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CITY COUNCIL AUGUST 31, 2021 STUDY SESSION

SUBJECT: STUDY SESSION ON THE CITY OF WEST HOLLYWOOD’S LIVING WAGE AND MINIMUM WAGE

PREPARED BY: CITY MANAGER'S DEPARTMENT (David Wilson, City Manager) (Janet Jimenez, Assistant to the City Manager) (John Leonard, Community & Legislative Affairs Manager) (Tara Worden, AICP, Business Development Analyst) (Paolo Kespradit, Management Analyst)

CITY ATTORNEY’S OFFICE (Lauren Langer, City Attorney)

______________________________________________________________________ STATEMENT ON THE SUBJECT: The City Council will receive information regarding the City’s living wage and a local minimum wage and discuss potential changes.

RECOMMENDATION: Receive information regarding the City’s living wage and a local minimum wage and provide direction based on the “Direction Needed from City Council” section at the end of this staff report.

BACKGROUND / ANALYSIS: At its meeting of February 1, 2021, the City Council discussed agenda item 2.M. (Update Living Wage Ordinance and Applicability) and directed staff to report back on the following items:

1) As part of the City’s annual review of the living wage adjustment, evaluate thecalculation for the base living wage to determine if it should be increased to meetthe intent and purpose of the policy.

2) Research establishing a requirement for the living wage to apply to developmentprojects requesting a development agreement or public benefit agreement forworkers involved in the construction of the projects and in the commercialbusinesses developed.

3) Review the minimum wage in West Hollywood, how the minimum wage relates tothe living wage, and review how to apply both.

At the May 17, 2021 City Council meeting, staff presented the City Council with the annual Consumer Price Index (CPI) increase to the City’s living wage to take effect on July 1, 2021. This item is an annual recurring update to the Living Wage Rate, pursuant to the City’s Municipal Code.

STUDY SESSION AGENDA ITEM 4

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In addition to the direction provided on February 1, 2021, the City Council further directed staff to report back on a potential amendment on how the Living Wage Rate is calculated, as it relates to healthcare benefits. This staff report will provide an overview of the City’s current living wage, provide examples of living wages in other cities, and answer the questions listed above. The staff report will also provide an overview of the history of the minimum wage, the minimum wage rates in other cities, feedback from workers and businesses, information about the West Hollywood workforce, and other research about the topic. At the end of the report, staff has prepared a series of items that staff is seeking the Council’s direction on. Living Wage A living wage is typically described as the minimum income necessary for a worker to be able to meet basic needs for an extended period of time. These needs include shelter, nutrition, healthcare, and other incidentals such as clothing. This standard generally means that a person working forty hours a week, with no additional income, should be able to afford a specified quantity of housing, food, utilities, transport, health care, and recreation. Living wage is often further defined as the wage equivalent to the poverty line for a family of four. Currently, the national Federal Poverty Level for 2021 for a family of four is $26,500 (U.S. Department of Health and Human Services, 2021 Poverty Guidelines), which equates to a wage of at least $12.74 per hour (for comparison, the current minimum wage in California is $13 per hour for employers with 25 or fewer employees and $14 per hour for employers with 26 or more employees). However, this is the poverty level for the nation and doesn’t account for the higher costs of living in California and Los Angeles County. For comparison, the State of California Department of Housing and Community Development publishes annual family income limits by county for household qualification in public housing programs. For Los Angeles County, a family of four is considered Extremely Low Income if their household income is below $35,450, while a Low Income family of four has a household income threshold of up to $94,600. The 2021 median income of a family of four in Los Angeles County is $80,000. (Department of Housing and Community Development, 2021 State Income Limits) History of the West Hollywood Living Wage The first living wage legislation was adopted in 1994 by the City of Baltimore. West Hollywood adopted Ordinance No. 97-505 on October 20, 1997. This ordinance, among other items relating to purchasing and contract administration, initiated a living wage rate for contract service providers to the City of West Hollywood. In enacting this ordinance, the City promoted an economic environment that protected public resources devoted to social support services and required service contractors to pay employees performing City-related work a predetermined living wage. More than 30 California cities, counties, and ports have some form of living wage requirement for contractors, over and above the minimum wage, according to the UC Berkeley Labor Center. When West Hollywood’s Living Wage Ordinance was adopted in 1997, the initial rate of the living wage was $7.25 per hour when health benefits were provided by the employer, and $8.50 per hour when health benefits were not provided (for comparison the State’s

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minimum wage was $5.00 per hour). The ordinance is applied to City contracts in excess of $25,000 with a term of at least three months. Each subsequent year, the City’s Living Wage was annually adjusted to correspond with adjustments to the retirement benefits paid to members of the Los Angeles City Employees Retirement System, and with an additional $1.25 an hour for health benefits (if not provided). The average annual adjustment was two percent (2%). In 2004 the City Council amended the City’s Living Wage Ordinance to adjust the living wage rate to correspond with cost-of-living adjustments provided through the California Public Employees’ Retirement System, which was a set two percent (2%) annually. In 2011 the City Council again amended the City’s Living Wage Ordinance to adjust the living rate annually based on the January to January CPI. How a Wage is Calculated Unfortunately, data is limited on cities’ initial methodology in determining an appropriate living and/or minimum wage. There is no simple formula or process that is regularly used to calculate a living wage (or a minimum wage) due to the many factors involved in making this determination. For example, in the City of Los Angeles (LA), the City Council’s Economic Development Committee chose the UC Berkeley Institute for Research on Labor and Employment (“IRLE”) to provide analysis on minimum wage rates and increases, which also informed the setting of its living wage. The IRLE study assessed the economic impact of the proposal on workers, businesses, and the city’s economy, and analyzed policy design options. The current minimum wage rate in LA is $15.00 per hour and the current living wage rate is $15.00 per hour when health benefits are provided by the employer and $16.25 per hour when health benefits are not provided. The minimum wage applies to all employees in LA and the living wage applies to city contracts of at least $25,000 or contracts at least three months in duration. LA’s minimum wage rate is to be adjusted annually based on the CPI for the Los Angeles / Long Beach / Riverside Consolidated Metropolitan Statistical Area. Other local cities, such as Santa Monica, Pasadena, and Malibu, used the LA reports, analysis, and methodology as a guide in establishing their own rates. These jurisdictions also gathered input from the community and reviewed local business and economic data. The MIT Department of Urban Studies and Planning publishes a Living Wage Calculator1 which estimates the cost of living in communities throughout the country based on typical expenses, family size, and adult employment (i.e., whether one or two adults are employed). The MIT calculator takes an expansive view that includes a family's estimated minimum food, childcare, health insurance, housing, transportation, other necessities (e.g., clothing, personal care items, cell phone, internet, etc.), and civic engagement costs (e.g., fees and admissions, audio and visual equipment and services, pets, toys, hobbies, playground equipment, other entertainment supplies, equipment, and services, reading, and education, etc.). Based on the MIT calculator, the appropriate living wage for a single person with no children in LA County would be $19.35. The table below (Table 1) shows the hourly living wages in various other cities in California.

