$15 too High for a Local Minimum Wage?
The very sharp Jared Bernstein wrote:
Going Bold in Los Angeles: “The city council of Los Angeles has voted near-unanimously…:
…in support of a gradual increase in the city minimum wage, from $9 today to $15 in 2020… thereafter, indexed to inflation…. What its impact might be is a harder question….
Even under pessimistic estimates of job-loss impacts, the number of those low-wage workers we expect to benefit from an increase will be much larger than the number who lose jobs or hours…. The recent Congressional Budget Office analysis of a national increase…. For every one displaced worker, 49 got a raise. And given all the churn in the low-wage sector, those workers who lose jobs will likely get a new, better job before too long…. A bump up to $15 is somewhat ‘out-of-sample,’ so we’ll have to see. But what we know is that smaller increases have had their intended effects of raising the pay of low-wage workers without much in the way of unintended consequences. That doesn’t mean bolder increases will cause problems. It just means we’ll have to carefully monitor the outcomes. In the meantime, it’s great to see local democracy at work on behalf of low-wage workers.
I find myself a little bit less optimistic than Jared because of the parcellized sovereignty of the Los Angeles basin. I would have few worries that a $15 national minimum wage would be higher than optimal–that the disemployment effects would be large enough even at the margin to offset the income transfer rectangle. But with the parcellized sovereignty in the Swiss cheese geography of the Los Angeles basin you may get a lot of pointless location-churning as sub minimum wage jobs move outside the pale. These effects are usually small. But they can be large. Look at Las Vegas: las Vegas is nothing but one giant regulatory and tax arbitrage scheme, as convenient as it can get to Los Angeles without coming under the California tax and regulatory umbrella.