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Case Studies
May 26, 2015
Case Studies in Minimum Wage Increases



UPDATE:


As of this posting, the minimum wage agenda item has since been pulled by Mayor Lane and Council Member Matthews during an Agenda Review session, until further notice. Further action to be taken pending future developments of a statewide ballot initiative. The SEIU is currently engaged in the process of placing a proposition before voters in 2016 that would increase the California minimum wage to $15.00/hour by 2021.


San Francisco and Seattle
The national movement to increase the minimum wage is manifesting locally in the Monterey Bay Region. The City of Santa Cruz is preparing an Request For Proposals (RFP) to conduct a study on how a local minimum wage might affect the economy and local businesses, mainly in anticipation of a larger debate that will likely play out sometime next year, across all three counties.

MBEP is committed to providing information and analysis to inform what will surely be an ongoing discussion and deliberation among community stakeholders. To this end, we have compiled 2 case studies of how other cities have dealt with this issue, and what the initial results have been. We have also reviewed a handful of studies that were conducted by these cities before they adopted their new minimum wage laws.


San Francisco, California
San Francisco first adopted a local minimum wage law in 2003 as a result of a citizens led ballot initiative, which recently adopted an even higher minimum wage by ballot measure last year. San Francisco’s new minimum wage is now set at $15.00/hour, 5 dollars higher than the statewide minimum wage of $10.00/hour, which goes into effect next year. Tips and supplemental benefits are not counted toward the hourly wage, and there is no distinction made between smaller and larger, local versus non-local companies.

According to studies conducted in review of the original minimum wage increase, the researchers hired by the city concluded that increasing the minimum wage resulted in “little to no measurable effect on employment or hours from minimum wage policies.” They further concluded that the costs born to businesses in having to pay more were offset by reduced employee turnover and price increases. Thus, their analysis predicts that the quantifiable results from this latest increase will resemble the following:
  • About half of all affected workers are employed in three industries: retail trade (14.6 percent); restaurants (19.3 percent); and education, health and social services industries (17.8 percent).
  • Operating costs would increase by 0.2 percent for retailers and by 3.0 percent for restaurants by the time the proposed law is fully implemented in 2018.
  • Restaurant prices would increase by 2.7 percent by the time the law is fully implemented. A $10 meal would increase by 27 cents, to a total of $10.27. For retail and the local economy as a whole, price increases would be negligible.


Seattle, Washington
Seattle passed a law increasing the local minimum wage within the city limits from $9.32/hour (already the highest in the country at that point) to $15.00/hour last June. The law went into effect on January 1st, 2015, and is set to increase in phases over the next five years, depending on the size of the business and whether or not they provide employee benefits, a breakdown of which can be seen below:

Screen Shot 2015-05-20 at 4.21.41 PM.png
             
    To see the full schedule of mandated increase click here.


What is particularly noteworthy about the Seattle model is that they include tips and benefits in their minimum wage calculations, contrary to the San Francisco model. Failure to comply with the new law will results in penalties ranging from $500 to $20,000 depending on the number of offenses.

While the first phase of the law has only just been implemented, organized local businesses are already petitioning for its repeal. The organization called Forward Seattle has since collected 20,000 signatures to place the issue before voters, in a move that all but guarantees an election. Organized labor advocates have since called for a boycott on all businesses associated Forward Seattle.

Seattle based their results on two separate studies, one conducted by UC Berkeley Institute for Research on Labor and Employment, and one conducted by the University of Washington Evans School for Public Affairs. Taken together and in tandem, the studies conclude that business costs will increase significantly with a higher minimum wage, but that these costs could be offset through price increase and the development of a more reliable workforce. The latter study outlines 3 separate scenarios of how Seattle’s law might affect local businesses (shown below), predicting payroll cost increases as high as 9.51%, or as low as 3.62%. The study’s authors lay bare their understanding that it will be the local businesses who decide how to react to these increases.


Screen Shot 2015-05-20 at 4.56.46 PM.png



Additional Sources:
http://www.forbes.com/sites/realspin/2014/07/24/the-real-reason-for-the-seattle-minimum-wage-fight/
http://murray.seattle.gov/minimumwage/#sthash.KqjOfjQC.dpbs

Two City Led Studies:
http://murray.seattle.gov/wp-content/uploads/2014/03/UC-Berkeley-IIAC-Report-3-20-2014.pdf
http://sfgsa.org/index.aspx?page=411



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