1 The MIT Living Wage Calculator. The Department of Urban Studies and Planning at Massachusetts Institute of Technology, 2021, https://livingwage.mit.edu/. Accessed 20 Aug. 2021.

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Table 1. Comparison of Cities with Living Wage Ordinances Living Wage Rate Comparisons

City Health Benefits

Provided by Employer

No Health Benefits Provided by

Employer Rate

Differential Annual

increase

West Hollywood $13.91 $15.16 $1.25 CPI Santa Monica $17.64 $17.64 $0.00 CPI Los Angeles $15.00 $16.25 $1.25 CPI Pasadena $12.61 $14.83 $2.22 CPI Emeryville $16.97 $16.97 $0.00 CPI Oakland $15.30 $17.56 $2.26 CP Berkeley $16.87 $19.67 $2.80 CPI San Francisco $18.55 $18.55 $0.00 CPI

All living wage rates in the cities above apply to municipal contracts greater than or equal to $25,000

Living Wage Calculation & Healthcare Benefits As in several other cities (as shown in Table 1), West Hollywood currently has two living wage rates, one for employees who receive healthcare coverage from their employer and one for employees who do not. This two-tiered system was created to address the fact that many employees do not receive the basic benefit of healthcare from their employer and must purchase it on their own. However, with the implementation of the Affordable Care Act (ACA) healthcare has become more affordable for most individuals, and most low wage earners are eligible for state and federal subsidies that make healthcare coverage either free or very inexpensive. Additionally, the ACA requires that all employers that employ more than 50 employees provide healthcare coverage, so in most cases City contractors will provide healthcare coverage. At the May 17, 2021, City Council meeting staff was asked if the two-tiered system of living wage rates was still necessary due to the subsidies now available to low wage individuals. Effective January 1, 2020, state law requires California residents to maintain qualifying health insurance throughout the year. This requirement applies to each resident, their spouse or domestic partner, and their dependents. Currently, households between 0-150% of the federal poverty level do not have to pay any of their household income towards healthcare premiums. Households above 150% are required to pay a percentage of their household income towards their healthcare premium, for example, households between 150-200% of the federal poverty level would be required to pay 0-2% of household income towards healthcare premiums and those between 200-250% would be required to pay 2-4%, and so on. Based on the City’s current living wage (without healthcare coverage) of $15.16 per hour, a fully-employed single-income household earns $31,533 per year (based on a 40-hour work week). Based on these numbers, a household of one person earning the City’s living wage and not receiving healthcare from their employer would be eligible for reduced-cost health care, but would not be eligible for free healthcare. In this scenario the one-person household would pay between 2-4% of their income for health care coverage, which is approximately $600-$1,200 per year, or $50-$100 per month. Currently, the additional amount that an employee receives from the living wage if they do not receive healthcare

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coverage from their employer is $200 per month (equal to the $1.25 hourly differential rate multiplied by 160 hours). For households of more than one person that still only have one wage earner (at the City’s living wage of $31,533 per year) it is likely that they will pay nothing for healthcare coverage based on the subsidy tables and calculations provided by Covered California. Based on this information, the Council may wish to consider whether a two-tiered system tied to employer healthcare coverage is still appropriate for the living wage, since any employer with more than 50 employees is now required to provide healthcare coverage. Additionally, most households earning the City’s living wage that do not work for larger companies will be eligible to receive subsidies to pay for all their healthcare coverage and the cost would be minimal for those that do need to pay. Imposing a Living Wage on Development Agreements Statutory development agreements are entered into between the City and developers for a variety of reasons. For developers, the agreement can provide certainty that development standards will remain in effect. This is especially important for proposed developments that require a long lead time, or that are likely to be built in phases over a long period of time. Development agreements have also been utilized to allow deviations from normal development standards to accommodate a project that will provide unique benefits to the community where the property has been placed in a development agreement overlay zone. From the City's standpoint, statutory development agreements allow the City to negotiate for benefits to the community which would not have to be provided as part of the normal conditions of approval of a project. Development agreements allow developers to negotiate with cities to create a customized vested right by contract. The law gives parties broad flexibility to negotiate the particular terms of development agreements, subject only to a short list of mandatory terms set out by statute (duration of the agreement, the permitted uses of the property, the density or intensity of use, the maximum height and size of proposed buildings, and provisions for reservation or dedication of land for public purposes). Accordingly, the parties to a development agreement may negotiate a term requiring compliance with a living wage ordinance. Using a development agreement allows the parties to develop a unique land use project to advance the local agency’s land use policies creatively and responsibly through the give-and take of negotiations, as both parties address their respective needs and desires. Development agreements provide public agencies greater flexibility in imposing requirements on proposed development, such as development conditions, exactions and fees, because constraints and uncertainties that affect a local agency’s ability to unilaterally impose such requirements do not apply to mutually agreed upon development agreement provisions. However, from a developer’s viewpoint, local agencies may expect more project requirements than are financially or practically feasible, causing the developer to abandon the project. Essentially, a development agreement provides long term certainty to developers that they can build the desired project in exchange for the provision of public benefits. Paying workers a living wage can be considered a public benefit that is negotiated into a development agreement. The parties may agree to apply the living wage requirements to construction workers on

