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AGENDA BILL Agenda Item No. 7 Date: August 18, 2015 To: El Cerrito City Council From: Mayor Mark Friedman, and Suzanne Iarla, Assistant to the City Manager Subject: Study Session Regarding Establishing a Local Minimum Wage Ordinance ACTION REQUESTED This Study Session is an opportunity for the City Council to hear from a panel of experts, and to discuss and provide feedback regarding development of a local minimum wage ordinance. Should the Council wish to proceed with directing staff to prepare an ordinance for consideration, the Council is requested to provide specific direction regarding the elements it would like to see in a proposed local minimum wage ordinance for El Cerrito. BACKGROUND Income disparity, (or the gap between rich and poor), is growing in the United States. Many households supported by a single full-time current minimum wage earner are at or below the national poverty line set by the Federal government. Low-wage earners in the Bay Area are at a further disadvantage since the cost of living in the Bay Area is higher than the national average. For the past two years, Mayor Friedman has been working with City Manager Scott Hanin to determine the best time and manner to bring this matter to the City Council for discussion. To that end, Mayor Friedman has also been working with a local coalition of partners who are working towards a long-term effort to cut poverty in Contra Costa County by raising awareness and addressing the systemic and structural causes of poverty. It has been the desire of the Mayor to seek a more regional approach but at the same time ensuring that El Cerrito moves quickly to address this issue. Establishing a local “living wage” was identified as a strategy towards achieving the City’s Strategic goal of “Ensuing the public’s health and safety” at the Council’s strategic plan update study session held on March 28, 2015. During the Study Session tonight, the City Council will hear from the following people: • Contra Costa County Supervisor John Gioia ---PAGE BREAK--- Agenda Item No. Page 2 • Mariana Moore, Director, Ensuring Opportunity Campaign to Cut Poverty in Contra Costa • Annette Bernhardt, Senior Researcher, UC Berkeley Institute for Research on Labor and Employment/Labor Center • Jennifer Lin, Deputy Director, East Bay Alliance for a Sustainable Economy, (EBASE) Following the informational presentations, staff will lead the Council through a discussion to provide direction regarding what elements the Council would like to see in a draft local minimum wage ordinance. Staff will then draft a proposed ordinance and bring it back to the City Council for consideration in the coming months. ANALYSIS The current minimum wage in California is $9.00 per hour (Effective since July 1, 2014). On January 1, 2016, the minimum wage in California will increase to $10.00 per hour. Living Wage in Contra Costa The Massachusetts Institute of Technology (MIT) developed a living wage calculator to determine the wage needed to cover basic family expenses (basic needs budget) plus all relevant taxes for geographically specific areas. (The Calculator is available online at http://livingwage.mit.edu/metros/41860.) The MIT living wage model is a market-based approach to measure basic needs a family’s likely minimum food, child care, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. The living wage calculator estimates the living wage needed to support various household types. Table 1 shows the living wage hourly rate that an individual must earn to support their family, if they are the sole provider and are working full-time (2080 hours per year) in Contra Costa County in 2014: Table 1 Household Type Living Wage Needed in Co.Co.County Living Wage Needed in Bay Area Poverty Wage 1 Adult $13.35 $13.77 $5.00 1 Adult 1 Child $26.90 $27.91 $7.00 1 Adult 2 Children $30.46 $31.47 $9.00 1 Adult 3 Children $38.70 $39.92 $11.00 2 Adults (One Working) $20.65 $21.45 $7.00 2 Adults (One Working) 1 Child $25.20 $26.21 $9.00 2 Adults (One Working) 2 Children $27.83 $28.85 $11.00 ---PAGE BREAK--- Agenda Item No. Page 3 2 Adults (One Working) 3 Children $32.74 $33.96 $13.00 2 Adults $10.33 $10.72 $3.00 2 Adults 1 Child $14.60 $15.10 $4.00 2 Adults 2 Children $16.61 $17.12 $5.00 2 Adults 3 Children $19.76 $20.37 $6.00 *Poverty wage = National average for the poverty threshold used to determine eligibility for financial assistance from the federal government. Recently, a number of Bay Area municipalities have enacted local minimum wage ordinances as shown in Table 2, for example: Table 2 Agency Snapshot of current hourly rate (2015) Berkeley $11.00 Emeryville $14.44 (large employers) & $12.25 (small employers) Oakland $12.25 Richmond $9.60 Richmond’s Living Wage Rates In 2014, El Cerrito’s neighboring jurisdiction, the City of Richmond, established a “Living Wage” at $9.00 with scheduled annual increases over the next five years (until 2019). After that time, the rate will be adjusted annually for inflation based on Consumer Price Index changes. As shown in Table 3, Richmond’s rate is intended to be comparable to the City of Berkeley’s living wage rate by 2019. Table 3 Goal for $15/hr Wage by 2020 Presently the coalition working to increase the minimum wage in Costa Costa County is hoping to have as many jurisdictions as possible achieve a $15 an hour minimum wage by 2020. Although still below a self-sufficiency wage, it will provide much greater economic stability for those working for the minimum wage. By phasing in increases over the next 4 years it will allow employers who pay the minimum wage to better adjust to the higher labor costs. Effective Date City of Richmond July 1, 2014 $9.00 per hour January 1, 2015 $9.60 per hour January 1, 2016 $11.52 per hour January 1, 2017 $12.30 per hour January 1, 2018 $13.00 per hour January 1, 2019 < Adjusted per the Consumer Price Index ---PAGE BREAK--- ---PAGE BREAK--- Agenda Item No. 7 Attachment 1 ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- POLICY BRIEF June 2014 CWED The Impact of Oakland’s Proposed City Minimum Wage Law: A Prospective Study by Michael Reich, Ken Jacobs, Annette Bernhardt and Ian Perry Michael Reich is Professor of Economics and Director of the UC Berkeley Institute for Research on Labor and Employment; Ken Jacobs is the Chair of the UC Berkeley Center for Labor Research and Education; Annette Bernhardt is a visiting professor of sociology and visiting researcher, Institute for Research on Labor and Em ployment; Ian Perry is a researcher at the UC Berkeley Center for Labor Research and Education. Acknowledgments: We thank Sylvia Allegretto, Chris Benner, Kroll, William Lester, Zeynep Ton and staff of the California Employment Development Department for their helpful assistance. Center on Wage and Employment Dynamics Institute for Research on Labor and Employment University of California, Berkeley Agenda Item No. 7 Attachment 2 ---PAGE BREAK--- 2 Oakland’s Proposed City Minimum Wage Law Executive Summary The Lift Up Oakland Coalition, an alliance of community, labor, small business and faith organizations, has placed an initiative on the