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What The Data Says (And Doesn't Say): Raising The Minimum Wage In L.A.

Matt Heller |
September 9, 2014 | 1:25 a.m. PDT

Contributor

Ralph Andrade, who co-owns Myke's Cafe, is considering relocating the business to San Fernando, where the state minimum wage of $9 an hour would still apply. (Arielle Samuelson/Neon Tommy)
Ralph Andrade, who co-owns Myke's Cafe, is considering relocating the business to San Fernando, where the state minimum wage of $9 an hour would still apply. (Arielle Samuelson/Neon Tommy)

An extra dollar or so for "Red Velvet Pancakes," served a la carte. An extra two bucks, maybe $2.50, for a "Southwestern Burger," topped with bacon and onion rings.

That's how Ralph Andrade, owner of Myke's Cafe in Pacoima, sees Mayor Eric Garcetti's proposal to raise the minimum wage from $9.00 to $13.25 over the course of the next three years. Andrade estimates that if the new wage floor goes into effect, he'll have to raise the price of his gourmet diner's signature breakfast item to around $9, and his burgers to over $10. 

For Andrade and thousands of other small business owners across the city, higher wages intuitively mean higher prices, as well as rethinking how he'll manage his staff of 20 part-time employees, 14 of whom make minimum wage. Should Garcetti's quest to make L.A. a living wage city along the lines of San Francisco and Seattle pass muster with the city council, he says he can't predict exactly how many staff members he might have to cut.

"We wouldn't be able to cut down, maybe on some areas but not so much," said Andrade. "But it would probably be mainly a couple, two or three people maybe."

Andrade may also be rethinking his original choice for Myke's location. A mere mile and a half away, across the 118 freeway, is the city of San Fernando, where the state minimum wage of $9 an hour would still apply.

SEE ALSO: African-American Workers In South L.A. Clash Over Minimum Wage Increase

"That would have definitely put me on the fence as far as where I want to be, as far as the minimum wage," Andrade said of opening his restaurant, while cautioning that he'd have to consider other tradeoffs, like walkability and foot traffic. "That's a pretty big hike."

Andrade's concerns should sound familiar to those following minimum wage debates at the local, state, and national level as Democrats across the county push the issue ahead of midterm elections. Business associations like the L.A. Area Chamber of Commerce criticize proposed increases as potential job-killers, while unions and advocacy organizations argue that the increases are necessary for low-income families to keep pace with the rising costs of housing and other essential goods, and that business interests overstate the negative effects.

So how exactly would a 47 percent increase in the nominal minimum wage affect a city as large and diversegeographically, commercially, and culturallyas Los Angeles? Even at $13 an hour, will the pay hike make a meaningful difference to struggling families in one of the country's most expensive cities? Will businesses like Andrade's actually shrink employment opportunities for low-wage workers to the purported extent? What does the data from the recent history of minimum wage increases tell us about what might happen here?

Who will benefit from an increased minimum wage in Los

Angeles? And will it be enough?

Researchers at UC Berkeley's Institute for Research on Labor and Employment project that roughly 567,000 Angelenos would receive a pay raise under Garcetti's proposal by 2017. On average, a worker benefiting from the higher wage floor would receive upwards of $3,000 annually in additional income.

"There's a sort of historical view out there of minimum wage workers being teens and supplementing a family's income," said Ken Jacobs, one of the co-authors of the Berkeley study. "And that hasn't been true for a long time."

The minimum wage in California has been raised 29 times over the last century. But inflation has eroded much of the value of those increases. This chart plots every increase in California's minimum wage in both inflation-adjusted and nominal terms. Mayor Garcetti's proposal would make Los Angeles' minimum wage more than 30% higher than the state's $10 pay floor set to start in 2016. Sources: Author's calculations from California Department of Industrial Relations, Bureau of Labor Statistics Inflation Calculator
The minimum wage in California has been raised 29 times over the last century. But inflation has eroded much of the value of those increases. This chart plots every increase in California's minimum wage in both inflation-adjusted and nominal terms. Mayor Garcetti's proposal would make Los Angeles' minimum wage more than 30% higher than the state's $10 pay floor set to start in 2016. Sources: Author's calculations from California Department of Industrial Relations, Bureau of Labor Statistics Inflation Calculator

While many low-wage families would certainly benefit from the new law, the question of how much family finances would improve remains a sticking point.

