August 13, 2001

Review & Outlook

On the Waterfront

Ever notice how political developments trumpeted as victories for the little man end up feeding Big Labor? The latest twist comes from Santa Monica, where a coalition of Democrats and Greens on the city council pushed through America's most stringent "living wage" law. Supporters say it's aimed at ending the exploitation of low-wage workers by the city's thriving tourist industry.

We think a better explanation of the logic behind living-wage legislation was the remarkably frank assessment Gerald McEntee gave to Governing magazine: "We fight for these people, to bring up their wages, benefits and health care, first because it's good for them, but also so they're not in direct competition with folks in the public sector." Mr. McEntee should know: He's president of the American Federation of State, County and Municipal Employees. And as the leader of America's government workers, he knows that his best hope for insulating his own workers from competition is to raise the cost of everyone else's labor.

But Santa Monica's ordinance goes one step further: It applies to all firms within the downtown and beach areas, not just those that have contracts with the government. This is a tremendous coup for the unions, not least because the Hotel Employees and Restaurant Employees local 814 has for years tried to organize the workers at the city's big beachfront hotels; up to now four out of six hotels have stymied their efforts. Though at least some of the hotels in fact pay higher wages than the union contracts, Santa Monica has always had a soft spot for the latest "progressive" fad, and activists waged a sophisticated public-relations campaign that depicted the hotels as fat cats gouging their employees, many of them poor immigrants.

That's where the living wage comes in. By setting a minimum of $12.25 an hour ($10.50 where health insurance is provided), the Santa Monica law effectively imposes prohibitive costs on labor-intensive enterprises like hotels and restaurants. At current staffing levels, the general manager of the Le Merigot Beach Hotel told us, the hikes would cost him an additional $800,000 a year. Employers have an interesting alternative, however: If they enter into a collective bargaining agreement, the living-wage law no longer applies. In other words, what the law really does is open a back door for unions.

Though such collective bargaining exemptions are typical of the 60 or so local living-wage laws around the country, the bias toward union interests seems to be growing more blatant. Just last month in Long Island, the Suffolk County legislature overrode County Executive Robert J. Gaffney's veto of a living-wage proposal. One of Mr. Gaffney's main objections to the law was that it requires affected companies to make public the names and addresses of their employees. Under the Suffolk County law, the local Johnny Friendly -- the union boss so memorably portrayed in "On the Waterfront" -- now not only will know who their non-union competitors are, but where they live.

The worst part, of course, is that in Santa Monica and places with similar requirements, it is precisely the low-wage workers the law ostensibly helps who are likely to end up as collateral damage. Faced with pressure to cut its room rates in the softening economy, for example, the Le Merigot hotel is considering downgrading from four- to three-star service -- with dozens of jobs cut in the bargain. And rather than sign a union contract or beg the city council for a hardship exemption, P.F. Chang, an upscale Chinese restaurant chain, has suggested it will eliminate lunch service to get under the ordinance's $5 million activation threshold. Apparently the workers on the afternoon shift don't have a place in the "responsible tourism" living-wage supporters suggest.

In Santa Monica the catchphrase of the living-wage movement was that the city's prosperity was being built "on the backs of low-wage workers." But for many of these workers, the kind of entry-level jobs that activists consider exploitation are not life sentences but stepping stones to better opportunities. Santa Monicans may believe they've just ensured that their city's businesses pay these workers a decent wage. Instead, what they've really guaranteed is payoffs to a union racket that will be free to ignore those living-wage levels -- legally.

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