Column: Finding balance in L.A.’s minimum wage discussion

Rob Lohman took a huge risk five years ago when he started a company in downtown Los Angeles that makes eco-chic clothing out of organic cotton and hemp.

One day last year he was surprised to get a call from Los Angeles Mayor Eric Garcetti.

“He wanted to feel me out on what the impact of the minimum wage increase would be on us,” said Lohman, whose company — a kind of mini-Patagonia — employs more than 50 people in a factory at 7th and Alameda.

And?

“I told him we’re in support of it,” said Lohman.

In spirit, at least. In fact, he was already paying his staff at Groceries Apparel a dollar an hour more than the current $9 minimum.

But after years of scraping to build a business with a social conscience, using organic fabric and home-grown labor rather than foreign sweat shops, Lohman is only now beginning to turn a profit.

And he and his management team aren’t sure whether City Hall’s plans for gradual increases that could take the minimum wage to more than $15 an hour will give their workers a reasonable boost in pay or put them out of work because they can’t afford a pay scale that’s rising faster than they can afford.

Dozens of businesses have gotten similar phone calls, along with follow-up visits from Garcetti’s staff. The mayor, and members of the City Council, are taking stabs at figuring out what the city’s lowest-paid workers are worth, and what a mandated bump in pay would do to their employers.

Garcetti would hike the minimum to $13.25 an hour in 2017, and possibly more based on the consumer price index. The council sees the mayor and raises him $2, to $15.25 an hour in 2019. (The California minimum goes up to $10 in 2016.)

It’s nice to see such enthusiastic support for working stiffs, especially given the staggering income inequality in Los Angeles, where living ain’t cheap and hundreds of thousands of people are at minimum wage, or less than $20,000 a year. And no doubt many businesses will benefit from all that increased buying power.

There’s just one problem: although some multimillion-dollar companies might easily handle a big bump in payroll costs (hotels have done just fine with mandated wage increases), what about those upstart entrepreneurial ventures that can’t? Los Angeles is loaded with midsize firms and mom-and-pop operations working on thin profit margins. Would they slash jobs? Raise prices? Leave the city?

Not if you believe a highly favorable study of Garcetti’s plan by a hand-picked UC Berkeley institute. But not everyone was convinced, and when critics screamed for a new review, arguing that the wage hike would cost jobs, guess who city leaders chose to do the new study.

Yep. Same outfit that did the first one.

“Outrageous and unacceptable,” said City Councilman Mitch O’Farrell, who demanded that another outfit crunch the numbers.

So we’re in minimum-wage limbo at the moment, and while the mayor’s team tells me the $13.25 plan is the result of “mostly supportive” feedback after contacting more than 300 business owners, O’Farrell says he’s hearing lots of concerns from restaurants, apparel companies and nonprofits.

“I’m a supporter of raising the minimum wage,” said O’Farrell. “However, I think we’re getting a little ahead of ourselves by putting dollar amounts out there. We should not be in campaign mode for one hourly rate or another.... We should be calling for a process in which we get the best possible data.”

Gary Toebben, of the Los Angeles Area Chamber of Commerce, said a 50% wage increase over three years could be a killer for some businesses. Can it be phased in over a longer stretch, he wondered? Can the new minimum be based in part on the number of employees or gross revenues?

Can Garcetti, who likes to talk about scaling back business taxes, offer such incentives as a trade-off for higher payroll costs?

O’Farrell thinks total compensation, not just wages, should be part of the equation. If one company pays minimum wage but also offers paid vacations, health insurance and other benefits, should it have to pay the same wage increase as a competitor who offers no benefits? And might benefits become even more scarce if wages go up?

That entrepreneurial clothing company at 7th and Alameda offers a good snapshot of owners with good intentions but a few reservations. Lohman, the founder, left real estate in 2010 to take this gamble. He began with a $1,000 investment and brought in UC Santa Barbara buddy Matt Boelk.

The two of them lived in the factory the first couple years and the business struggled, but things are looking up. They now share a rented house with three other roommates, and the company did a record $4 million in sales last year, bringing in its first-ever profits.

Lohman said he told Garcetti “the reason we exist is to create jobs in L.A. and provide living wages” — at least to the extent that anyone is really “living” in Los Angeles on $20,000 to $30,000. He’d be happy to pay $15 an hour if and when they’re doing well enough, Lohman said. But at the moment, said Boelk, they’d have trouble going above $11 unless they can negotiate lower costs for their fabric.

And here’s another thing: Not all employees are equally skilled, said Boelk. If he’s mandated to pay $13 an hour to an employee whose productivity rate is closer to $9 an hour, that can be a drag on the business. They’re always on the lookout for the most skilled operators, and happy to treat them well, but they’re hard to find in a super-competitive industry.

For the time being, they don’t have to think too hard about L.A.’s minimum wage issue. The owner of their building has given them the boot to make way for a renovation, so they’re moving. The only space they could find was in Vernon, where they’ll begin a six-month lease in March.

Will they come back?

Lohman said he’d love to if they can find the right space, and if they can afford to — which will in part depend on how high the minimum wage goes.

“I think we’d be foolish not to look at that,” said Lohman.

And city officials would be foolish not to find a balance that benefits workers without driving companies out of town.

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