LA to Gradually Hike Minimum Wage to $15 by 2020; Already Weak Growth Prospects Just Got Worse

In yet another triumph of stupidity over common sense, a triumph that is sure to cost jobs, slow growth, and encourage more robotic replacement of workers, Los Angeles' Minimum Wage on Track to go up to $15 by 2020

The Los Angeles City Council on Tuesday backed a plan to raise the city’s minimum wage to $15 per hour, joining a trend sweeping cities across the country as elected leaders seek to boost stagnating pay for workers on the lowest rungs of the socio-economic ladder.

Lawmakers agreed to draft an ordinance raising the $9-an-hour base wage to $15 by 2020 for as many as 800,000 workers, making L.A. the largest city in the nation to adopt a major minimum-wage hike. Chicago, San Francisco and Seattle already have approved similar increases, and raising the federal minimum wage has moved to the forefront of the Democratic Party’s agenda.

The first wage boost — to $10.50 per hour — to take effect in July 2016.

Some labor leaders have expressed dissatisfaction with the gradual timeline elected leaders set for raising base wages. But on Tuesday the harshest criticism of the law came from business groups, which warned lawmakers that the mandate would force employers to lay off workers or leave the city altogether.

“The very people [council members’] rhetoric claims to help with this action, it's going to hurt,” said Ruben Gonzalez, the Los Angeles Area Chamber of Commerce’s senior vice president for public policy and political affairs.

He predicted that many businesses would absorb their new labor costs by laying off employees, reducing work hours or moving out of the city entirely.

“It's simple math,” Gonzalez said. “There is simply not enough room, enough margin in these businesses to absorb a 50-plus percent increase in labor costs over a short period of time.”

Councilman Mitchell Englander, the council’s only Republican, cast the lone opposing vote. In a statement, he said the council action could “make it impossible for entire industries to do business” in Los Angeles.

“The very last thing that we should be doing as a city is creating a competitive disadvantage for our businesses with those in neighboring cities,” said Englander, who represents the northwest San Fernando Valley.

The council plan approved Tuesday would raise wages higher than the mayor’s proposal, albeit more gradually. Businesses and nonprofit groups with 25 or fewer employees would have until 2021 — an extra year — to comply. Some nonprofits that train and rehabilitate disadvantaged workers, such as the homeless or former gang members, could also take advantage of the extension.

After that, yearly wage increases would be pegged to the consumer price index — a key provision of the law that backers say addresses past failures to adjust the minimum wage for inflation. Opponents said automatic pay increases based on inflation would be a further hit to businesses.

Simple Math

I side with Gonzalez on the "simple math" and Englander on competitive disadvantages.

This move is 100% guaranteed to cost jobs. Proponents of such measures inevitably say things like "studies show that hikes in minimum wages don't hurt employment."

Such studies only look at the "seen". Population trends and productivity have kept growth intact. Employment rose in spite of hikes in minimum wages, not because of those hikes.

The obvious fact is many struggling businesses will go under. That effect will be seen, but perhaps small. What we won't see is how many stores, businesses, and franchises will not open because of labor costs.

And it's hard now to estimate the push on businesses to further automate, but wage and benefit hikes pressure businesses in that direction.

Experiment Guaranteed to Fail

Councilman Paul Koretz said "This is an experiment. If anyone tells you they know exactly how this is going to go … they’re not being honest with you."

Well, I don't pretend to know "exactly" how this is going to go. But I do know the consequences will be slower growth, fewer stores, and higher unemployment than there otherwise would be.

San Francisco Chronicles 

San Francisco recently hiked the minimum wage to $15. In immediate response, Borderlands Books announced it would close.

A second bookstore owner, Brian Hibbs, owner and operator of Comix Experience, an iconic comic-book and graphic-novel shop on San Francisco’s Divisadero Street and supporter of the wage hike had second thoughts once he saw the math.

Hibbs calculated that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. The amusing thing is Hibbs describes himself "progressive capitalist".

“We’re for a living wage, for a minimum wage, in principle. But I think any law that doesn’t look at whether people can pay may not be the best way to go," says Hibbs.

For icing on the hypocrite's cake, Hibbs asks "Why can’t two consenting people make arrangements for less than x dollars per hour?"

Progressive Capitalism?

I wrote about Hibbs in Capitalism for Me, Socialism for Thee; Progressive Capitalism?


There is no such thing as "progressive capitalism". The idea is as ridiculous as being a Jewish Christian Atheist.

In response to Capitalism for Me, Socialism for Thee, several readers said businesses can just raise prices.

For books that have a set price, it's not that easy. But even in cases where stores can raise prices, what about the decline in traffic?

Already Weak Growth Prospects Just Got Worse

Fast food dining and retail shopping is not price inelastic. The cost of fast food is already prohibitive. So hiking prices is 100% guaranteed to cost some traffic.

The bigger unseen is store expansion. Rising labor costs will have every business cutting expansion plans over what they would have done in the absence of these wage hikes.

Economic common sense is all it takes to realize that already weak growth prospects just got a lot worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com