Oakland November 2014 ballot that would establish a minimum wage of $12.25 for businesses in the city starting March 1, 2015. This study examines the effects of a $12.25 minimum wage on Oakland workers and businesses. Drawing on a variety of government data sources, we estimate that more than a quarter of the Oak land workforce would benefit from the proposed policy, with the average worker earning an additional $2,700 a year. Our analysis of the existing economic research literature suggests that businesses will adjust to modest increases in operating costs through reduced employee turnover costs, improved work performance, and a small, one-time increase in restaurant prices. Specifically, we find: • About 25 to 30 percent of Oakland workers or between 40,000 to 48,000 Oakland workers would receive a pay raise. o Between 31,000 to 34,000 would be directly affected by a minimum wage increase. o Between 9,000 to 14,000 would be indirectly affected by a ripple effect. • Workers’ hourly wages and annual incomes would rise, resulting in increased annual earnings of $120 million per year. o Hourly wages of affected workers would rise by an average of $1.69/hour. o Average annual earnings would increase by about $2,700 per year. • Adults and workers of color would see significant benefits of a pay increase. o 96.5 percent of affected workers are in their twenties or older, and over half of the workers receiving raises are in their thirties or older. o Workers of color (Black, Hispanic, and Asian) make up about 62.1 percent of the total workforce in Oakland, but they represent about 78.7 percent of workers affected by a minimum wage increase to $12.25. o About 43.0 percent of the affected workers are Hispanic/Latino. • Increasing the minimum wage would have a modest impact on business operating costs and consumer prices. o Research evidence indicates that the costs of a higher minimum wage are absorbed through reduced worker turnover, improved worker performance and small one-time increases in restaurant prices. o Operating costs would increase by 0.3 percent for retail businesses and 2.8 percent for restaurants. o Restaurant prices would increase by 2.5 percent. A $10 meal would increase by 25 cents, to a total of $10.25. For retail and the local economy as a whole, price increases would be negligible. ---PAGE BREAK--- 3 Oakland’s Proposed City Minimum Wage Law • Previous studies found that minimum wage increases have little negative impact on employment. o Three rigorous studies of the employment impacts of existing local minimum wage laws all find no significant impact on employment. o A national study compares employment in all the counties that straddle state borders with different minimum wages, for the period 1990 to 2012. This study finds no statistically significant effects of minimum wage increases on either employment or hours in restaurants and other low-wage industries, controlling for a range of regional and local differences that previous research did not include. • The proposed 36 percent minimum wage increase in Oakland lies within the range of previous local minimum wage laws. o The ten previous local minimum wage laws in the U.S. have mandated an average increase of 43.0 percent, with a range of 13.3 percent to 84.5 percent. o The proposed policy would increase the minimum wage to 54 percent of the Oakland median wage of $22.64 an hour. This ratio is within the historical range of the ratio of the federal minimum wage to the median wage. Introduction Residents of Oakland, California will soon be voting whether or not to adopt a city-wide minimum wage policy. The proposal under consideration would establish a minimum wage of $12.25 for busi nesses operating in the city as of March 1, 2015, indexed to inflation in subsequent years. In this report, we first estimate the number of workers that would be affected and describe their demographic and job characteristics. We then estimate the resulting increase in wages and analyze their likely impacts on business costs, prices and employment. We also compare the magnitude of the proposed increase to those in the ten other extant local minimum wage laws. Background Real wages for the majority of American workers have stagnated over the last decade, even as incomes at the top rose sharply (Mishel and Shierholz 2013). According to the California Budget Project, workers in the bottom 20 percent of the income distribution in California now earn 12 percent less in inflation- adjusted wages than in 1979 (California Budget Project 2014). Even though states like California have set minimum wage rates above the federal level, they still remain below their historic value in inflation- adjusted terms and do not reflect the higher cost of living in many urban areas. In response, cities and counties have begun to set their own minimum wages at levels that reflect lo cal economic conditions and living costs. Ten cities and counties have approved local minimum wage laws. Most recently Seattle, Washington approved a minimum wage of $15 an hour, to be phased in over several years. In the Bay Area, in 2003 San Francisco became the first city in the nation to pass a citywide minimum wage law. In 2012, San Jose voters approved a minimum wage initiative setting the minimum wage to $10 per hour as of January 1, 2014 with subsequent annual cost of living increases. ---PAGE BREAK--- 4 Oakland’s Proposed City Minimum Wage Law Proposals are also currently under consideration to increase the minimum wage to $12.53 in Berkeley, $13 in Richmond and $15 in San Francisco. California’s minimum wage is set to increase to $9 on July 1, 2014 and to $10 on January 1, 2016. Oakland, the largest city in Alameda County, accounts for about one-fourth of the county’s population. Its principal immediate neighbors are Emeryville and Berkeley to the north, the East Bay Regional Park District to the east, San Leandro to the south and Alameda to the west. About 45 percent of employed Oakland residents work in Oakland; conversely, about 60 percent of workers with jobs located in Oak land commute in from nearby cities.1 The proposed minimum wage law would cover everyone who works in Oakland (excepting state and federal government employees and the self-employed). Oakland’s economic situation has improved in recent years. During the Great Recession that began in December 2007, employment did not fall as rapidly in Oakland as in Alameda County or in California. As shown in Figure 1, the number of jobs in Oakland is very close to pre-recession levels, a better record than that of Alameda County and California as a whole. Moreover, while the 2014 Oakland unemploy ment rate remains higher (8.9 percent) than in Alameda County as a whole (5.7 percent), both rates have been falling, and at about the same pace.2 Figure 1. Quarterly Employment Growth (Indexed to 2007) Source: U.S. Census Bureau, Quarterly Workforce Indicators Data (not seasonally adjusted) ---PAGE BREAK--- 5 Oakland’s Proposed City Minimum Wage Law Figure 2. Median Annual Earnings by Place of Work (2012 Dollars) Source: U.S. Census Bureau, American Community Survey, 2005-2012. Notes: Estimates are three-year