”

Anthony McDemas, a Malibu Chamber of Commerce member who attended, said he empathized with Brandt “because he just can’t get automation, he can’t get efficiency, and he’s accountable to both his bottom line as a business owner all the way down to service workers.”

At the other end of the spectrum, Sarah Rogers, director of partner resources for Starbucks, said the move toward higher minimum wages across the country has forced the coffee giant to examine its business model and look for efficiencies elsewhere — a privileged vantage point, she acknowledged, afforded the company by its scale.

The question now, Rogers said, is “how do we take this new wage climate and make it work to our advantage? How do you engage your employees at a higher level because of these wage increases, and then how do you leverage that to grow your business?”

Like Brandt, Rogers noted price increases can only go so far: “That tipping point is very real — there is only so much we can charge for a Frappuccino.”

Others pointed to a macroeconomic view, contending that higher prices will ultimately undermine the spirit of the law.

“In the end, this is simply going to make California a little bit more expensive. From my perspective that’s survivable — it’s already an expensive place,” said Christopher Thornberg of Beacon Economics, a Westchester-based research and consulting firm that specializes in economic analysis for business clients.

“Ultimately the biggest problem I see … is we are giving fewer and fewer opportunities to low-skilled people to get the experience and training and further themselves in life, because we’ve limited the kind of entry-level jobs that are available to them through this minimum wage,” Thornberg said.

State Sen. Joel Anderson (R-San Diego) called the raise “artificial.”

“That minimum-wage employee that we’re trying to lift, that we’re trying to help purchase a home … they just saw the price of everything go up, out-of-reach,” he said. “The lower class never got out of the lower class. We’re not really lifting people.”

Mark Edwards, a member of the West Hollywood Chamber, disagreed.

“I think it’s false to say ‘artificial,’ said Edwards. “We create economics. The conversation we’re not having is, ‘What kind of society do we really want? And how do we make that happen?’”

Speaking with The Argonaut after the event, Santa Monica City Manager Rick Cole pointed to history as the best response to detractors of the march toward living wages.

“Since the industrial era, employers have always claimed that progressive legislation would doom them. And yet history shows that employers have done best when consumers do well, and that times of our greatest prosperity are times when that prosperity is shared,” Cole said.

“There have always been business voices that said weekends, the 40-hour work week, minimum wage, workers comp, socialized medicine will be end of world — and so far the sun rose this morning, and I predict it will rise tomorrow,” he said.

From Starbucks’ vantage point, Rogers reported positive returns already evident in other areas where wage increases have been implemented — including Seattle, where the minimum wage is already at $15 per hour.

“We are seeing turnover go down. We are seeing some positive impacts,” she said.

Also atop the agenda were concerns over an increasingly antagonistic regulatory environment.

Kelly Douglas, an attorney with the Westchester-based law office Pettit Kohn Ingrassia & Lutz, acknowledged a trend in “wage trolls” and increased vulnerability for employers who don’t have a comprehensive grasp of the complex regulatory environment. But she also reported positive trends.

“Overall, with my clients I’ve seen an interesting effect: some of these changes are a decrease in lawsuits. The increase
in minimum wage and benefits does, on
a large scale at least, help improve performance. That in turn helps improve morale, and also helps improve retention,” Douglas said.

“And usually the lawsuits we see occur after an employee is separated from employment. By overall increasing retention you’re decreasing separation from employment, which then decreases [litigation]. There is definitely a positive result I’m seeing with my clients, large and small,” she said.

Cole acknowledged the inherent challenges of doing business in California, but he expressed confidence his city’s move toward higher minimum wages will benefit most.

“There is no question from studies done in the academic world — and they don’t all agree — that there will be winners and losers. Most businesses in Santa Monica will take this in stride. Some will be hurt by it. The question the council grappled with is how to minimize those pains for small businesses,” Cole said. “We worked very closely and patiently with the chamber and other business voices to craft an ordinance that would maximize the benefits and minimize the adverse impacts.”

Speaking with The Argonaut via telephone, Santa Monica Chamber of Commerce President and CEO Laurel Rosen stopped short of an enthusiastic endorsement of the ordinance, saying the city did its due diligence and she was now focused on making sure members are informed and have the tools they need.

“The most important thing the chamber can do at this point is [help employers] understand what they need to do in order to follow regulations, to protect their business and do the best they can to work with this new ordinance, and protect their employees and protect their bottom line. Because it’s here — it’s happening,” Rosen said.

Cole said the city’s close work with business and labor voices in crafting the ordinance will continue.

“We will come back after a year and take a look at what’s actually happening. And if we have to make changes, we are open to that.”