Raising the minimum wage: What do we know? What should cities do? Chris Tilly Director, UCLA Institute for Research on Labor and Employment League of California Cities, Los Angeles County Division University of Southern California, June 15, 2016
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Outline of the talk A. California and LA workforce facts B. Job-killer or lifeline? C. Helping businesses make the transition D. Helping the most marginal workers 3
LA + CA job facts California is increasingly unequal 4
LA + CA job facts This is not just about the Great Recession 5
LA + CA job facts It s not just the 1% 6
LA County: Productivity and profit per worker have gone up, wages have stagnated With informal workers included, average wages went down 6% 120,000 Productivity, Payroll & Profit Per Worker in Los Angeles County, 1998-2012 2014$ 100,000 + 15% Productivity 80,000 60,000 + 5% formal - 6% formal & informal Formal Wage & Salary Payroll 40,000 + 33% Profit 20,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Economic Roundtable analysis; IMPLAN economic modeling software and data for Los Angeles County, 1998-2012, and County Business Patterns 1998-2012 for average wages in the formal wage and salary labor force. (ECONOMIC ROUNDTABLE) 7
LA workers at the 25th percentile lost 26% From 1979 to 2011, the value of annual pay dropped: 14 percent for workers in the 50 th percentile the median or typical worker 26 percent for workers in the 25 th percentile the working poor Change in Annual Pay 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Change since 1979 in the Buying Power of Workers' Pay 1979 1989 1999 2005 2007 2009 2011 95th Percentile 75th Percentile 50th Percentile 5th Percentile 25th Percentile $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Pay in 2011 1 95 th 75 th 50 th 25 th 5 th Sources: Public Use Microdata Sample records from the 1980 to 2000 decennial censuses, and from the 2005 to 2011 American Community Surveys. Wages adjusted to 2011 dollars. Data is for residents of the City of Los Angeles who are full-time wage and salary workers. Full-time employment is at least 35 hours a week for at least 50 weeks a year. Workers with less than $500 in annual earnings are excluded from the data. 8
Los Angeles is an expensive place to live and has many low-wage workers 10 largest U.S. Cities Percent of Full-time Workers Paid Less than $15 per Hour Number of Full-time Workers Paid Less than $15 per Hour Cost of Living Index Chicago 33% 279,861 64 Dallas 46% 155,735 55 Houston 44% 269,461 49 LOS ANGELES COUNTY 37% 1,055,433 75 Los Angeles City 41% 454,260 75 New York (Brooklyn) 30% 797,034 100 Philadelphia 34% 142,320 70 Phoenix 37% 175,838 55 San Antonio 46% 184,928 49 San Diego 28% 134,791 73 San Jose 23% 65,314 86 Sources: U.S. Census Bureau, Statistical Abstract of the United States: 2012, Table 728, Cost of Living Index Selected Urban areas, Annual Average: 2010; and Public Use Microdata Sample records from the 2007 to 2011 American Community Survey. 9
Los Angeles Metro has the largest rent gap (Ray, Ong, and Jimenez 2014) 10
Most LA County workers don t live in the city where they re employed 71% of workers do not live in the city where they are employed Bigger cities provide homes for more of the people working there, but even in LA, 55% of the people who work in the city live elsewhere Los Angeles Lancaster Santa Clarita Long Beach Palmdale Glendale Pasadena Torrance Whittier Alhambra Pomona El Monte Norwalk Inglewood West Covina Downey Santa Monica Compton Burbank Lakewood South Gate Hawthorne Carson Beverly Hills Culver City El Segundo Commerce Santa Fe Springs Vernon Industry City Percent of Workers Employed in City by Where they Live 55% 66% 72% 75% 76% 81% 87% 87% 87% 88% 88% 88% 89% 90% 90% 90% 90% 92% 92% 92% 93% 93% 95% 96% 96% 98% 98% 99% 100% 100% 45% 34% 29% 25% 24% 19% 13% 13% 13% 12% 12% 12% 11% 11% 10% 10% 10% 8% 8% 8% 8% 7% 5% 4% 4% 3% 2% 1% 0.2% 0.0% 0% 20% 40% 60% 80% 100% Employed in City but Living Outside Employed and Living in City 11 Source: U.S. Census Bureau, Inflow/Outflow Job Counts (Primary Jobs), http://onthemap.ces.census.gov/ Data Shown: Work Residence Flows in 2011 for Cities in Los Angeles County with Populations of 80,000+ or Labor Forces of 40,000+
Job-killer or lifeline? Scenario: Increase to $15.25 by 2018 Based on Mayor Garcetti s original proposal from 2014-17, plus increase to $15.25 by 2018 $16.00 California Minimum Wage from 1960-2018 in $2014 Inflation-adjusted using Los Angeles CPI-U Value in 2014 / Value in year when increase takes effect $14.00 $12.00 $10.00 $8.00 $15.25 / $14.03 $13.25 / $12.49 $11.75 / $11.29 $10.25 / $10.05 $9.00 $6.00 $4.00 $2.00 California past & projected minimum wage Mayor Garcetti's increase to $13.25 Labor's increase to $15.25 $0.00 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 12
Job-killer or lifeline? Overall evidence on minimum wage increases says no Look at the center and the tails Belman & Wolfson: No statistically measurable negative effect on employment Summarizing 439 estimates from the 23 recent studies with estimates* (Upjohn Institute for Employment Research, 2014) 13