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the project itself. However, in instances where a project involves relatively minor construction activity, like erection of a wall or billboard, living wage application to construction workers has limited utility or impact. Also, requiring compliance with a living wage ordinance as part of a development agreement may act as a disincentive to development in the City generally. Some developers of beneficial projects may choose to develop elsewhere. Other developers may choose to develop under the current zoning ordinance to avoid the perceived burden of a development agreement or pursue a specific plan, which is another legislative tool that allows developers to create a development plan for a specific site in accordance with the General Plan. The specific plan, however, does not provide the long-term vesting that is inherent in a development agreement. On the other hand, in most cases where a development agreement has been negotiated, the developer has needed the agreement to proceed with the project as it was proposed. The parties may agree to apply the living wage ordinance to workers in the final project. However, it is not common to see this type of term in development agreements because it affects future tenants or operators and may not be practical depending on the use mix of the final project. The City Council reviewed this issue in 2011 and at that time decided not to implement a blanket rule requiring living wage on these development agreement projects (rather the term could be negotiated on a case-by-case basis depending on the specific project, use mix, impacts and public benefits proposed). The City Council requested to revisit this question earlier this year, noting that some recent development projects did not include living wage components. While applying a living wage requirement to a development agreement is possible, there are some practical limitations to a blanket policy, especially when the exact tenant mix is not known at the time of entitlement. Based on City Council direction, staff can continue to evaluate whether imposing the living wage requirement is appropriate for a particular proposed development agreement. The City Council could consider adopting a more formal policy encouraging this term, with some flexibility allowed through the negotiations depending on the specific project. For example, staff found one development agreement from North Hollywood in Los Angeles (2001) where the parties agreed that the developer would have its direct workers paid a living wage, and the developer would “make all reasonable efforts to maximize the number of living wage jobs” in the development once built. Additionally, when choosing tenants, the developer would “take into account as a substantial factor each prospective tenant’s potential impact” on living wage threshold. The developer would meet with prospective tenants and with a coalition of community organizations to discuss each prospective tenant’s impact on the living wage threshold. The developer was required to provide biannual reports regarding wage levels, and tenants were required to provide the developers with wage level information. Lastly, the agreement included a threshold goal that 75% of employees would be paid living wage, and if not met, the developer would pay a financial penalty and be required to meet with the coalition again to develop more steps to meet the threshold. This information is provided as an example and illustration of how creative terms can be developed to implement a more general policy direction from the Council on maximizing living wages, especially in projects that are required to provide some form of public benefit and/or request additional height or FAR. This

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consideration can also take into account recent hotel worker protections and labor standards as well as this larger conversation concerning a potential local minimum wage. Minimum Wage A minimum wage is the lowest hourly wage an employer can pay an employee for work. Currently, the federal minimum wage is $7.25 per hour (part of the Fair Labor Standards Act). Some states and cities have raised their minimum wage higher than that. In most instances, the higher of the prevailing minimum wage requirements is binding for employers. The City of West Hollywood municipal code does not specify a municipal minimum wage rate. As a result, the city follows the State of California minimum wage schedule (shown on the following page). The current minimum wage in West Hollywood as of January 1, 2021 for employers with 25 employees or less is $13.00 per hour and for employers with 26 employees of more is $14.00 per hour. History of Minimum Wage in West Hollywood At the September 8, 2014 City Council meeting, the Council adopted a resolution in support of an increase in the federal minimum wage and directed staff to research whether there is a need or justification to increase the minimum wage on a local basis and return to Council with recommendations. At the July 20, 2015 City Council meeting, the Council received a status report on regional minimum wage policies that sought to increase the minimum wage to $15 per hour. At the December 21, 2015 City Council meeting, the Council received an update of regional minimum wage policies. At the March 21, 2016 City Council meeting, the Council considered and provided direction on whether to establish a citywide minimum wage policy. The Council directed the City Attorney to prepare an ordinance establishing a city-wide minimum wage of $12/hour as of July 1, 2017 for businesses with 26 or more employees; $12/hour as of July 1, 2018 for businesses with 25 or less employees and non-profits; and include a learner’s exemption. On April 4, 2016, the California Governor signed a statewide minimum wage law (Senate Bill 3 Minimum Wage: in-home supportive services: paid sick days), which set a scheduled increase of the minimum wage as outlined in the table below. At the August 15, 2016 City Council meeting, the Council adjusted course in order to follow the State’s new minimum wage law increases instead of implementing a separate citywide minimum wage.

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Table 2. Statewide Minimum Wage Schedule State of California Scheduled Minimum Wage Increases

(By Number of Employees) Number of Employees

Effective Date 25 or Fewer 26 or More January 1, 2017 $10.00 (no change) $10.50 January 1, 2018 $10.50 $11.00 January 1, 2019 $11.00 $12.00 January 1, 2020 $12.00 $13.00 January 1, 2021 $13.00 $14.00 January 1, 2022 $14.00 $15.00 January 1, 2023 $15.00 $15.00

Jan 1, 2024 and beyond Prior year + U.S. CPI-W Effective January 1, 2024, the State’s minimum wage will be adjusted each January 1, based on the United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W) for the previous fiscal year (July 1 - June 30). By August 1st of each year, the State’s Department of Finance will calculate the adjusted minimum wage, and it will be rounded to the nearest ten cents ($0.10). The adjustment will be no higher than 3.5%, and in the event of a negative U.S. CPI-W the minimum wage will not be lowered. Minimum Wage Comparisons to Other Cities Table 3 (next page) compares the minimum wage of other surrounding cities for 2021, 2022, and 2023. As can be seen, some cities have different minimum wages for employers based on their size, with lower rates for employers with 25 or fewer employees (≤ 25) and higher rates for employers with 26 or more employees (26+). Cities on this chart differ on the effective date of a minimum wage increase (January 1 or July 1); for the purposes of this report the minimum wage listed is the increase for that particular year.

