The Los Angeles City Council on Tuesday voted to raise the minimum wage from $9 to $15 per hour, following an example set by San Francisco, Seattle and Chicago and becoming the biggest U.S. city so far to embrace a pay-scale boost.
The move comes as low-wage workers across the country have rallied to raise the federal minimum hourly wage from $7.25 to $15, while the Labor Department is developing new rules that would make more salaried workers eligible for overtime pay when they work more than 40 hours per week. But a National Retail Federation (NRF) report released Tuesday claims that increasing overtime exemption thresholds will do more harm than good.
The study, conducted by consulting company Oxford Economics, found that it could cost retailers and restaurants as much as $648 million to comply with new federal regulations—which in turn could lead to these employers slashing full-time staffers’ hours and hiring more part-time workers to offset the higher costs.
Under the Fair Labor Standards Act, about 3.3 million retail and restaurant employees who make more than $455 per week (or $23,660 annually) are not currently eligible for overtime pay. Policy experts expect the Obama administration will raise the threshold to somewhere between $42,000 and $52,000 per year. The NRF study said that upping the ceiling to $984 per week would mandate overtime pay for an additional 2.2 million workers in the retail and restaurant industries which could cost these businesses $9.5 billion per year, while an increase to $808 could cost $5.2 billion. Even if it’s raised to $610 the study claims it could cost $1.1 billion.
“In reality, however, it is unlikely that many of these workers would see their take-home pay improve simply because they gained the potential to earn overtime pay,” the report said. “Instead, in the wake of changing regulations, employers would likely use a variety of strategies to reduce the additional labor costs in order to remain competitive.”