averages. Despite the recovery, inflation-adjusted median annual earnings for those who work in Oakland are still below pre-recession levels. These declines in median earnings likely reflect a faster contraction of middle wage jobs during the recession and a faster growth of low-wage jobs during the recovery. However, workers in Alameda County as a whole experienced a somewhat larger decline in real earnings than did Oakland Workers (Figure Median inflation adjusted annual earnings fell 8.4 percent for workers in Oakland and 10.4 percent in Alameda County between 2007 and 2012. Nonetheless, median annual earnings for those who work in Oakland are actually higher than in nearby Berkeley, Hayward and San Leandro and higher than in Alameda County as a whole.3 Oakland’s economy thus exhibits the same uneven recovery that characterizes the East Bay and the state as a whole. Income inequality in the region has been growing, leaving low-wage workers further be hind. According to a recent Brookings Institution report, inequality in Oakland ranks seventh among U.S cities, just behind New York (Berube 2014). Moreover, according to the Census Bureau, income inequality in Oakland-- as measured by the city’s Gini coefficient-- has risen by 2.65 percent since 2008, a more rapid increase than in neighboring San Francisco, and more rapid than in the U.S.4 At the same time, median rents in Oakland increased by 20 percent between 2005 and 20125, twice the rate of in crease in median household incomes.6 ---PAGE BREAK--- 6 Oakland’s Proposed City Minimum Wage Law Impacts on Workers Estimated Number of Affected Workers To estimate the number of workers affected by the proposed minimum wage increase, we obtain the wage distribution of workers in Alameda County using the 2012 American Community Survey (ACS), scaled to approximate employment counts for Oakland.7 This step is necessary because the ACS does not allow us to identify individuals who work in Oakland; the smallest geographic area for measuring place of work is the county. We therefore assume that the proportion and characteristics of low-wage workers in Alameda County are similar to low-wage workers in Oakland. Our analysis suggests that the Alameda County workforce serves as a good proxy for the Oakland workforce on many dimensions. For example, 2012 median annual earnings were $43,480 for workers employed in Oakland and $41,922 for workers employed in Alameda County.8 Where we expect workforce characteristics to differ between the county and the city, we use additional methods to provide an estimate. We do not include self-em ployed workers or federal or state government employees in our sample, since these groups of workers are not covered by the proposed Oakland law. After obtaining the wage distribution in Oakland just before the proposed minimum wage law would go into effect, we then estimate the number of workers that would be affected by the increase and the additional wages they would receive if the policy were implemented. To construct these estimates, we also adjust for projected wage growth at the bottom of the wage distribution that would occur without the policy, the interim increase in the state minimum wage to $9 on July 1, 2014, the subsequent state minimum wage increase to $10 on January 1, 2016, and projected employment growth. We produce a low and a high estimate. Both estimates include a directly affected group (workers who make less than the proposed minimum wage) and an indirectly affected group (workers who make more than the proposed minimum wage, but who are also likely to receive a small raise via what is known as the “ripple effect”). The two estimates differ in their assumptions about the size of the ripple effect and the number of very low-wage earners (workers making less than the minimum wage). More information on our methodology is available in an online technical appendix (see Welch-Love man, Perry and Bernhardt 2014). In this report we present the midpoint of the two estimates, unless otherwise noted. Table 1 shows the estimated number and percent of workers affected by Oakland’s proposed minimum wage increase. We estimate that between 25 and 30 percent of Oakland workers will receive pay raises, which translates into 40,000 to 48,000 Oakland workers. The majority of the affected workers will be directly affected workers – that is, those earning less than $12.25 when the law would go into effect. ---PAGE BREAK--- 7 Oakland’s Proposed City Minimum Wage Law Table 1. Number of Workers Affected by Oakland’s Proposed Minimum Wage Increase Low Estimate High Estimate Workers Percent of Workforce Workers Percent of Workforce All Affected Workers 40,000 24.8 48,000 29.5 Directly Affected Workers 31,000 19.1 34,000 20.7 Indirectly Affected Workers 9,000 5.7 14,000 8.7 Source: Authors’ analysis of ACS, OES, and QCEW data. See Welsh-Loveman, Perry and Bernhardt 2014. Estimated Size of Wage Increases In addition to the number of workers affected, we also estimate the additional earnings that affected workers would receive as a result of the proposed minimum wage law. Table 2 presents four measures: the average increase in hourly wages, the average increase in annual earnings, the average percentage in crease in annual earnings and the total projected increase in earnings. We estimate that hourly wages of affected workers will rise by about $1.69, that their annual earnings will increase by about $2,700, and that their earnings will increase by about 18.7 percent.9 In total, workers will earn about $120 million more in the first year of implementation as a result of the higher wage rate. Table 2. Pay Increases for Workers Affected by Oakland’s Proposed Minimum Wage Law Total Increase In Earnings $120,100,000 Average Hourly Wage Increase $1.69 Average Annual Earnings Increase $2,700 Average Percent Annual Earnings Increase 18.7 Source: Authors’ analysis of ACS, OES, and QCEW data. See Welsh-Loveman, Perry and Bernhardt 2014. Notes: Results refer to workers affected by Oakland’s proposed minimum wage increase. Demographics of Affected Workers Table 3 profiles key demographic characteristics of the workers affected (both directly and indirectly through the ripple effect) by the proposed Oakland minimum wage law. In this table we use our low estimate to identify affected workers. The first column of Table 3 displays the distribution of affected workers among demographic groups. For example, 48.2 percent of affected workers are women and 51.8 are men. Column 2 shows the same breakdown for all workers in Oakland. The last column shows the percentage of workers in each demo graphic group that will be affected by the proposed law. For example, 25.7 percent of female workers and 24.0 percent of male workers will receive a wage increase under the proposed law. ---PAGE BREAK--- 8 Oakland’s Proposed City Minimum Wage Law Table 3. Demographic Characteristics of Workers Affected by Oakland’s Proposed Minimum Wage Increase (all figures are percentages unless otherwise noted) % of All Affected Workers % of All Workers % of Group Affected Gender Male 51.8 53.5 24.0 Female 48.2 46.5 25.7 Median Age 32 41 Age 19 and Younger 