The city of Los Angeles' decision to raise its minimum wage to $15 an hour by 2020 is a major gamechanger in the nationwide fight to narrow America’s growing economic inequality.
More than half a million workers—40 percent of the city’s workforce—will see raises in the next two years, according to labor economists. By 2020, more than 600,000 salaries will be an average of $4,800 higher than they are today, redistributing an estimated $2.4 billion to largely brown and black employees and households.
“If you think of the money put into the Fight for Fifteen, this outcome is massive,” said Ken Jacobs, a labor economist and chair of the UC Berkeley Center for Labor Research and Education, referring to low-wage protests across the country. “In terms of a minimum wage increase, this is by far the most significant wage law in the U.S. to date, if not the world.”
The vast majority of affected workers are non-white, full- and part-time employees working in restaurants, healthcare, social work, retail and other service sectors. On the other hand, the higher wage is not going to be enough on its own to lift the city’s poor out of poverty. As the L.A. Times editorialized, “L.A. needs more $20- and $30-an-hour jobs” to do that. And even that may not be high enough, because as KPCC public radio reported, “L.A. residents need to make $33 an hour to afford the average apartment.”
Jacobs said a higher minimum wage is still a “tremendous step” in the right direction, along with the right to unionize, work under collective bargaining agreements, and as other initiatives appear to tackle issues such as affordable housing. “I think the Fight for Fifteen has changed the sense of what’s needed and what’s possible… and will change how people think about the minimum wage in the U.S.”
In other words, the West Coast’s largest city—America’s second-largest city—has reframed the debate on what’s needed to start addressing economic inequality in America. Even though some opponents, like the California Restaurant Association, are pledging to fight it, a before-and-after analysis of its impact shows how it moves a big city’s poor closer to entering the middle class.
What follows are 10 findings about how Los Angeles’ low-wage workers and employers will be affected by the higher minimum wage, prepared by Jacobs’ team at UC Berkeley.
1. More than half a million workers immediately impacted. The city is raising the wage in steps, starting with $13.25 an hour in 2017. The Center estimates that 542,000 workers in the city, or 37.8 percent of the workforce will see a raise. “Average annual earnings will increase by 20.4 percent, or $3,200 (in 2014 dollars),” it said. That’s an average weekly increase of slightly more than $60 an employee.
2. Three years later, another 100,000 will see raises. By the time the minimum wage reaches $15 in 2020, an estimated 609,000 employees—more than 41 percent of workers will be affected—the labor economists said. “Average annual earnings will increase by 30.2 percent or $4,800.” That’s an average increase of $92 a week.
3. Most affected workers are not young adults. The restaurant industry, where nearly 80 percent of employee will be affected, defends the minimum wage by saying it is entry-level pay for entry-level employees, mostly teenagers in their first jobs. The labor economists found that was not true in L.A., where the median age of affected workers was 33, and only 3 percent were teenagers.
4. Almost all minimum wage workers are non-white. Eighty percent of employees who will benefit from the higher minimum wage are non-white, the economists said. “In particular, we estimate that more than half of Latino/Latina workers in Los Angeles will receive a pay increase.”
5. The higher wage will boost the inner city. That’s because “affected workers bring home more than half of their family’s income,” the economists said, and the “affected workers live disproportionately in the lower-income areas of the city…. These increased incomes generate further spending benefits through multiplier effects.” In other words, the households getting a raise will be spending it locally.
6. Higher wages improve household health. The labor economists pointed out that higher incomes have been correlated with better health of individuals in families and also better performance for children in school. Any time household stress can be lessened, it translates into “improved health outcomes” and “school achievement.”
7. The higher minimum wage affects businesses of all sizes. Opponents of a higher minimum wage often argue that small businesses can’t afford to pay more. However, the UC economists found that only 40 percent of affected employees worked at firms with fewer than 50 workers.
8. The increased business costs are not as high as portrayed. The labor economists said that businesses will likely pass along slightly higher costs to the public, but they are not widespread job-killers as opponents claim. “Overall, we estimate that firms’ operating costs will increase by 0.5 percent by 2017 and 0.9 percent by 2019,” the economists said. “The largest increases will occur in food services, administrative and waste management services, and apparel manufacturing.”
9. Job losses will be minimal and overshadowed by growth. The economists predicted that the city would see a loss of “1,552 jobs by 2017 and 3,472 by 2019, or 0.1 and 0.2 percent of all employment, respectively.” It added, “these employment changes are quite small when compared to projected job growth of 2.5 percent a year in the city.”
10. A higher wage is not going to cause businesses to move. This is another talking point that’s often raised by opponents. However, as the labor economists noted, there are much bigger factors that determine when businesses relocate. “Previous research suggests that business relocations in the Los Angeles area are more determined by real estate prices and access to consumer markets than by differences in labor costs.”
There is no single public policy solution to addressing economic inequality, Jacobs said. However, the action take by Los Angeles places new pressure on other big cites, such as New York, to follow suit. At the federal level, the minimum wage of $7.25 an hour has not been changed by Congress since 2009. The federal minimum for tipped workers is $2.13 an hour, and has been for years, although a handful of states and cities have raised it.
“Minimum wage can’t do everything,” Jacobs said. “But this is massive. Is it enough? Was the New Deal enough? Was the Great Society enough?”
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