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Table 3. Minimum Wage Regional Comparisons

Minimum Wage Comparisons (By Number of Employees) 2021 2022 2023

City ≤ 25 26+ ≤ 25 26+ ≤ 25 26+ West Hollywood* $13.00 $14.00 $14.00 $15.00 $15.00 Beverly Hills* $13.00 $14.00 $14.00 $15.00 $15.00 Culver City* $13.00 $14.00 $14.00 $15.00 $15.00 Emeryville $17.13 $17.13 + CPI + CPI Long Beach[1] $13.00 $14.00 $14.00 $15.00 $15.00 Los Angeles [2] $15.00 $15.00 + CPI +CPI Oakland[3] $14.36 $14.36 + CPI + CPI Pasadena $15.00 $15.00 + CPI +CPI San Francisco[4] $16.32 $16.32 + CPI + CPI Santa Monica[5] $15.00 $15.00 + CPI + CPI Seattle[6] $15.00 $15.00 $15.75 $16.50

[1] City of Long Beach voters adopted Measure N requiring minimum compensation for hotel workers that are higher than the City’s minimum wage; City of Long Beach City Council adopted ORD14-002 requiring minimum compensation to concessionaire workers at the Long Beach Airport and Convention Center higher than the City’s minimum wage.

[2] City of Los Angeles adopted LAMC 183241 requiring a higher minimum wage than the City’s minimum wage for hotel workers with 150 or more guest rooms

[3] City of Oakland voters adopted Measure Z establishing a higher minimum wage for hotel workers with and without healthcare benefits, adjusted annually with inflation.

[4] City of San Francisco voters adopted Proposition J which establishes lower minimum wage than the City’s minimum wage for Government Supported Employees.

[5] City of Santa Monica adopted SMMC 4.63.015 requiring a higher minimum wage for hotel employees and businesses operating on hotel property aligning with the City of Los Angeles’ Citywide Hotel Worker Minimum Wage Rate.

[6] Wage numbers shown are for small employers, with 500 employees or less, that pay towards the individual employee’s medical benefits (at least $1.69/hr) and/or earns tips. Large employers, 501 or more employees, or small employers who do not pay toward the individual employee’s medical benefits and/or do not earn tips minimum wage is $16.69 and adjusted for inflation each year.

* Statewide minimum wage rate

Of the cities that have adopted a local minimum wage ordinance, some have included additional provisions or have adopted sector-specific wages. As noted in Table 3, the cities of Long Beach, LA, Oakland, and Santa Monica have adopted a different wage schedule for hotel workers and/or concessionaire workers. LA included an enhanced sick leave provision in their local minimum wage. Currently under State law, an employee accrues one (1) hour of paid sick leave for every thirty (30) hours worked. LA’s ordinance requires an employer to front-load at least forty-eight (48) hours of sick leave at the beginning of each year of employment, calendar year, or 12-month period or adhere to the State’s accrual of one (1) hour of paid sick leave for every thirty (30) hours worked. The paid sick leave is provided to all employees who work at least two hours in a particular week in LA for same employer for thirty (30) days or more within a year. Additionally, accrued unused paid sick leave shall carry over to the following year of employment and may be capped at a minimum of seventy-two (72) hours; however, employers may choose no cap or a higher limit cap.

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Subminimum Wage A subminimum wage is a two-tiered wage system that permits an employer to pay less than the minimum wage to tipped employees who customarily and regularly receive at least $30 per month in tips. The employer is allowed to take credit (“tip credit”) for the employee’s tips to make up the difference between the subminimum wage the employer is required is to pay and the required minimum wage. Currently the federal subminimum wage must be at least $2.13 per hour and the maximum “tip credit” that an employer can claim is $5.12 per hour (which is roughly 30% of the federal minimum wage of $7.25 per hour). Simply put a “tip credit” permits employers the opportunity to pay their employees less than the minimum wage, therefore allowing the employer to maintain lower wage costs and effectively transfer a portion of their overhead to the consumer. Forty-three states and the District of Colombia currently allow a subminimum wage. Seven states, including California, require employers to pay all workers the full minimum wage, and employees can receive tips as well; these states are commonly referred to as either “no tip credit” or “equal treatment” states. In 2016, when the City Council was considering the implementation of a citywide minimum wage, West Hollywood businesses asked the City to consider incorporating either a subminimum wage (a "tip credit") or a total compensation provision into any minimum wage law it may adopt. During the March 21, 2016 City Council Meeting, staff shared the barriers of implementing a subminimum wage in the City. The City of Sacramento attempted to include a provision titled “Total Compensation” in their minimum wage ordinance. However, the “total compensation” provision was deemed illegal by California’s Office of Legislative Counsel. The provision would have allowed an employer to not pay the city minimum wage to any employee whose total compensation rate for the previous pay period exceeded $15.00 per hour. It defined total compensation as “all monetary amounts received by an employee for their performance of work for their employer, including wages (whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation), bonuses, and gratuities”. At the conclusion of each pay period the employer would have needed to calculate the total compensation rate of each employee and determine if they needed to be paid the city minimum wage for the next pay period. The same legal challenges exist presently. Even if the City was to establish a local minimum wage higher than the State’s minimum wage, a subminimum wage/total compensation provision could not be implemented. Literature Review of Minimum Wage Policy Impacts Staff has conducted a literature review of recent policy and scholastic debates to provide a range of lessons regarding the minimum wage. The review displays many possible benefits as well as some cause for caution. Potential Benefits The most fundamental potential benefit to increasing minimum wage is the impact on the earnings of the working poor. This is an area where the research provides some semblance of consensus, and there is strong evidence to support the idea that an

