It looks like Los Angeles is joining San Francisco and Seattle and adopting a $15-an-hour minimum wage. On Tuesday, the City Council passed a measure that would slowly hike the minimum until it reaches $15 come 2020 (or 2021 for small businesses). The proposal still needs to be written up into an ordinance and voted on again before becoming law, but given that the council vote was 14-1, final passage looks all but certain.
The move is a clear sign that the Fight for $15 campaign, a labor-backed social movement that has been agitating for a $15 minimum, is getting results. While Seattle and San Francisco are significant, their combined populations are less than half that of LA.
But is a $15 an hour minimum actually a good idea?
Nobody has great evidence about a $15-per-hour minimum wage
It's basically impossible to know for sure. This is easily the highest minimum wage in the United States — and among the highest in the world.
A hike of this scale is basically unprecedented. When the idea first started percolating two years ago, I asked Arindrajit Dube, a professor at the University of Massachusetts Amherst who's done a huge amount of research on the minimum wage — generally research that's supportive of hikes — what a $15 an hour minimum would do. His answer: we have no clue.
David Neumark is another economist who's frequently studied the minimum wage. His studies, conducted with William Wascher, generally find minimum wage hikes reduce employment. But on some level he agreed with Dube, telling me, "Anyone who says 'I have a pretty good idea what would happen' can't be on solid ground."
But clearly people who oppose small hikes to the minimum wage have reason to oppose large ones. But what about supporters of minimum wage increases?
$15 is a lot even by the standards of minimum wage fans
Dube's research has generally recommended substantial increases in the minimum wage, up to about 50 percent of the median wage. By contrast, the Center on Budget and Policy Priorities' Jared Bernstein estimates that $15 will be 60-65 percent of LA's median wage by the time the new minimum is phased in in 2020.
Indeed, Los Angeles will have one of the highest minimum wages in the world. According to the OECD, when you adjust for purchasing power, the highest minimum among rich countries is Luxembourg's $10.80 an hour, followed shortly after by $10.70 in France and $10.50 in Australia. A huge swath of Los Angeles workers would be affected. According to a report underwritten by LA unions, 46 percent of wage and salary workers in Los Angeles make less than $15.
Risk and reward
In my earlier piece, I argued that a $15-an-hour minimum would amount to a leap into the unknown, which is probably best avoided out of an abundance of caution. There's obviously some point at which the minimum wage is so high you lose jobs, and I thought $15 was a big enough jump that there was a decent chance it fell on the wrong side of that line.
And even if it didn't cost many jobs, the money has to come from somewhere. Best-case scenario, it comes from reduced corporate profits and improved worker productivity (because of lower turnover, better morale, etc.). Worst-case scenario, it comes from cutbacks on worker hours, or price increases that disproportionately hit the poor. And because the increase is only local, and only in the actual city of LA, it seems likely that some businesses will move to other parts of LA County. That's not the worst thing in the world, but it doesn't give anyone a raise, either. Given that we know just taxing rich people and giving their money to poor people wouldn't have any of these potential problems, I opted to back that approach instead.
Demos's Matt Bruenig, a thoughtful commentator on poverty issues, pushed back, noting that if we really have no idea what a $15-an-hour minimum would do, we also have no evidence that it'd cause significant harm. That's fair enough; it all depends on your risk tolerance, and on what you're comparing it to. I think if the LA City Council is weighing measures to fight poverty, raising taxes and giving the money to poor people is a better bet than using the minimum wage to implicitly raise taxes on low-wage employers and giving the money to poor people. Bruenig argues that's a false choice; I think it's a worthwhile comparison of two policies designed to achieve the same goal.
We will learn a lot from this experiment
In any case, Los Angeles, San Francisco, and Seattle are doing $15-an-hour skeptics like me a favor by providing a real world test for the idea. Currently, minimum wage scholars can't say much anything about minimum wages this high because they've never happened. But once they're implemented, economists can conduct studies to get a better idea of their effects.
The best possible way to conduct this test would be for California to randomly assign minimum wages to each town or county for a reasonable length of time, and then compare outcomes to see the policy's effect. It would be a dramatic step, and mean stepping on city governments' toes. But if any governor is going to be down for this, it's enterprising weirdo Jerry Brown.
Update: An earlier version of this post attempted to estimate $15 as a percentage of the current US median wage; after publication, Jared Bernstein made a better estimation of what LA's median will be in 2020, which strikes me as more relevant, so I subbed that in.