3.5 1.2 70.7 20-29 39.8 19.9 49.7 30-39 19.8 24.9 19.8 40-54 25.8 37.5 17.1 55 and Older 11.1 16.5 16.6 Education Less than High School 22.9 10.0 56.9 High School or G.E.D. 25.2 18.5 33.7 Some College 27.2 22.5 30.0 Associate’s Degree 6.0 7.6 19.4 Bachelor’s Degree or Higher 18.8 41.3 11.3 Country of Birth U.S. Born 50.0 61.0 20.3 Foreign Born 50.0 39.0 31.8 Family Structure Married 38.5 54.0 17.7 Have Children 35.8 45.0 19.7 Source: Authors’ analysis of ACS, OES, and QCEW data. Notes: Affected workers are determined using our low estimate. Contrary to the common perception that minimum wage workers are mainly teens, we estimate that 96.5 percent of affected workers are in their twenties or older, and that over half of the workers receiving raises are in their thirties or older. Over a third of affected workers have children and over a third are married. Com pared to the overall workforce, affected workers are more likely to be immigrants and are less likely to hold an Associate’s or Bachelor’s degree. For the estimates in Table 3, we used the demographic characteristics of Alameda County workers to approximate the characteristics of Oakland workers; for the measures listed in the table, we have confirmed that this inference is valid. However, our analysis suggests that the Oakland workforce differs from the Alameda County workforce in terms of race and ethnicity, and family income-related measures. Since the available data do not allow us to directly identify workers employed in Oakland, we show in Table 4 the average of two different estimates.10 ---PAGE BREAK--- 9 Oakland’s Proposed City Minimum Wage Law As shown in Table 4, workers of color will disproportionately benefit from the proposed law compared to white workers. The families of affected workers are disproportionately low-income (with more than half falling below 200 percent of the federal poverty level), and more likely to be receiving food stamps. Substantial majorities of working poor families will receive an increase in income from the proposed law. Table 4. Estimated Race and Household Income Characteristics of Workers Affected by Oakland’s Proposed Minimum Wage Increase (all figures are percentages unless otherwise noted) % of All Workers Getting a Raise % of All Workers % of Group Getting a Raise Race/Ethnicity White (Non-Hispanic) 18.2 34.1 15.3 Black (Non-Hispanic) 13.6 13.8 29.2 Hispanic 43.0 25.3 49.9 Asian (Non-Hispanic) 22.1 23.0 28.6 Other 3.2 3.8 24.2 Household Income Relative to Poverty Level (FPL) Less than 100% of FPL 18.7 6.8 81.5 100% to 150% of FPL 21.6 9.0 71.8 150% to 200% of FPL 15.2 7.4 60.6 More than 200% of FPL 44.4 76.7 16.9 Average Worker Share of Household Income 41.3 55.4 Food Stamp Assistance Family Receives Food Stamp Assistance 19.2 8.7 64.9 Source: Authors’ analysis of ACS, OES, and QCEW data. Notes: See text for explanation of the two estimation methods. Affected workers are determined using our low estimate. Job Characteristics of Affected Workers In Table 5, we profile the job characteristics of workers affected by the proposed minimum wage law. Not surprisingly, the median annual earnings of affected workers is quite low, less than half of the me dian for the workforce as a whole. Affected workers are also more likely to work part-time and part-year than the general workforce, and are less likely to have health insurance provided by their employer. The industry breakdown is also instructive. Fully half of all affected workers are employed in three indus tries: retail trade (17.1 percent); restaurants (17.9 percent); and education, health and social services industries (15.7 percent). (The latter set of industries includes teachers’ assistants, medical assistants, childcare workers and private-pay home health aides). Several smaller industries also have a dispro portionate number of affected workers, such as administrative and waste management services (largely temporary workers). ---PAGE BREAK--- 10 Oakland’s Proposed City Minimum Wage Law Table 5. Job Characteristics of Workers Affected by Oakland’s Proposed Minimum Wage Increase (all figures are percentages unless otherwise noted) % of All Workers Getting a Raise % of All Workers % of Group Getting a Raise Median Individual Annual Earnings (2013 Dollars) $16,200 $44,600 Full-Time / Part-Time Worker Full-Time (35 or More Hours per Week) 63.4 80.1 19.6 Part-Time (Fewer than 35 Hours per Week) 36.6 19.9 45.7 Full-Year / Part-Year Worker Full-Year (50-52 Weeks per Year) 77.7 84.9 22.7 Part-Year (Fewer than 50 Weeks per Year) 22.3 15.1 36.5 Sector Private Sector Employer 87.8 79.6 27.4 Non-Profit Employer 8.1 11.5 17.4 Local Government 4.2 9.0 11.5 Health Insurance Provided by Employer Yes 46.0 76.4 14.9 No 54.0 23.6 56.8 Industry Agriculture, Forestry, Fishing, Hunting, and Mining 0.2 0.3 Construction 4.9 5.6 21.4 Manufacturing 10.5 14.0 18.6 Wholesale Trade 3.8 4.2 22.2 Retail Trade 17.1 11.3 37.4 Transportation, Warehousing, and Utilities 3.2 4.7 17.3 Information and Communications 1.5 2.9 13.0 Finance, Insurance, Real Estate, and Rental and Leasing 2.8 5.0 14.1 Professional, Scientific, and Management 2.9 9.1 7.9 Administrative and Waste Management Services 7.7 4.4 42.9 Educational, Health and Social Services 15.7 21.7 18.0 Arts, Entertainment, Recreation 2.2 1.9 29.2 Accommodations 1.7 1.0 Food Services 17.9 6.9 63.9 Other Services (except Public Administration) 7.2 4.5 40.2 Public Administration 0.7 2.4 6.7 Source: Authors’ analysis of ACS, OES, and QCEW data. Notes: Affected workers are determined using our low estimate. Blank values for of Group Getting a Raise” indicate less than 50 observations for that category. ---PAGE BREAK--- 11 Oakland’s Proposed City Minimum Wage Law Impacts on Businesses Impact on Costs for Business Owners We next estimate the impact of Oakland’s proposed minimum wage law on the operating costs of busi nesses. Our strategy is to compare the estimated increase in the overall wage bill resulting from the proposed law to the existing wage bill paid by employers, drawing on our estimates in Table 1 and Table 2 above. Table 6 shows our analysis of the estimated increase in business operating costs in two traditionally low-wage industries, retail and restaurants. Businesses’ total wage bill will increase 2.4 percent for the retail industry, and 8.9 percent in the restaurant industry. However, operating costs will rise by a much smaller amount, since wage costs only make up a portion of the total operating costs that businesses face. Labor costs (excluding health benefits) account for 11 percent of retail operating costs and 31 per cent of restaurant operating costs.11 We therefore estimate that total operating costs will increase by 0.3 percent for retail and 2.8 percent for restaurants, as a result of the proposed minimum wage law. Table 6. Impact of Oakland's Proposed Minimum Wage Increase On Business Operating Costs Retail Industries % Change in Payroll Costs 2.4 Labor Costs as % of Operating Costs* 11 % Change in Operating Costs 0.3 Restaurant Industries % Change in Payroll Costs 8.9 Labor Costs as % of Operating Costs* 31 % Change in Operating Costs 2.8 Source: Authors' analysis of