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increase in the minimum wage increases the average earnings of affected workers.2 Classical economists are skeptical of whether increasing the minimum wage has a positive impact on the net labor income of affected workers. The classicists who argue that net labor income is negative base their argument on the idea that the minimum wage has significant negative employment effects (“disemployment”). According to this perspective, fewer workers take home the higher wages, and therefore the net labor income for affected workers decreases.3 Revisionist economists dispute classicists’ employment findings, and argue that even when moderate disemployment occurs, the impact on average wages is still positive.4 Both schools of thought believe that the minimum wage raises wages for workers who remain employed, so the impact on net labor income becomes an issue of employment effects, and this is an issue on which there is no consensus. For those who remain in the workforce, potential benefits to receiving an increased minimum wage can lead to reductions in income inequality and reliance of Government public assistance programs. It can also result in long-term social benefits among the affected population.5 For example, some of these benefits can include improved moral, improved health, no need to work additional jobs, more time with family, etc. Both classicists and revisionists agree that raising the minimum wage is not an efficient tool for combating general poverty, as it’s believed that a lack of employment rather than low wages is the root cause of consistent poverty.6 Potential Costs The potential costs associated with increasing the minimum wage are usually expressed in terms of employment effects, but when municipal governments unilaterally raise wages, the potential for business closure or relocation should also be considered. Both of these potential costs flow from the way that a minimum wage increase affects a business’s payroll expenses, and how businesses react if there are subsequent increases in their overall operating costs. Increasing the minimum wage can negatively impact employment in a number of ways. First, employers may substitute the now more expensive low-skilled labor with some combination of labor-saving technology, capital, or higher-skilled labor.7 Second, employers may raise prices, and if they do these higher prices will reduce the quantity of product demanded by consumers and thus impact/reduce the businesses’ own demand for labor. Third, businesses may find they can no longer compete and either leave the market altogether or relocate to somewhere that allows for lower payroll costs. This final possibility is of heightened significance for municipalities that are deciding whether or not to raise their minimum wage, especially if they are in economic areas that do not have uniform wage floors, like Los Angeles County. However, many of West Hollywood’s

2 Belman and Wolfson, 2014. What Does the Minimum Wage Do? 3 Neumark, David, and William Wascher. 2004. “Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis.” Industrial and Labor Relations Review, Vol. 57, No. 2 (Jan.), pp. 223-48 4 Belman and Wolfson, 2014. What Does the Minimum Wage Do? 222. 5 Dube, Arindrajit. 2017. “Minimum Wages and the Distribution of Family Incomes.” 6 Neumark, 2007. “The Effects of Minimum Wages.” 7 Neumark, 2007. “The Effects of Minimum Wages.”

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neighbors and comparable cities already have higher minimum wages, such as Los Angeles, Santa Monica, and Pasadena. There is not consensus on the potential costs of raising minimum wage, however. Revisionist economists argue that increases in payroll costs have a relatively limited impact on overall operating costs and that labor substitution may not lead to disemployment for low-wage workers. From this point of view, it is argued that while a minimum wage increase does raise payroll costs, it also reduces the costs associated with employee turnover. Workers receiving higher wages are less likely to leave their current position, reducing overall operating expenses. A 2016 study estimated that reduced turnover resulting from a minimum wage increase offsets 20% of the increased payroll costs.8 The differing research between classicist and revisionist economists suggests that further study is needed to determine the potential costs and benefits of raising the minimum wage in the City of West Hollywood. Studies of Citywide Minimum Wage Policies The first cities to implement citywide minimum wages were San Francisco, Santa Fe, and Washington, DC. In the first study of the economic effects of a citywide minimum wage, economists studied the impacts the San Francisco’s adoption of an indexed minimum wage, set at $8.50 in 2004 and $9.14 by 2007. This study surveyed table-service and fast-food restaurants and found that the policy increased worker pay and compressed wage inequality, but did not create any detectable employment loss among affected restaurants. However, fast-food and table-service restaurants did increase prices to off-set increased payroll costs.9 In 2014, a new wave of citywide minimum wage policies began to be enacted in large cities including Los Angeles, San Francisco, and Seattle, followed by Oakland, San Jose and other Bay Area cities. By the end of 2016, minimum wage levels in Oakland, San Francisco, Seattle, and San Jose had reached $13. Seattle implemented a phased increase to its minimum wage law in 2015. Depending on business size, presence of tipped workers, and employer provision of healthcare, the law required the minimum wage to be set four different levels, ranging from $11 to $15 by 2017. Two studies of the Seattle minimum wage published in June of 2017 found two very different conclusions. One study showed that wages in food service did increase, however wages increased much less among full-service restaurants, indicating that employers made use of the tip credit component of the law. Employment in food service was not affected.10 In contrast, another study found that reduced hours and reduced employment left Seattle workers worse off after the 2016 minimum wage increased to $13. The study found that the policy reduced hours worked in low-wage jobs by around 9%, while hourly wages in such jobs increased by around 3%. Consequently, total payroll fell for such jobs, implying

8 Pollin and Wicks-Lim, 2016 “A $15 U.S. Minimum Wage.” 9 Dube, Arindrajit, Suresh Naidu, and Michael Reich, 2007. “The Economic Effects of a Citywide Minimum Wage” 10 Reich, Michael, Sylvia Allegretto, and Anna Godoey, 2017. “Seattle’s Minimum Wage Experience 2015-16”

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that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.11 West Hollywood Workforce Profile The intent to raise the minimum wage is the idea that the policy approach has ability to ensure that workers can provide their families with basic day-to-day necessities. Therefore, a profile of the workers who would be affected is a critical component of any minimum wage policy discussion. The findings of a report by the Institute for Research on Labor and Employment (IRLE) at University of California at Berkeley found that restaurants are likely to be the most affected industry.12 An analysis of Quarterly Census of Employment and Wages (QCEW) data in Table 4 reveals that Food Services and Drinking Places is the largest subsector of economic activity in West Hollywood, accounting for 17% of the overall workforce pre-pandemic (2019) and 12% in 2020. This suggests that a minimum wage increase is likely to have a greater impact on the West Hollywood workforce. However, this effect is offset by significantly better compensation for West Hollywood workers in these industries. According to the QCEW data provided in Table 4, average weekly wages for employees in the hospitality industry are greater than the State’s current minimum wage requirements, and these totals do not include all tipped earnings or wages. For example, the 2020 average weekly wages for an employee in the Food Services and Drinking Places category was $634, which is equal to an hourly wage of $15.85, which is almost $3 higher than the current state minimum wage. This means fewer workers would be affected by an increase which then suggests a smaller impact to the West Hollywood workforce and West Hollywood businesses. It should be noted that the table below only shows the fourteen largest industry sectors in West Hollywood, and thus does not total to 100%.

