Higher Minimum Wage Benefits Outweigh Drawbacks: Study

A proposal to raise the minimum wage in Los Angeles to as high as $15.25 per hour by 2019 would have more benefits than drawbacks and increase the wages of about 600,000 workers, according to a newly released UC Berkeley report commissioned by the city of Los Angeles.

The report concludes "the benefits of the proposed minimum wage law will largely outweigh the costs in Los Angeles city, and when the larger region is considered, the net impact of the law will be positive."

The wage increase likely would prompt businesses to pass costs onto customers, driving demand down by $1.128 billion by 2019, according to the report. But at the same time, the incomes for workers would go up $2.381 billion by 2019 and likely have multiplier effects on spending in the economy, the report said.

Researchers also note that because more than half of affected workers live outside the city, most of the spending would happen there. This would lower the gross domestic product in Los Angeles 0.1 percent or $315 billion by 2019, translating into the loss of 3,472 jobs by 2019.

Researchers called this a "small" cost that would be offset by a projected yearly job growth of 2.5 percent. Meanwhile, the proposed hike would result in 5,262 new jobs countywide by 2019.

The mostly positive findings, along with those of two other studies commissioned by business and labor groups, will be discussed at four public hearings on the issue hosted over the next month by a City Council's Economic Development Committee.

UC Berkeley researchers say 80 percent the workers affected would be people of color, and the wage increase would affect more than half of Latino workers in the city. The 600,000 workers who would see their wages go up by 2019 make up about 40 percent of the Los Angeles workforce, they said.

The committee's chair, Councilman Curren Price, said he represents "one of the poorest regions in this city" and understands "the real life impact that stagnant wages have had on our underserved communities."

"This (UC Berkeley) study helps us better understand the magnitude of income inequality" in the city and also gives "reassuring data that shows that a minimum-wage increase, done thoughtfully, will have benefits for the local economy and businesses," Price said.

The study by UC Berkeley's Institute for Research on Labor and Employment looked at the economic effects of raising the minimum wage from $9 an hour to $13.25 an hour by 2017, to $15.25 an hour by 2019, and higher in subsequent years based on the Consumer Price Index.

UC Berkeley prepared the study for Seattle's minimum wage hike plan and worked on an economic study that Los Angeles Mayor Eric Garcetti released last September as he announced his proposal for raising the wage to $13.25 per hour.

Some business leaders opposing the wage hike plan — which they argue could lead to layoffs of workers or increase the costs of products and services — have criticized the choice of UC Berkeley as the economic research firm for the proposal.

But some business groups have come out in support of the minimum wage hike plan, with Garcetti recently touting the Los Angeles Business Council's endorsement.

Separate studies commissioned by the Los Angeles Area Chamber of Commerce, representing the local business community, and by the Los Angeles County Federation of Labor, AFL-CIO, which represents unions, were also released today.

The chamber's study, done by Beacon Economics, found the wage hike proposal would be more harmful than helpful to the city's economy, suppressing an anticipated 73,000 to 140,000 new jobs.

Researchers argued that the wage increase could drive businesses to neighboring cities where the minimum wage rates are lower.

The Beacon researchers, calling the intent of the wage hike proposal "commendable," recommended ways to make it less drastic.

They urged the city to consider increasing the minimum wage to a lower amount; slowing down the rate of the increase; making exceptions for certain workers such as those who might officially earn the minimum wage but actually make more because they work off tips; and excluding certain types of employers such as nonprofits, small businesses and those that tend to hire younger workers.

The Los Angeles County Federation of Labor's Raise the Wage campaign is pushing for the wage to go to $15.25 per hour, further than Garcetti's original $13.25 plan.

The federation released a report by the Economic Roundtable, which found that raising the wage to $15.25 per hour by 2019 would result in an additional $5.9 billion in earnings for more than 700,000 workers. The hike would also create 46,400 more jobs, more than half of them within the city, that study says.

The wage increase would also lower spending on public assistance by about $300 million a year, according to the report. State and local governments would also get $414 million more in revenue, and the federal government would get $546 million.

The Economic Roundtable report also argues that industries in Los Angeles are "predominantly resilient," with researchers saying that four out of five low-paying jobs are physically performed within the city.

"Most that do employ low-wage workers are providing services to more affluent residents who can adjust to price increases that may result from a higher minimum wage," the report said. "In these industries, Los Angeles residents provide services to other Los Angeles residents, but do not earn enough to make ends meet."

The researchers recommended monitoring seven industries if the wage hike is adopted: the textile and apparel manufacturing industry; temporary workers, guards and janitors; home health care services; residential care and nursing facilities; child day care services; restaurants and bars; and personal and repair services.

Those industries represent one out of five jobs in Los Angeles, and six of the industries are service-based and have high enough demand that the businesses can pass on the costs to consumers, the report said.

The council's Economic Development Committee will hold hearings to review the results of the economic studies on:

  • March 24 at 1 p.m. at City Hall, 200 N. Spring St.;
  • March 26 at 6 p.m. at the Watts Labor Community Action Committee headquarters, 10950 S. Central Ave.;
  • March 31 at 6 p.m. Van Nuys City Hall, 6262 Van Nuys Blvd.; and
  • April 2 at 6 p.m. at the Museum of Tolerance, 9786 W. Pico Blvd.
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