It seems that wherever local employers turn these days, someone is trying to get more money out of them.
There are living wage proposals, hundreds of thousands of union members demanding higher pay and benefits, and the threat of a multibillion-dollar hike in workers’ compensation benefits.
In the current booming economy, most employers can probably afford these hits,for now. But when the torrid rate of growth slows, as it inevitably will, a different story will emerge. Economists say the costs will hit hard, prompting employers to defer expansions, cut costs and even lay off workers.
“When that rainy day comes, it’s going to pour,” said Esmael Adibi, director of the Anderson Center for Economic Studies at Chapman University.
Added Carol Schatz, president of the Central City Association in Los Angeles: “We acknowledge that there are serious problems out there that may require some funds from business. But we want to be a partner with others in solving these problems, not just an endless wallet for others to turn to.”
If all that sounds vaguely familiar, it should. After all, it was only seven or eight years ago that businesses around the state were reeling from the cumulative effects of the recession and onerous government fees and regulation.
Hundreds of firms packed up and left for lower-cost places like Arizona, Nevada and Texas; thousands of others that couldn’t move simply closed their doors.
Empty Promises?
In response, government leaders hastily convened economic summits. They pledged to cut taxes and fees and streamline bloated and unresponsive bureaucracies. They proclaimed that government had learned its lesson and would listen to businesses and keep them happy.
Today, it’s a different story.
Both LA city and county have adopted living wage ordinances requiring companies doing business with them to pay employees at least $7.50 an hour, over the objections of the business community.
And there’s been a rise in union activism, as demonstrated by the LA janitors’ strike against cleaning contractors and the carpenters’ dogging of Covi Concrete in OC. More labor actions could be in the offing later this year when even more contracts expire and the Democratic National Convention in LA provides a high-profile backdrop for activists.
But the most sweeping additional cost of all could come from Sacramento, where a hike in workers’ comp benefit premiums is being debated. Gov. Gray Davis vetoed a $2 billion increase last year, but there’s no telling what might happen in an election year when Democrats are relying heavily on union support. When coupled with double-digit increases in workers’ comp insurance premiums, the move could hit employers very hard.
“In Sacramento, there still seems to be some concern, especially from Gov. Gray Davis, about the impact of major tax and benefit hikes on business,” said Fred Main, senior vice president of the California Chamber of Commerce. “But in LA, San Francisco, Oakland and other areas where public employee unions carry significant weight, there seems to be less concern about these impacts and more willingness to bow to labor demands.”
Of course, every new fee and mandate targeting employers has its supporters. For example, as the economic boom has rolled on, unions have argued that increases are needed to help lift the huge numbers of working poor out of poverty.
Along with addressing the plight of the working poor, government entities are turning to businesses for help with other issues. It’s the cumulative effect of these bites out of the bottom line that most concern business leaders.
“The consequences of each of these things occur so gradually that they aren’t even noticed,” said Eze Burts, president of the Los Angeles Area Chamber of Commerce. “But as they begin to accumulate, they can hit very hard, very rapidly.”
Memories of Slowdown Dim
What’s more, Burts said, four years of a strong local economy have caused memories of the last downturn to fade. “We’re in such a gleeful period of celebration that we’re forgetting just how difficult a time we had in our recovery process,” he said.
It’s not just government agencies that seem to have forgotten the rough times. With a couple of exceptions,most notably in Santa Monica where the chamber has launched a counter living-wage ballot proposal,the response from businesses has been muted.
“Many businesses have simply dozed off when it comes to government regulation, especially in workers’ comp,” Burts said. “They are in for a rude awakening, especially when the economy slows down and they notice their profit margins declining precipitously.”
But many companies are simply accepting the costs as the price of good economic times.
“I’ve seen these issues come around again and again for 25 years,” said Tom Lieser, executive director of the UCLA Anderson Forecast. “What it really took to derail California in the early 1990s was the loss of a key industry, namely aerospace. That’s when these other cost-differential issues came into play in corporate boardrooms and decisions were made to consolidate out of the region.”
Fine is a staff reporter at the Los Angeles Business Journal.
