October 6, 2014

LOS ANGELES’S MINIMUM WAGE EXPERIMENT:

Essentially, Los Angeles is mandating that every full-time worker within the city limits must make $26,500 a year. I’m of two minds about this. On the one hand, this will obviously raise the incomes of some workers, but it could mean that a lot of workers see their hours cut back or have their jobs moved beyond the city limits, possibly so far that they can no longer do those jobs. If you’re concerned about long-term unemployment — and I am — then that is worrying.

On the other hand, I’m very interested to see the experiment run. Municipal minimum wages can be a good way to look at the impact of high-minimum-wage laws, because you have control groups next door. This is far from perfect, but it does offer useful observations. And Los Angeles is particularly interesting because its municipal area is so darn big; employers in the center can’t simply move a short distance to avoid the wage.

According to the Wall Street Journal, 37 percent of the city’s labor force will be affected by the law. Half a million members of the city’s labor force are manufacturing workers, whose employers cannot simply raise prices to pass on the cost, because they’re competing with products from lower-wage jurisdictions, including overseas. Now, some of them will be on piecework, or off the books. But some are not. How will their employers handle the new rules?

Local service businesses are simultaneously the most and least vulnerable. Starbucks can’t start selling you your daily latte from Columbus, Ohio; it’s more likely to try to raise prices. And if people are getting a raise, they’ll have some room to do so (though, of course, that claws back some of the benefit of raising the minimum wage). But in places like Scandinavia, where servers get paid a lot, in the context of generally high wages, what you seem to see is that people spend a lot less money on going out to eat. And if your customer base has a lot of manufacturing workers — or if your customers simply refuse to pay more for your products — you might have to close entirely, because you simply can’t operate at a profit.

I predict that it will do as much for general employment in L.A. as the L.A. condom-requirement ordinance did for the porn industry.

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