ACS, OES, QCEW, U.S. Census and Annual Retail Trade and BEA data. *Labor costs exclude health insurance. Operating costs include costs of merchandise purchased for re-sale. Given these modest estimated increases in operating costs, we turn next to a discussion of how busi nesses might adjust. We discuss, in turn, the effects of minimum wages on employment and hours, on worker productivity and turnover, and on consumer prices. Impact on Employment and Hours In a recent report prepared for the City of Seattle, Reich, Jacobs and Bernhardt (2014) provide an ex tensive review and of economic research on the employment and hours impacts of minimum wage increases. Here, we draw on that paper and provide a brief summary of what we consider to be the most compelling studies. Research evidence from local minimum wage laws ---PAGE BREAK--- 12 Oakland’s Proposed City Minimum Wage Law There are three rigorous studies of the employment impacts of existing local minimum wage laws. Dube, Naidu and Reich (2007) studied the impact of San Francisco’s minimum wage law after it in creased from $6.75 to $8.50 an hour in 2004. They surveyed a sample of restaurants before and after the wage increase. The sample included restaurants from San Francisco as well as neighboring East Bay cities that were not covered by the policy. The authors found no statistically significant negative effects on either employment or the proportion of full-time jobs as a result of the San Francisco law. This finding holds for both full-service and fast-food restaurants (one might expect more sensitivity to a higher minimum wage in the latter). Figure 3 shows the results from their follow-up study (Reich, Jacobs, and Dietz 2014). Restaurant employment in San Francisco rose faster than in surrounding counties after the minimum wage increase, and again after San Francisco implemented two additional policies (paid sick leave and a health spending requirement). Figure 3. Bay Area Restaurant Employment Source: Reich, Jacobs and Dietz (2014) Notes: Shaded areas indicate recessions. Surrounding counties include San Mateo, Santa Clara, and Alameda Counties. 0 10,000 20,000 30,000 40,000 50,000 60,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Minimum wage Paid sick leave Health spending requirement San Francisco Surrounding counties (weighted average) Potter (2006) studied the impact of Santa Fe’s minimum wage law after it increased from $5.15 to $8.50 in 2004, a substantial increase of 65 percent. Potter compares changes in employment at Santa Fe businesses before and after the ordinance went into effect, and to changes in employment in nearby Albuquerque over the same time period. (Albuquerque did not have a city minimum wage law at that time.) Potter found no statistically significant negative impact of Santa Fe’s minimum wage increase on the city’s employment. This finding also held for accommodation and food services, the industries with the highest proportion of minimum wage workers. ---PAGE BREAK--- 13 Oakland’s Proposed City Minimum Wage Law Finally, Schmitt and Rosnick (2011) studied the impact of the above two laws, comparing employment trends in these cities before and after their minimum wage increases to control groups of surrounding suburbs and nearby metropolitan areas. The authors focused on fast-food restaurants, food services, retail trade, and other low-wage industries, and found no discernible negative effects on employment, even three years after the respective ordinances were implemented.12 Evidence from state and federal minimum wage laws The results from studies of local minimum wage laws are corroborated by extensive research on state and federal minimum wage laws. Allegretto, Dube, Reich and Zipperer (2013) looked at every state and federal minimum wage increase in the U.S. between 1990 and 2012 and identified several hundred pairs of adjacent counties that were located on different sides of a state border with a minimum wage difference. This research design compares the employment trends of the most affected groups – teens and restaurants – across adjacent counties with different minimum wage levels. This study finds no statistically significant effects of minimum wage increases on either employment or hours in restaurants and other low-wage industries, controlling for a range of regional and local differences that previous research did not include. Belman and Wolfson (2014) provide the most extensive recent summary of the minimum wage research literature. They conclude that minimum wage employment effects in the U. S. are “both vanishingly small and not statistically significant in even the most generous test” 168). A separate review of minimum wage research by Schmitt (2013) similarly finds “the minimum wage has little or no discern ible effect on the employment prospects of low-wage workers.” In summary, the best research studies find that minimum wage mandates (in the range implemented to date) do not have a statistically significant negative effect on employment or hours. How, then, do firms adjust to the modest increase in operating costs estimated above? Effects on Worker Productivity and Recruitment and Retention Costs As discussed in detail by Reich, Jacobs and Bernhardt (2014), businesses can adjust to the increased costs of a minimum wage increase without reducing employment. First, when workers are paid more, their productivity can improve, as can their attitude about their job, how hard they work, and their ability to make it to work on time (Reich, Jacobs and Dietz 2014 and Hirsch, Kaufman and Zelenska 2011). Sec ond, minimum wages can reduce the high levels of job churning that characterize low-wage labor markets. The National Restaurant Association estimates that annual employee turnover in restaurants approaches 75 percent in some restaurant classifications (National Restaurant Association 2010). Turnover levels are high as workers leave jobs that pay higher wages or because they are unable to stay in their jobs due to poverty- related problems such as difficulties with transportation, child care, or health. Dube, Lester and Reich (2013) found that a 10 percent increase in the minimum wage results in a 2.1 percent reduction in turn over for restaurant workers. Turnover can be quite costly to firms, even for low-wage workers. Boushey and (2012) find that the median cost of replacement for a job paying $30,000 a year or less is 16.1 percent of an employee’s annual earnings. As a result, rather than eliminating jobs, raising the minimum wages can reduce turnover and increase job stability. The associated reduction in employers’ recruitment and retention costs offsets about 20 to 25 percent of the costs of minimum wage increases (Dube, Lester and Reich 2013). ---PAGE BREAK--- 14 Oakland’s Proposed City Minimum Wage Law Impact on Restaurant Prices Firms also adjust to increased costs by passing on some of the increases to consumers through higher prices. Since the minimum wage applies to all employers, firms such as restaurants that serve the local market will be able to pass costs through to consumers without experiencing a competitive disadvan tage. And since the demand for