11 Jardim, Ekaterina, et al. 2017. “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle” 12 Reich, Michael, Ken Jacobs, Annette Bernhardt and Ian Perry, 2014. “The Mayor of Los Angeles’ Proposed City Minimum Wage Policy: A Prospective Impact Study”

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Table 4. Profile of Largest Workforce Sectors

West Hollywood’s Largest Industries by Share of Overall Employment, 2019 and 2020

Subsector (NAICS)

Annual Average

Employment

Share of Overall

Employment Total

Annual Wages Average Weekly

Wages

2019 2020 2019 2020 2019 2020 2019 2020 Food Services and Drinking Places** 7,553 4,902 17% 12% $251,427,506 $161,592,596 $640 $634

Professional, Scientific, and Technical Services 2,430 2,376 5% 6% $308,915,429 $301,823,634 $2,445 $2,443 Social Assistance 1,949 1,811 4% 5% $41,813,395 $41,649,715 $413 $442 Ambulatory Health Care Services 1,569 1,564 4% 4% $149,532,935 $162,075,191 $1,833 $1,993 Accommodation (Hotels) 2,021 1,393 5% 4% $98,602,707 $68,942,664 $938 $952 Food and Beverage Stores 1,093 1,114 2% 3% $36,249,249 $40,771,162 $638 $704

Motion Picture and Sound Recording Industries 941 966 2% 2% $152,189,092 $173,730,801 $3,110 $3,459 Government 796 931 2% 2% $62,236,487 $70,788,262 $1,504 $1,462 Performing Arts, Spectator Sports, and Related Industries 841 894 2% 2% $231,188,207 $216,523,592 $5,286 $4,658 Other Information Services 642 805 1% 2% $282,487,936 $338,185,155 $8,462 $8,079 Real Estate 685 689 2% 2% $48,928,780 $52,487,436 $1,374 $1,465 Personal and Laundry Services 1014 648 2% 2% $38,826,610 $27,830,638 $736 $826 Administrative and Support Services 742 577 2% 1% $48,447,159 $42,429,193 $1,256 $1,414

Amusement, Gambling, and Recreation Industries 1,101 527 2% 1% $32,779,859 $20,468,769 $573 $747 Subtotal 23,377 19,197 53% 49% $1,783,625,351 $1,719,298,808 $1,467 $1,722 Total, All Sectors 44,458 39,559 $3,751,572,453 $3,763,943,086 $1,623 $1,830

**Data does not include tipped wages. Worker hours are not reported, and therefore hourly wages are not available. Source: State of California Employment Development Department. Quarterly Census of Employment and Wages 2019 & 2020

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West Hollywood Resident Workforce An important workforce category for this discussion comprises workers who both live in and are employed in the City of West Hollywood. An increase in these resident-workers’ earnings (resulting from an increase in the minimum wage) would have the most positive and direct economic impact on the city, as their new earnings are more likely to be spent within the city limits. For residents who work outside of the City of West Hollywood, their incomes would not be affected by an increase in West Hollywood’s minimum wage. Workers who work in West Hollywood but live elsewhere are also an important group. A significant portion of these non-resident workers additional income (resulting from an increase in the local minimum wage) would likely be spent outside of the city. This poses a challenge because that added spending is an important economic counterbalance for any additional costs that local businesses would accrue. However, it should be noted that since these non-resident workers are spending a significant amount of time in West Hollywood, some of their increased income would be spent in the city. Additionally, with when workers earn a higher wage they are more likely to stay at their jobs for longer, thus reducing turnover and increasing the quality of customer service.

• Residents who work and live in West Hollywood: 5,397 • Residents of West Hollywood who work elsewhere: 19,729 • Workers who work in West Hollywood and live elsewhere: 25,87413

Workforce Outreach Meeting City staff hosted worker outreach discussions on the minimum wage on August 23, 2021 at 9:00am and 4:00pm. These meetings were publicized via a City press release and digital media outlets including social media and the City’s website. Additionally, City staff reached out to representatives of the Los Angeles County Federation of Labor, United Food and Commercial Workers Union Local 700, and Unite Here Local 11, to invite their membership. Although the City conducted both specialized and general outreach there were some barriers in reaching West Hollywood workers including marketing to those employees who may not be following the City on its digital media outlets or local news organizations, other personal commitments that can take precedent, time to attend these meetings can mean time out of work without pay, and general lack of engagement. In total, 43 attendees participated in the worker outreach meetings. Most of the employees that spoke during the meetings indicated that they work in the hotel industry. City staff presented the workforce with information regarding the City Council’s direction, history of the City’s living wage and minimum wage, and conducted a survey in both English and Spanish. Of the 43 attendees present, 19 individuals participated in the survey; the results below

13 United States Census Bureau. “Sex of Workers by Place of Work – Place Level.” Data.census.gov. 2019. Web 8 Aug. 2021. https://data.census.gov/cedsci/table?t=Commuting&g=1600000US0684410&y=2019&tid=ACSDT5Y2019.B08008&hidePreview=true

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are rounded to the nearest percent. Due to the number of respondents (19) to the survey, the data presented below does not reflect a direct correlation to all workers in West Hollywood.

• Workers indicated they are employed in the following industries: Hotel (36%), Entertainment (7%), Office (7%), and Retail (7%). 43% of respondents work in other industries not specifically listed in the survey.

• 76% of respondents do not live in West Hollywood.

• 76% of respondents work in West Hollywood.

• Workers indicated they commute to their job in West Hollywood as follows: 0-2 Miles (35%), 3-5 miles (29%), 6-10 miles (18%), 11-20 miles (12%), and 20+ miles (6%).

• 71% of respondents are employed full-time.

• Hourly wages: 43% of respondents earn more than $19 per hour, followed by $15 per hour (28%), $16 per hour (14%), and $17 per hour (14%)

• Annual wages not including tips: 43% of respondents earn $20,001-$40,000 per year, followed by $40,001-$60,000 (14%), $80,001-$100,000 (14%), Over $100,000 (14%), and below $20,000 (7%).