Job-killer or lifeline? But which of those are the good studies? Estimates have become more positive (job creation) over time Publication bias (the key: statistical significance) Correct for publication bias Small positive impact on teen employment Best practice studies same (Doucouliagos & Stanley, British Journal of Industrial Relations, 2009) 14
Job-killer or lifeline? Research on past city minimum wage increases says no San Francisco: no statistically significant negative effect Santa Fe: no statistically significant negative effect Logical next step: Try it in more cities 15
Job-killer or lifeline? But this increase is so much bigger! We have seen much larger increases! January 1950 (US): from 40 to 75 --87.5% increase! Teen unemployment fell dramatically (David Howell, What s the right minimum wage? Prospect.org, April 2016) 16
Job-killer or lifeline? There are sound theoretical reasons for no job loss On the one hand Textbook model says a higher minimum wage will increase labor supply, decrease labor demand, create unemployment On the other hand That s not the only textbook model! Growing the economy Reduced safety net costs Increased efficiency in the short run Increase efficiency in the long run (high road) Etc. 17
Job-killer or lifeline? Anyway, even if there were some disemployment effects, benefits likely to outweigh costs Economic boost for large numbers of low income people Economic decency (survival) and fairness for hardworking people If you are doubtful, try the thought experiment of slashing the minimum wage 18
Job-killer or lifeline? Estimates for LA minimum wage increase LA Economic Roundtable, UCLA Institute for Research on Labor and Employment, UCLA Labor Center, Los Angeles Rising, 2015 19
What s in it for LA County municipalities and communities? Can any LA County become a low-wage haven? Would we want it to become one? Back to the basic arguments Why the metro area (and the state) needs to pull together Where people live and work Growing (and reorienting) the economy A tip from Silicon Valley municipalities 20
Job-killer or lifeline? Bottom line: Will it drive anyone out of business? Yes But these businesses are: The businesses with the worst jobs Businesses that were likely to close anyway US businesses born in 2014: 1108 US businesses that died in 2014: 791 And most important, they will be offset by opening and expansion of other businesses 21
Job-killer or lifeline? A normal process of creative destruction (US Bureau of Labor Statistics) 22
Helping businesses transition How will businesses adjust? Raise prices? Increase efficiency? Automate and eliminate jobs? Relocate or shut down altogether? 23
Helping businesses transition Raise prices? Yes Impact on competitiveness? Mostly immobile service jobs (retail, hotel + restaurant, personal care) Manufacturing? Who pays the higher prices for services? Mainly the middle class paying more to benefit the working poor What does the middle class think about this? 24
Helping businesses transition What does the middle class think about this? (Nationwide January 2015 study, Hart Associates) 25
Helping businesses transition Increase efficiency? Yes Decrease turnover Increase motivation Attract better workers (to LA County, to CA) Eliminate slack (Michael Porter, Harvard Business School) Innovate Cashiers in France vs. USA 26
Helping businesses transition Automate? Yes And eliminate jobs? Maybe Eliminate jobs? Aaronson and Phelan (2015): in low-wage industries, automation following minimum wage increases Decreases routinized low-wage jobs (such as cashiers) Increases non-routinized low-wage jobs (such as food prep) Net effect: 0 Also: are we sad that there are not millions of telephone operators or ditch diggers? 27
Helping businesses transition Relocate or shut down altogether? Varies by sector Local services No expected impact Construction Residential (rent gap), Commercial (broader factors) Tourism Small price increases will have minimal impact Entertainment Few minimum wage jobs Logistics (ports, warehousing) Few minimum wage jobs 28
Helping businesses transition Relocate or shut down altogether? Cont d Manufacturing it depends Garment industry: ongoing movement out of LA City, out of LA County, out of US Manufacturing growth: especially Electronic equipment Transportation equipment Furniture Reminder: Silicon Valley LA Times, 11/25/14 29
Helping businesses transition What can cities do? Offer information, advice, referrals (SBAC) Work with both small and large businesses Strive to boost amenities and skill base, keep land costs affordable Cooperate! Enforce minimum wage laws 30
Finally: Helping the most marginal workers What can cities do about marginal workers? Build skills K-12 Community college, apprenticeship, second chance Leverage city purchasing decisions and development approvals (example: Metro) Fair chance hiring for ex-offenders Economic development 31
Questions? Chris Tilly Professor of Urban Planning Director, Institute for Research on Labor and Employment irle.ucla.edu UCLA 32