restaurant meals responds inelastically to price increases, restaurant profits do not fall. Research by Aaronson, French and MacDonald (2008) has found that for every percentage point in crease in the minimum wage, restaurant prices rise by 0.072 percent. An earlier study (Lee et al. 2000) showed that restaurant operating costs increase by about 0.1 percent for each percentage increase in the minimum wage (see also Benner and Jayaraman 2012). The two studies together thus suggest that 70 to 75 percent of cost increases are passed on as higher restaurant prices. Preliminary results from a study of San Jose’s recent experience arrive at a similar estimate (Allegretto and Reich 2014). Applying this estimate to restaurants in Oakland implies an average price increase of 2.6 percent, which is very close to annual restaurant price increases in recent years. Table 7. Impact of Oakland's Proposed Minimum Wage Increase On Restaurant Prices Low Estimate High Estimate Retail Industries 0.2% 0.3% Restaurant Industries 2.0% 2.9% Source: Authors' analysis of ACS, OES, QCEW, U.S. Census and Annual Retail Trade and BEA data. In Table 7 we provide our own estimates of the impact on restaurant and retail prices. Our low estimate uses the lower estimated increase in operating costs from Table 6, and assumes that 75 percent of those costs are passed through to consumers. Our high estimate uses the higher estimate for increases in oper ating costs and assumes that 100 percent of the costs are passed through to consumers. For restaurants, we predict a one-time increase in prices of 2.0 to 2.9 percent. The midpoint of this range, 2.5 percent, is very similar to the prediction from the research literature above. The price of a $10 menu item would thus increase very modestly, to $10.25. For retail and the local economy as a whole, price increases would be negligible. Comparison to Other Minimum Wage Increases It is important to emphasize that the economic research summarized above is necessarily limited to studying the minimum wage laws that have been implemented to date. It is therefore useful to ask how the Oakland’s proposed minimum wage increase compares to those that have been implemented in the past. The proposed ordinance would increase Oakland’s minimum wage by 36.1 percent at the time of pro posed implementation (in March 1, 2015, the state minimum wage will be $9 an hour, rising to $10 on January 1, 2016). While high, the size of the proposed increase is well within the range of other local minimum wage laws. The ten previous local minimum wage laws in the U.S. have mandated an average ---PAGE BREAK--- 15 Oakland’s Proposed City Minimum Wage Law increase of 43.0 percent in their minimum wage, with a range of 13.3 to 84.5 percent (this calculation includes Seattle’s new law). A number of these laws were phased in over time, with the first year’s in crease typically the largest. Across all existing laws, first-year increases ranged from 6.7 to 65.0 percent, with an average of 25.6 percent. Again, Oakland’s proposed increase falls within the range of other cities’ laws. While the proposed wage standard for Oakland is higher than is currently in effect in other Bay Area cities, Richmond, Berkeley and San Francisco are all considering wage increases that would be close to, or in the case of San Francisco, higher than, the $12.25 an hour under consideration in Oakland. Another measure used by economists to determine the ability of the economy to absorb higher mini mum wage levels is the ratio of the minimum wage to the median wage. The proposed wage of $12.25 is 54 percent of the median wage in Oakland of $22.64 an hour. This ratio is within the historical range of the federal minimum wage-median ratio, which reached 55 percent in 1968 (Dube 2013), and it is lower than the 59 percent ratio in the new Seattle law. Conclusion Drawing on a variety of government data sources, we estimate that 40,000 to 48,000 workers would benefit from Oakland’s proposed minimum wage policy, with the average worker earning an additional $2,700 a year. Our analysis of the existing economic research literature suggests that businesses will adjust to modest increases in operating costs through reduced employee turnover costs, improved work performance, and a small, one-time increase in restaurant prices. ---PAGE BREAK--- 16 Oakland’s Proposed City Minimum Wage Law References Aaronson, Daniel, Eric French and James MacDonald. 2008. “The Minimum Wage, Restaurant Prices, and Labor Market Structure.” Journal of Human Resources 43(3): 688-720. Allegretto, Sylvia, Arindrajit Dube, Michael Reich and Ben Zipperer. 2013. “Credible Research Designs for Minimum Wage Studies.” Working Paper No. 148-13. Institute for Research on Labor and Employment, UC Berkeley. Available at: http://www.irle.berkeley.edu/workingpapers/148-13.pdf. Allegretto, Sylvia and Michael Reich. 2014. “Minimum Wage Effects on Prices: Preliminary Results.” Paper presented at the Portland meetings of the Labor and Employment Research Association. Belman, Dale and Paul Wolfson. 2014. What Does the Minimum Wage Do? Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. Benner, Chris and Saru Jayaraman. 2012. “A Dime a Day: the Impact of the Harkin/Miller Proposal on the Price of Food.” University of California Berkeley Food Labor Research Center, Food Chain Workers Alliance and Restaurant Opportunities Center. Available at: http://laborcenter.berkeley.edu/foodlabor/price_food12.pdf. Berube, Alan. 2014. “All Cities Are Not Create Equal,” Brookings Institution, Appendix. Available at: http:// www.brookings.edu/~/media/research/files/papers/2014/02/city%20inequality/appendix.pdf Boushey, Heather and Sarah 2012. “There are Significant Business Costs to Replacement Employees.” Center for American Progress. Available at: http://www.americanprogress.org/wp-content/uploads/2012/11/ CostofTurnover.pdf. California Budget Project. 2014. “Where Is the Wage Growth? Wage Stagnation in California’s Economy,” May 8, 2014. Available at: http://www.cbp.org/pdfs/2014/140508_Wage_Stagnation_EB.pdf. Dube, Arindrajit. 2013. “Statement by Arindrajit Dube before the U.S. Senate Committee on Health, Education, Labor & Pensions,” March 14, 2013. Available at: http://www.help.senate.gov/imo/media/doc/ Dube1.pdf Dube, Arindrajit, William Lester and Michael Reich. 2013. “Minimum Wage Shocks, Employment Flows and Labor Market Frictions.” Working Paper No. 149-13. Institute for Research on Labor and Employment, UC Berkeley. Available at: http://www.irle.berkeley.edu/workingpapers/149-13.pdf. Dube, Arindrajit, Suresh Naidu and Michael Reich. 2007. “The Economic Effects of a Citywide Minimum Wage.” Industrial and Labor Relations Review 60, 4: 522-543. Dube, Arindrajit, Suresh Naidu and Michael Reich. 2014. “Labor Market Impacts of San Francisco’s Minimum Wage.” In Michael Reich, Ken Jacobs and Miranda Dietz (eds.) When Mandates Work: Raising Labor Standards at the Local Level, pp. 47-69. Berkeley, CA: University of California Press. ---PAGE BREAK--- 17 Oakland’s Proposed City Minimum Wage Law Hirsch, Barry Bruce Kaufman, and Tetyana Zelenska. 