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LA City Council Minimum Wage Hike for Hotel Industry Will Cost Jobs, Taxes and Future, Independent Study Shows

Entry-Level Positions and Convention Center Plans at Risk; Workers in Other Industries Left Without Similar Economic Support

SACRAMENTO, CA--(Marketwired - June 26, 2014) - A Los Angeles City Council proposal to expedite a minimum-wage increase for hotel workers would have serious negative consequences for hotel workers and the city's economy, according to an independent study released today.

The City Council is considering a measure that would raise the minimum wage to $15.37 per hour for hotel workers in 2015, making it the highest amount with the quickest implementation in the nation, according to the study by PKF Consulting USA.

"The more we examined the data, the more the unintended consequences became clear," said Bruce Baltin, a PKF senior vice president who teaches at the Sol Price School of Public Policy at the University of Southern California. "The minimum wage proposal, as it currently stands, will hurt some industry employees, reduce city hotel-related taxes, and slow or prevent critically needed hotel expansion."

The study, "Impact of Minimum Wage Increase on Los Angeles Hotel Workers," found the following problems with initial proposals by the City Council that will lead to negative outcomes:

  • The $15.37 per hour minimum wage under discussion represents the largest percentage increase of any recent minimum wage law -- larger even than San Francisco. The increase would be made in too short a time for businesses to adjust.
  • The proposals fail to account for the higher earnings of tipped workers; an appropriate consideration for tips would reduce the economic burden on hotel payrolls by 26 percent.
  • Only non-union hotels would be covered, resulting in an unfair system for both workers and hotels, particularly where LA City boundaries are next to other unaffected cities.
  • The increase is limited to the hotel industry; rather than a citywide increase that applies to all minimum wage workers in all industries including retail and restaurants.

"We're not surprised by the study's conclusions, because we have already seen layoffs and financial losses at hotels at SeaTac and Long Beach because of similar ordinances," said Lynn S. Mohrfeld, President & CEO of the California Hotel & Lodging Association, which sponsored the study. "We're confident that the study the City Council is about to conduct will be the third independent study to confirm these harmful unintended consequences."

The report found that the economic burden of a rapid, hotel-only wage increase will cause hotel companies and outside investors to reconsider plans to build or expand hotel space in the city. That could prove devastating to the city's hopes to attract large groups and meetings to the new convention center because there would not be enough hotel rooms to accommodate them.

It is likely, the report said, that hotels would curtail or eliminate things like room service, specialty dining and other amenities, making hotels in Los Angeles less competitive compared to nearby cities. That would, in turn, reduce occupancy and lead to a corresponding reduction in the hotel taxes collected by the city.

The California Hotel & Lodging Association (CH&LA) is the largest state lodging industry association in the nation and a Partner State Association of the American Hotel & Lodging Association. Its members include all segments of the lodging industry including the California Association of Boutique & Breakfast Inns (CABBI) -- California's largest association of professional innkeepers and certified bed and breakfast inns. CH&LA is the leading resource for communicating and protecting the rights and interests of the California lodging industry. CH&LA was established in 1893. CH&LA is on the web at www.calodging.com.

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