LA Is Increasing Its Minimum Wage

I didn’t want to let this story get by without commenting on it. The Los Angeles City Council has voted to increase the city’s minimum wage from its present level of $9.60 to $15 per hour over the period of the next five years:

The Los Angeles City Council has voted 14-1 on Tuesday to increase the city’s minimum wage from $9 to $15 an hour by 2020.
Under the plan, pay will gradually increase for the lowest paid workers over the next five years and reach the top mark by 2020 for larger employers.

That’s a 66% increase over five years which is further indexed to the CPI. That will be the largest-scale experiment in increasing the minimum wage conducted by any city in the U. S. to date and I’ll be interested in seeing how it turns out.

The prevailing view among scholars is that a moderate increase in the minimum wage is unlikely to decrease the number of workers being paid the minimum wage greatly. Is 66% moderate? I guess the answer is “we’ll see”.

The issue is actually somewhat broader than just the number of jobs being offered at the minimum wage. There’s also the question going forward of whether the higher minimum wage will make it harder to create new businesses and new jobs. In addition I suspect that the higher minimum wage will increase the demand for workers being paid off the books which could conceivably incentivize illegal immigration.

The one thing that we shouldn’t expect is that employers will be able to pass along all of the increases in their costs which will result from the higher minimum wage and that consumers will be willing to pay the higher costs because they’re being paid a higher wage. That’s another perpetual motion scheme—the “cat and rat farm” I’ve warned about every so often.

Update

Peter Suderman does the literature search:

For the past few years, liberal economists and policy wonks have been increasingly vocal in arguing that that it’s not true that increasing the minimum wage costs jobs. As senior administration econ adviser Jason Furman said last year when President Obama called for a national increase in the minimum wage, “Zero is a perfectly reasonable estimate of the impact of the minimum wage on employment.” Echoing the sentiment, The New York Times editorial board wrote around the same time that “the weight of the evidence shows that increases in the minimum wage have lifted pay without hurting employment.”

The evidence for this isn’t nearly as overwhelming as boosters sometimes like to suggest. Economists David Neumark and William Wascher, for example, have surveyed the literature and found that, overall, most studies still show that wage increases cost jobs. And the Congressional Budget Office (CBO) estimated that raising the federal minimum from $7.25 to $10.10 over a three year period would probably cost about 500,000 jobs, and perhaps as many as 1 million. But the CBO also said it was possible that the number of jobs lost would be minimal, pointing to some studies suggesting that the wage floor could be increased with very little effect on jobs, at least in certain circumstances, up to a certain point.

As I’ve said before if I were writing the legislation I’d do so to stop the increase if it were clear it was having an adverse effect on jobs. The experiment will be under way soon.