As is now pretty widely known, the city council of Los Angeles has voted near-unanimously in support of a gradual increase in the city minimum wage, from $9 today to $15 in 2020 (in 2021 for small businesses; thereafter, indexed to inflation; figure above shows phase in).
But let’s say, for the point of argument, you’re neither an economist, a low-wage activist nor a lobbyist for the restaurant industry, meaning you’re not steeped in the analytic literature on the issue, and you’re neither congenitally for it or agin’ it.
What might you make of this proposal? Why is it such a big deal? What might be its impact?
It’s a big deal because by the time it has fully phased in, it will likely be among the highest minimum wages in the land. The L.A. minimum will also likely cover the most low-wage workers (Seattle and San Francisco are in the midst of phasing in $15 minimum wages, but their increases will cover fewer workers).
It’s also a big deal because it’s the result of a national movement (the “Fight for $15”) that is gaining traction in ways that say something important about America today. Many of us, myself included, walk around pretty worried about the fact that our federal government is to no small degree shut down to the business of democracy. Partisan gridlock has delivered a system that is largely unresponsive to its citizens, especially those without the money to purchase the politics and policies they want.
And yet, here at the sub-national level, we see a grass-roots movement persuading local officials to take bold steps in the interest of addressing a critical national problem: low-wage work in an increasingly unequal economy. That’s democracy at work, and it provides a huge breath of fresh air against the fetid oxygen of dysfunction.
What its impact might be is a harder question. You will shortly see advocates and opponents trotting out studies that support their side. Do yourself a favor and, unless you’re a sharp econometrician, able to separate the statistical wheat from the chaff, ignore them.
I don’t say that lightly. As my readers know, I’m deeply committed to informing policy through evidence and facts. It’s just that the cherry picking here is rampant, and this part of the debate generates more heat than light.
That does not mean, however, that we should give up on the question of the impact of minimum wage increases. In fact, we can tap the benefits of a newly published volume on this question called “What Does the Minimum Wage Do?,” by economists Dale Belman and Paul Wolfson. How do we know they don’t have a thumb on the scale? Well, Cornell University recently named their book the book of the month, calling it (my bold): “the most comprehensive, analytical, and unbiased assessment of the effects of minimum wage increases that has ever been produced.” (The book also won the prestigious William G. Bowen Award, annually awarded by Princeton University “to the book making the most important contribution toward understanding public policy related to industrial relations and the operation of labor markets.”)
To avoid cherry-picking, Belman and Wolfson provide a “meta-analysis” (a technique which combines thousands of results from hundreds of studies) of the research on the minimum wage’s effects on earnings, employment, labor force participation, school enrollment, inequality and poverty. Their core finding:
“…increases in the minimum wage raise the hourly wage and earnings of workers in the lower part of the wage distribution and have very modest or no effects on employment, hours, and other labor market outcomes. The minimum wage can then, as originally intended, be used to improve the conditions of those working in the least remunerative sectors of the labor market. While not a full solution to the issues of low-wage work, it is a useful instrument of policy that has low social costs and clear benefits.”
The fact that the planned L.A. increase is larger than many (not all) throughout the country raises fair questions as to whether its impact will be much like that of smaller increases. The answer is, of course, unknowable. We’ll have to wait and see, but a few things to consider.
* Factoring in reasonable guesstimates about the inflation and wage growth that will occur between now and 2020, the L.A. minimum wage may end up not too far outside the range of historical experience. Some economists argue that a reasonable target for the minimum wage is half the local median wage (that’s where the national minimum was at its peak back in the late 1960s, and about where the typical minimum wage is in many other countries). For example, given plausible assumptions of the increase in the L.A. median wage, $15 could be about 60-65 percent of the median by 2020. That’s high in historical terms, but it’s not off the reservation.
* Even staunch opponents of minimum wages would have to admit the following: even under pessimistic estimates of job-loss impacts, the number of those low-wage workers we expect to benefit from an increase will be much larger than the number who lose jobs or hours. Take the recent Congressional Budget Office analysis of a national increase up to $10.10 (an analysis that some minimum wage experts judged to be too pessimistic regarding disemployment). Opponents like to point out that CBO predicted that total employment would decline by 500,000. But CBO also reports that 24.5 million will get a pay raise (16.5 million directly, 8 million indirectly through “spillover” effects). For every one displaced worker, 49 got a raise. And given all the churn in the low-wage sector, those workers who lose jobs will likely get a new, better job before too long. The minimum wage increase in L.A. may not have quite as high a benefit/loss ratio, but it’s unlikely to be much lower.
* According to one prospective study of the L.A. increase, north of 600,000 low-wage workers will get a large boost in their average yearly earnings: about 30 percent, or $4,800 in today’s dollars. These are adults (median age 33), mostly (80 percent) minorities, who contribute about half of their families’ incomes. While part of the increase in labor costs will likely be passed forward in the form of higher prices, thus dampening consumer demand, the greater spending of these more highly paid workers is likely to more than offset that effect.
Having been ensconced in this debate and the statistical literature for years, people often ask me to predict these impacts. The truth is that a bump up to $15 is somewhat “out-of-sample,” so we’ll have to see. But what we know is that smaller increases have had their intended effects of raising the pay of low-wage workers without much in the way of unintended consequences. That doesn’t mean bolder increases will cause problems. It just means we’ll have to carefully monitor the outcomes.
In the meantime, it’s great to see local democracy at work on behalf of low-wage workers.