2011. “Minimum Wage Channels of Adjustment.” IZA Discussion Paper No. 6132. Institute for the Study of Labor. Available at: http://www2.gsu.edu/~ecobth/ IZA_HKZ_MinWageCoA_dp6132.pdf. Lee, Chinkook, Gerald Schluter and Brian O’Roark 2000. “Minimum wage and food prices: an analysis of price pass-through effects.” International Food and Agribusiness Management Review 3: 111–128. Mishel, Lawrence and Heidi Shierholz. 2013. “A Decade of Flat Wages.” Briefing Paper No. 365. Economic Policy Institute, Washington, D.C. National Restaurant Association and Deloitte & Touche LLP. 2010. “Restaurant Industry Operations Report 2010 Edition.” Potter, Nicholas. 2006. “Measuring the Employment Impacts of the Living Wage Ordinance Santa Fe, New Mexico.” University of New Mexico, Bureau of Business and Economic Research. Available at: unm.edu/pubs/EmploymentLivingWageAnalysis.pdf Reich, Michael, Ken Jacobs and Annette Bernhardt. 2014. “Local Minimum Wage Laws: Impacts of Workers, Families, and Businesses.” Working Paper No. 104-14. Institute for Research on Labor and Employment, UC Berkeley. Reich, Michael, Ken Jacobs and Miranda Dietz (eds.) 2014. When Mandates Work: Raising Labor Standards at the Local Level. Berkeley, CA: University of California Press. Schmitt, John. 2013. “Why is There No Discernable Employment Effect of the Minimum Wage.” Washington, DC: Center for Economic and Policy Research. Available at: http://www.cepr.net/documents/publications/ min-wage-2013-02.pdf Schmitt, John and David Rosnick. 2011. “The Wage and Employment Impact of Minimum-Wage Laws in Three Cities.” Center for Economic and Policy Research. Available at: http://www.cepr.net/documents/ publications/min-wage-2011-03.pdf Welsh-Loveman, Jeremy, Ian Perry and Annette Bernhardt. 2014. “Data and Methods for Estimating the Impact of Proposed Local Minimum Wage Laws.” Institute for Research on Labor and Employment, UC Berkeley. Available at: http://www.irle.berkeley.edu/cwed/briefs/2014-01-data-and-methods.pdf Yelowitz, Aaron. 2005a. “Santa Fe’s Living Wage Ordinance and the Labor Market.” Employment Policies Institute. Available at: http://www.epionline.org/studies/yelowitz_09-2005.pdf Yelowitz, Aaron. 2005b. “How Did the $8.50 Citywide Minimum Wage Affect the Santa Fe Labor Market?” Employment Policies Institute. Available at: http://www.epionline.org/studies/yelowitz_12-2005.pdf Yelowitz, Aaron. 2012. “The Labor Market Effects of Citywide Compensation Floors.” Employment Policies Institute. Available at: http://www.epionline.org/studies/yelowitz_12-2005.pdf ---PAGE BREAK--- 18 Oakland’s Proposed City Minimum Wage Law Endnotes 1 Bay Area Census analysis of 2006-2010 American Community Survey Commute Flows. http://www.bayareacensus.ca.gov/ transportation.htm 2 Bureau of Labor Statistics Local Area Unemployment Statistics. 3 U.S. Census Bureau; American Community Survey, 2005-2012 American Community Survey 3-Year Estimates, Table B08521; ; accessed 6 June 2014. 4 U.S. Census Bureau; American Community Survey, 2008 and 2012 American Community Survey 1-Year Estimates, Table B19083; ; accessed 5 June 2014. 5 Based on annual data. U.S. Census Bureau; American Community Survey, 2005-2012 American Community Survey 1-Year Estimates, Table B25064; ; accessed 3 June 2014. 6 Based on annual data. U.S. Census Bureau; American Community Survey, 2005-2012 American Community Survey 1-Year Estimates, Table B19013; ; accessed 3 June 2014. 7 According to the Quarterly Census of Employment and Wages, Oakland accounted for 25 percent of Alameda County employment in the second quarter of 2013. 8 U.S. Census Bureau; American Community Survey, 2010-2012 American Community Survey 3-Year Estimates, Table B08521; ; accessed 6 June 2014. 9 Although more workers will receive an increase in our high estimate, the average wage increases are smaller because the additional workers included in the high estimate will receive below-average increases. For more detail on our estimation methods, see Welsh-Loveman, Perry and Bernhardt (2014). 10 The first estimate simply uses the characteristics of Alameda County workers. The second estimate uses the characteristics of Alameda County workers who live in or near Oakland (including Emeryville, Piedmont, San Leandro, and the city of Alameda). Oakland accounts for 79 percent of the residents in this area. The second estimate should not be interpreted as a more accurate estimate, because only 40.5 percent of Oakland workers live in Oakland. 11 To determine the labor share of operating costs in retail we use data from the U.S. Census and Annual Retail Trade (http://www.census.gov/retail/index.html), which provides data on retail sales, merchandise purchased by retailers for resale and detailed operating expenses. We add operating expenses and purchases together to determine total operating costs. We add the costs of fringe benefits (minus health insurance) to annual payroll to estimate total labor costs. Health benefits are excluded since, unlike payroll taxes and workers compensation insurance, the costs of the benefits will not change if wages are increased. Dividing labor costs by operating costs gives us the labor share. The Retail Trade data does not provide the cost of goods purchased for resale in the restaurant industry. Industry data on gross operating surplus is available in the Bureau of Economic Analysis Input-Output Account Data (http://www.bea.gov/industry/io_annual.htm). The data was accessed from the Use Table, 2012, before redefinitions, producer value. We subtract gross operating surplus from sales to get the total restaurant operating costs and proceed as done for retail. 12 The restaurant industry-backed Employment Policies Institute has produced three studies of Santa Fe and San Francisco (Yelowitz 2005a; 2005b; 2012). In our assessment, these studies suffer from serious methodological problems that make the results unreliable. They also offer contradictory results; see Reich, Jacobs and Bernhardt (2014) for details. ---PAGE BREAK--- Center on Wage and Employment Dynamics Institute for Research on Labor and Employment University of California, Berkeley 2521 Channing Way #5555 Berkeley, CA 94720-5555 (510) 643-8140 http://www.irle.berkeley.edu/cwed ---PAGE BREAK--- Executive Summary: The Proposed Minimum Wage Law for Los Angeles: Economic Impacts and Policy Options By Ken Jacobs, Annette Bernhardt and Ian Perry March 20, 2015 Note: The full report is available online at http://irle.berkeley.edu/cwed/briefs/2015-01.pdf The Los Angeles City Council is considering a citywide minimum wage increase to $13.25 by 2017 and $15.25 by 2019, followed by annual increases indexed to inflation. In this prospective study, we assess the economic impact of the proposal on workers, businesses and the city’s economy, and analyze a range of policy design options. Our below findings are based on a mid-range scenario for future wage and inflation growth in Los Angeles. If actual economic growth turns out to be stronger or weaker than in this scenario, our assessment would change accordingly. Effects on Workers The proposed policy would result in significant benefits to workers and their families. By 2017, we estimate that 542,000 workers in Los