• 57% of respondents are hourly employees.

• 64% of respondents have one job while 36% have more than one job.

• 57% of respondents report their employer pays for their health insurance. According to feedback from workers at the outreach meetings, the pandemic has left workers behind and with little to no savings; increasing wages would assist in financial independence from their families and reduce rent sharing with other people. While the City’s minimum wage is consistent with the State’s minimum wage, it falls behind those of other surrounding cities whose minimum wages are anywhere from $1 or $2 more per hour. Workers believe that wages should be consistent across the County which would provide for a more equitable and level playing field for an increased quality of life. Additional statements from workers include:

• Eliminate the need to obtain a second job

• Increasing cost of goods (food, gas, etc.) has necessitated the need for wages to meet those expenses

• The current minimum wage is difficult for those with families

• Increased wages would provide opportunities for workers to move to locations near their place of employment, reduce reliance on their families, and eliminate the need for rent-sharing

West Hollywood Business Profile Minimum wage increases raise low-wage workers’ incomes, but it is their employers who pay those wages. Additional research and data collection is needed to determine whether

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employers will be able to absorb increases in payroll costs, and how those offset costs impact the local economy. A minimum wage increase will have the largest effect on low-wage industries. These industries will experience the most dramatic increase in payroll costs, leading to increases in operating costs. Table 5 (next page) reveals that employment in Social Assistance will experience the largest benefit to wages West Hollywood. 99% of Social Assistance jobs in West Hollywood are categorized as Services for the Elderly and Persons with Disabilities according to the North American Industry Classification System (NAICS) code reported by the State of California Economic Development Department (EDD). Many recipients that receive care from Social Assistance providers are likely on fixed incomes. Increases in the cost of care could prohibit or limit these recipients from accessing the care they need. The largest employment sector likely to be impacted by an increase in minimum wage is Food Services and Drinking Places, accounting for 17% of the West Hollywood workforce pre-pandemic in 2019, and 12% in 2020. Restaurants and bars were highly impacted by COVID-19 and the related Public Health Officer Orders, which forced many businesses to close for a majority of 2020 calendar year. Given that these establishments typically have large concentrations of low-wage workers, many of whom are currently experiencing unemployment, an increase in the minimum wage would add additional hurdles to rapid reopening and rehiring.

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Table 5. Profile of Business Sectors Most Impacted by Wage Increases (sorted from lowest 2020 average weekly wages to highest)

West Hollywood’s Low-Wage Industries by Average Weekly Wages, 2019 and 2020 Subsector (NAICS)

Annual Average Employment

Share of Overall Employment

Total Annual Wages

Average Weekly Wages

2019 2020 2019 2020 2019 2020 2019 2020 Social Assistance 1,949 1,811 4% 5% $41,813,395 $41,649,715 $413 $442 Repair and Maintenance 108 82 0% 0% $2,590,963 $2,303,523 $461 $540 Food Services and Drinking Places** 7,553 4,902 17% 12% $251,427,506 $161,592,596 $640 $634 Food and Beverage Stores 1,093 1,114 2% 3% $36,249,249 $40,771,162 $638 $704 Gasoline Stations 50 54 0% 0% $1,689,786 $1,998,471 $650 $712

Amusement, Gambling, and Recreation Industries 1,101 527 2% 1% $32,779,859 $20,468,769 $573 $747 Personal and Laundry Services 1014 648 2% 2% $38,826,610 $27,830,638 $736 $826 Printing and Related Support Activities 42 35 0% 0% $1,839,654 $1,507,604 $842 $828 Educational Services 25 105 0% 0% $22,324,951 $4,728,907 $17,173 $866 Rental and Leasing Services 21 13 0% 0% $876,659 $585,504 $803 $866 Nursing and Residential Care Facilities 620 449 1% 1% $26,720,940 $21,237,911 $829 $910 Accommodation 2,021 1,393 5% 4% $98,602,707 $68,942,664 $938 $952 Health and Personal Care Stores 364 112 1% 0% $17,919,366 $5,692,303 $947 $977 Subtotal 15,961 11,245 36% 28% $573,661,645 $399,309,767 $691 $683 Total, All Sectors 44,458 39,559 $3,751,572,453 $3,763,943,086 $1,623 $1,830 **Data does not include tipped wages. Worker hours are not reported. Source: State of California Employment Development Department. Quarterly Census of Employment and Wages 2019 & 2020

Business Roundtable Feedback Following the success of the Small Business Roundtable meetings, staff held a roundtable to discuss the topic of minimum wage in West Hollywood on April 16, 2021. This meeting was promoted on the City’s website and through the West Hollywood Chamber of Commerce and West Hollywood Travel & Tourism Board. 40 business

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owners and managers were present. According to feedback from businesses of mid-size restaurants with less than 25 employees, payrolls costs are anticipated to increase 25-30% if a higher minimum wage is adopted. To mitigate the increased payroll costs on overall operating costs, business owners will need to increase the cost of goods sold. For example, to offset $60,000 payroll increase a business would need to generate and additional $150,000-$200,000 in top line sales to manage operating costs. When restaurants raise prices to offset these new costs, those that serve liquor have general liability insurance policies with liquor liability endorsements. The liquor liability rate is tied to the gross revenue so as you increase prices to offset higher wages you are also increasing your insurance premium costs inadvertently. Additional statements from businesses include:

• Aggravates unemployment in an economic downturn • Higher prices, with a particularly significant impact on fixed‐income populations • Disadvantage to small businesses versus large chains:

o Larger businesses are better positioned to absorb increased staffing costs o Result in potential loss of small business employers

• Discourages businesses from locating or remaining in West Hollywood • Raising wages for the lowest-paid workers creates a “ripple effect”

o Increased taxes and insurance costs based on increased payroll costs o Increased compensation to salaried employees