At the state's current minimum wage of $9 per hour, someone working full time for 50 weeks of the year would make roughly $18,000 in pre-tax income. If Garcetti's proposal went into effect, that annual total would reach $26,500.

For 2013, the official federal poverty line for a family of four with two adults was $23,624. But that measure does not incorporate L.A.'s high cost of living relative to other parts of the country. More comprehensive measures of what it takes to make ends meet in L.A. put "self-suffiency" thresholds upward of $60,000.

SEE ALSO: L.A.'s Minimum Wage Hike: A Tale Of Two Snack Shops

This is not to say that an additional $3,000 would not be welcome in a low-income family's pocket. But, because of larger debates over how a higher minimum wage might drive out employment, critics have pointed to other government programs like the Earned Income Tax Credit (EITC) as more effective substitutes that specifically target low-wage workers. Individuals can claim the EITC only if they earn below given income thresholds. 

"No one argues that the minimum wage will solve the problem of economic inequality or the problems of poverty on its own," said Jacobs.  "The minimum wage is one tool to address those issues."

 

Will a higher minimum wage really hurt jobs? Whose jobs?

There is also contentious debate among researchers over what type of worker benefits the most from an increase in the minimum wageand what type suffers.

"I understand the instinct for modest increases in the minimum, but I can't understand what advocates for a much higher minimum are trying to accomplish," said David Neumark, Professor of Economics at UC Irvine, via email interview. "Advocates for LA/Seattle type large increases should be very worried about adverse effects on young, unskilled, minority workers who will have even more trouble getting a foothold in the labor market."

SEE ALSO: Working Women Will Be Impacted by Minimum Wage Proposal

Neumark and other like-minded economistsmany of which champion the EITCargue that researchers have looked with rose-colored glasses at the employment losses caused by past minimum wage increases at the city and state level.

"My judgmentbased on the best science we haveis that a new city minimum wage for Los Angeles would cause substantial adverse employment effects for vulnerable low-skilled individuals and put Los Angeles at a substantial competitive disadvantage for job creation," said Joseph Sabia, a professor of economics at San Diego State University, via email.

According to the Berkeley study, about half of all workers that would be affected by Garcetti's proposal are employed in restaurants, retail, healthcare, and administrative and waste services. The study accounts for the possibility of job loss in the restaurant and apparel manufacturing industries, but Jacobs argues that minimum wage increases generally result in a lower turnover rate.

"What we do know from the research is that when you raise the minimum wage and pay more, people stay on the job more and performance improves," he said. Jacobs estimates that roughly a quarter of operating costs incurred as a result of the minimum wage are absorbed by a rise in worker productivity.

L.A. is a different beast

There are many factors unique to L.A. that make the impact of the minimum wage increase difficult to predict.

First, the magnitude of Garcetti's proposal is somewhat unprecedented for a major American city. Seattle recently approved a sizable minimum wage increase to $15 an hour, but that policy has yet to be fully implemented. San Francisco similarly enacted an increase in 2004, but not as large as Garcetti's proposal.

L.A.'s unique geography may also present challenges to a successful policy rollout. City limits stretch and zigzag around the borders of dozens of smaller municipalities, such as San Fernando. That may present a problem for retaining and attracting business in and to the city.

SEE ALSO: Mixed Feelings At Local L.A. Coffee Shops Over Increased Minimum Wage

"That's going to be an important discussion in what L.A. decides to do," said Jacobs. "It's not that you need or expect every city in L.A. County to act [in concert]."

Finally, the large numbers of undocumented immigrants in the city may mean the minimum wage works better as an anti-poverty tool here than in other locations. As undocumented immigrants are typically ineligible for most public programs, an increase in the minimum wage may be the most effective way of boosting family incomesprovided, of course, that they find abiding employers. As Neon Tommy reported, undocumented workers are often vulnerable to wage theft due to a lack of legal protection.

Reach Contributor Matt Heller here.



 

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