Three studies of L.A. minimum wage boosts reach different conclusions
Would boosting L.A.'s minimum wage to $13.25 or $15.25 an hour pump up the city’s economy — or deflate it?
Economists hired by business and labor groups and the city released competing studies Thursday on what would happen if Los Angeles boosted pay for hundreds of thousands of workers.
The new analyses mark the latest step in a pitched debate over how or whether the city should increase the minimum wage as part of a national push to reduce poverty and economic inequality.
Last year, Mayor Eric Garcetti proposed a gradual increase in the minimum wage to $13.25 by 2017, with future increases automatically tied to an inflation index. Several city lawmakers want to go further, boosting the base wage to $15.25 by 2019. The current statewide minimum wage is $9 an hour.
Garcetti and other city leaders argue that a wage increase is needed to pull low-paid working Angelenos out of poverty and jump-start the local economy. But key business organizations counter that it would end up hurting the workers it is meant to help.
A report paid for by the Los Angeles Area Chamber of Commerce warned that raising the base wage to $13.25 citywide would sharply reduce and possibly eliminate job growth as businesses relocate outside the city or employ fewer people. The report, prepared by Beacon Economics, estimated that a $13.25 base wage would result in 73,000 to 140,000 fewer new jobs over the next five years.
It also contended that the bulk of the increased wages would not help Los Angeles residents in poor households because many workers with low wages live outside the city or in households with total income of more than $55,000. And it added that some industries could face steep increases in labor costs — as high as 14% of revenues for restaurants and bars.
Such economic blows could hurt city tax revenues, undermining programs for Angelenos in need, the report said. All in all, raising the minimum wage to $13.25 would have “significant negative effects” on the Los Angeles economy with “at best, modest benefits” for city residents with low incomes, the report said.
Beacon Economics founding partner Christopher Thornberg said that if $13.25 was bad, “raising it to $15.25 is a kind of nightmare.”
Instead, the business-backed report recommended a smaller and slower increase in wages, finding a legal way of eliminating or reducing the boost for workers who get tips, and other steps to soften any detrimental effects.
Two other studies released Thursday came to different conclusions: A report underwritten by the Los Angeles County Federation of Labor found that raising the minimum hourly wage to $15.25 — a higher threshold than the chamber report examined — would create an additional 46,400 new jobs across the region by 2019, including nearly 25,000 in Los Angeles.
The boost would produce $5.9 billion in added wages that year, including nearly $3.2 billion for workers living in L.A., causing “a stimulus effect for the region,” the report from thenonprofit Economic Roundtable concluded. Raising pay would also pump up tax revenue and reduce the need for spending on public assistance across the region, it found.
The Economic Roundtable report said job losses would be minimal. Most Los Angeles jobs paying low wages involve “face-to-face work that requires a physical presence” in the city, in industries such as education or restaurants, it said.
The report also concluded that areas with weak markets and scarce jobs would benefit from increased demand for consumer goods, while many of the possible costs to businesses and consumers from boosting wages would happen in wealthier or more economically resilient areas.
Daniel Flaming, president of the Economic Roundtable, said it could have “transformational possibilities” for “underinvested poor communities.”
A third report released Thursday came from a UC Berkeley research team selected by city officials, a pick criticized by some City Council members and business groups because it did an earlier, largely favorable analysis of the mayor’s proposed boost to $13.25. It found the benefits of the $15.25 wage increase — improving the living standards of low-wage workers — would largely outweigh the costs.
Among the downsides: Businesses would see their costs rise by 0.9% cumulatively by 2019, the report found. Increased prices would result in a roughly $1.1-billion cumulative drop in consumer demand. And the report found that employment would be 0.2% lower within the city than it would be otherwise, a drop of nearly 3,500 jobs.
But the UC Berkeley Institute for Research on Labor and Employment pointed out that the city would still be adding jobs overall, in light of L.A.'s projected annual job growth of 2.5%. And billions of dollars in added pay would offset the effects of increased prices, resulting in only a slight reduction in L.A.'s gross domestic product — 0.1% — by 2019.
The researchers found that more than 600,000 workers would benefit, with an average increase in earnings of 30%. They noted that on average, those workers bring home more than half of their family income, and more than a third are parents.
The UC Berkeley report also found that Los Angeles County would reap bigger benefits than the city, including a 0.1% increase in employment because many affected workers live outside L.A.
Los Angeles lawmakers are scheduled to hold a series of public forums in the coming weeks to discuss the minimum-wage proposals. No matter what the council decides, “it’s going to take a leap of faith,” City Council President Herb Wesson said Thursday. “No reports are certain.... It’s a best guess.”
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