Angeles, or 37.8 percent of the covered workforce, will receive a wage increase from the proposed law. These estimates include a ripple effect in which some workers who earn above the new minimum wage also receive an increase. Average annual earnings will increase by 20.4 percent, or $3,200 (in 2014 dollars). By 2019, we estimate that 609,000, or 41.3 percent of the covered workforce, will receive a wage increase from the proposed law. Average annual earnings will increase by 30.2 percent, or $4,800 (in 2014 dollars). The large majority of affected workers will be adults with a median age of 33 (only 3 percent are teens). The proposed minimum wage increase will disproportionately benefit workers of color, who represent over 80 percent of affected workers. In particular, we estimate that more than half of Latino/a workers in Los Angeles will receive a pay increase. Agenda Item No. 7 Attachment 3 ---PAGE BREAK--- The median annual earnings of affected workers ($16,600 in 2014 dollars) is about half of the median income for all workers in Los Angeles. Affected workers are disproportionately employed in part-time and part-year jobs, and are also less likely to have health insurance through their employer. Affected workers disproportionately live in low-income families; on average, affected workers bring home more than half of their family’s income. Affected workers live disproportionately in the lower-income areas of the city. These areas will experience much greater earnings gains than the city as a whole. The research literature suggests that there may be benefits from the proposed wage increase, such as improved health outcomes for both workers and their children, and increases in children’s school achievement and cognitive and behavioral outcomes. Effects on Businesses We estimate that the majority of workers getting a raise from the proposed law are employed in the private, for-profit sector. Four industries alone account for half of the affected workforce by 2019: food services, which is largely restaurants (17.3 percent), health care and social assistance (12.9 percent), retail trade (14.0 percent), and administrative and waste management services, such as temp agencies and janitorial and security contractors (9.4 percent). We estimate that about 40 percent of affected workers are employed at firms with fewer than 50 employees. At the other end of the size range, close to 40 percent of affected workers are employed at firms with 500 employees or more. Minimum wage increases do not affect all industries equally. For example, we estimate that 79.7 percent of workers in the restaurant industry will receive a wage increase by 2019; that figure is only 19.1 percent in Professional and Scientific Services industries. Overall, we estimate that firms’ operating costs will increase by 0.5 percent by 2017 and 0.9 percent by 2019 as a result of the proposed law; these are cumulative estimates and will be spread over several years. The largest increases will occur in food services, administrative and waste management services, and apparel manufacturing. We estimate that 6 percent of the workers projected to receive increases are employed in one of Los Angeles’ 2,500 nonprofit organizations. The impact of the proposed law varies considerably across the nonprofit sector, with the largest effects in residential care and early care and education. Costs and Benefits for Los Angeles’ Economy On the cost side, we find that employers will pass on their increased operating costs to consumers via prices, after accounting for savings from reduced employee turnover. As a result of these price increases, consumer demand in Los Angeles will decrease by $592 million by 2017 and $1.128 billion by 2019 (nominal dollars). ---PAGE BREAK--- While price increases reduce consumer demand, increases in low-wage workers’ wages will have the opposite effect. On the benefits side, we estimate that the total wage increase from the proposed law (net of reductions in public assistance and lost worker income due to reductions in consumer demand) will be $1.361 billion by 2017 and $2.381 billion by 2019 (nominal dollars). These increased incomes generate further spending benefits through multiplier effects. The costs of the proposed minimum wage law will be concentrated in Los Angeles City, but the full benefits will be realized throughout Los Angeles County, because more than half of the affected workers live, and therefore spend most of their increased earnings, outside the city. Los Angeles City: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net reduction in GDP of $135 million by 2017 and $315 million by 2019, or 0.1 percent compared to a scenario with no city minimum wage increase. These effects on the level of economic activity correspond to a cumulative net reduction in employment in Los Angeles City of 1,552 jobs by 2017 and 3,472 jobs by 2019, or 0.1 and 0.2 percent of all employment, respectively. These employment changes are quite small when compared to projected job growth of 2.5 percent a year in the city. Los Angeles County: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net increase in employment of 3,666 jobs by 2017 and 5,262 jobs by 2019 at the county level. These are cumulative estimates, which will be spread over a number of years; 2017 estimates will be spread over 2015-2017, and 2019 estimates will be spread over 2015-2019. We project a nominal increase in sales and business tax receipts for the City of $2.6 million in 2017 and $4.7 million in 2019. We were not able to project increases in costs to the City budget. 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. Wages are likely to rise just outside of Los Angeles City as businesses there will want to hold on to their workforce. The low levels of retail vacancy rates inside and near Los Angeles City will also mitigate any net business exodus. Recent research also suggests that any business closures stimulated by minimum wage increases tend to be offset by additional new businesses. Policy Assessment We find that 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 high density of low-wage jobs in Los Angeles means that the benefits of raising the minimum wage will be considerable; it also means that the risks of unintended effects are greater, especially at higher wage levels. ---PAGE BREAK--- In implementing a local minimum wage ordinance of the proposed magnitude, it will be essential to monitor the program as it develops. Support will be needed for small businesses and nonprofit agencies to make the transition toward higher wages, and to secure increases in reimbursement rates for nonprofits funded through government subsidies. Finally, given the high rates of workplace violations in Los Angeles, the goals of the minimum wage proposal will be realized only by including robust enforcement language in the law, creating a city enforcement agency, and implementing good enforcement practices and policies. Our goal in this report has been to provide the Los Angeles City Council the best information available as it weighs these competing factors in designing the best policy for the city’s workers, businesses and residents.