• Businesses will offset increased payroll costs by: o Raising prices of goods and services o Eliminating or reducing employee benefits and incentive/merit pay o Reducing staff, impacting customer service o Going out of business or leaving West Hollywood, leading to higher

commercial vacancy rates

Living Wage and Minimum Wage Intersection The City’s current Living Wage policy is adjusted at the onset of every fiscal year based on the annual Consumer Price Index (CPI); a tool used to measure inflation year over year. For 2021-2022, the Living Wage floor is $13.91 per hour for businesses that provide healthcare and $15.16 per hour for businesses that do not provide healthcare, a difference of $1.25 per hour. The State minimum wage policy is adjusted at the beginning of the calendar year by one dollar, until 2023 when all businesses will be required to pay a $15 minimum wage. After 2023, the rate will be adjusted annually for inflation based on CPI. Graph 1 (next page) provides a comparison of the City’s living wage to the State minimum wage schedule based on scheduled increases and using the ten-year average annual

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CPI adjustment (2%). Based on these estimates and the assumption that no changes are made to the State minimum wage, the State minimum wage requirement for small businesses ($14 per hour) will surpass the floor of the City’s living wage ($13.91 per hour for employers that provide employee healthcare) in January 2022. By 2023, the minimum wage for all businesses ($15 per hour) will be greater than the floor of the living wage ($14.20 per hour with healthcare), effectively rendering the City’s living wage with healthcare rate inapplicable. Table 6 (next page) compares California cities and their current living wage and minimum wage for 2021. In most cities, the current living wage is higher than their respective minimum wage, except for the City of Pasadena whose living wage is less than their minimum wage and the City of Los Angeles whose living wage is the same as their minimum wage. Graph 1. Intersection of Living Wage and Minimum Wage

City Living Wage:+ Annual CPI …

State Min. Wage: $15/hr by 2023

for all businesses+Adjusted by CPI in

following years

$9

$10

$11

$12

$13

$14

$15

$16

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

City Living Wage and State Minimum Wage Comparison

City Living Wage - No Healthcare

City Living Wage - Healthcare

State Min Wage - Small Businesses

State Min Wage - Large Businesses

State Min Wage - All Businesses

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Table 6. Regional Comparisons of Cities’ Living and Minimum Wage Policies

2021 Hourly Wage Comparisons Living Wage Minimum Wage

City No Health Benefits Provided

Health Benefits Provided

≤ 25 employees

26+ employees

West Hollywood $15.16 $13.91 $13.00 $14.00 Berkeley $19.67 $16.87 $16.32 $16.32 Emeryville $16.97 $16.97 $17.13 $17.13 Los Angeles $16.25 $15.00 $15.00 $15.00 Oakland $17.56 $15.30 $14.36 $14.36 Pasadena $14.83 $12.61 $15.00 $15.00 San Francisco $18.55 $18.55 $16.32 $16.32 Santa Monica $17.64 $17.64 $15.00 $15.00

Direction Needed from City Council Staff is recommending further stakeholder outreach and engagement as well as further analysis by an independent third-party, however, to inform this outreach and analysis staff is seeking preliminary direction from the City Council on the following items/options.

1. Living Wage Ordinance a. Should the City continue to have a living wage? b. Should the current living wage rate be adjusted to a higher amount? c. Should the City continue to use a two-tiered approach for the living wage,

including a rate for employees with employer provided healthcare and one for employees without employer provided healthcare?

d. Should the living wage rate be applied to more than only City contractors? e. Should development agreements be subject to the living wage or should the

City continue to evaluate this on a case by case basis? f. Based on the answers to the above questions, provide direction for

additional study and request staff to return with a proposed living wage increase before the end of FY 2021-22 (see next steps below).

2. Minimum Wage a. Should the City potentially establish a local (City) minimum wage that is

higher than the current state rate? b. If so, what general range for the rate should be studied (for example, $15-

$18 dollars per hour)? c. Should staff consider a phased approach for any potential increase? d. Should staff consider any other considerations for any potential local (City)

minimum wage (e.g. sick leave, sector-specific wage)?

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e. Based on the answers to the above questions, provide direction for additional study and request staff to return with a proposed minimum wage ordinance before the end of FY 2021-22 (see next steps below).

Over the past few months, staff has complied the information and data in this staff report. Staff is now seeking further direction on the components listed above. Based on that direction, staff recommends additional stakeholder outreach and engagement as well as further analysis by a knowledgeable, independent third party. Should the City Council direct staff to continue down this path, staff recommends that the collaborative process include:

a. The creation of a Living Wage/Minimum Wage Working Group comprising workers, businesses, advocacy groups, and community members.

b. A citywide wage survey of West Hollywood workers. c. Expert input from a labor center (e.g., UCLA or UC Berkely). d. Commission of an independent economic study of potential impacts to

businesses, the workforce, and residents if a local minimum wage is implemented.

Staff anticipates that the recommended process of research and community outreach will take approximately six to nine months to complete. At the end of the process, staff would present findings and recommendations to the City Council. CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLLYWOOD GENERAL PLAN: This item is consistent with the Primary Strategic Goal(s) (PSG) and/or Ongoing Strategic Program(s) (OSP) of:

• OSP-1: Adaptability to Future Change. In addition, this item is compliant with the following goal(s) of the West Hollywood General Plan:

• G-2: Maintain transparency and integrity in West Hollywood’s decision-making process.

• ED-4: Monitor and evaluate economic conditions affecting the City’s economic climate.

EVALUATION PROCESSES: N/A

ENVIRONMENTAL SUSTAINABILITY AND HEALTH: N/A

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COMMUNITY ENGAGEMENT: The City hosted a Small Business Roundtable on April 16, 2021 to obtain feedback from West Hollywood businesses and disseminated a survey with the West Hollywood Chamber of Commerce to gather data regarding potential impacts of a minimum wage increase. Staff also conducted two West Hollywood worker outreach meetings, one in the morning and the other in the afternoon, to gather information from workers on August 23, 2021.

OFFICE OF PRIMARY RESPONSIBILITY: CITY MANAGER'S DEPARTMENT

FISCAL IMPACT: None at this time. Any increases to the current living wage would result in increased costs to the City due to an increase in vendor costs. The exact amount would be determined once a new rate is adopted. Should the City Council direct staff to undertake an independent wage survey and/or economic study, staff would determine the total cost and return to Council to request any necessary funding.

ATTACHMENT: None