Will LA's $15 Minimum Wage Really Lead to Better Lives for Workers?

Last week, the Los Angeles City Council went and did something crazy: They passed a measure that will raise the minimum wage to $15 an hour over the course of five years. That put analysts in the position of having to explain what this would mean, and they all said different things.

Leftists rejoiced and fiscal conservatives grieved, naturally, just as they did when Seattle similarly hiked its minimum wage last year. But unlike most partisan debates of this sort, we'll be able to look back in a few years and know which side was more correct.

Will the higher wage really "lift hundreds of thousands of people out of poverty," as Councilman Paul Krekorian told VICE in an interview? Or will it do literally the exact opposite, as Warren Buffett wrote in a Wall Street Journal op-ed, and "reduce employment in a major way, crushing many workers possessing only basic skills"?

The City Council had "the benefit of three comprehensive economic analyses, and a peer-review of those analyses," Krekorian says. But two of the analyses were at odds over many details.

UC Berkeley's Institute for Research on Labor and Employment performed one of those studies and found that operating costs for businesses only stand to increase by 0.9 percent. (That study actually looked at a slightly different plan, which would have raised the minimum wage to $15.25 by 2019.) Consumer demand would fall thanks to higher prices, the study found, but the wage increase would more than make up for that.

However, the Los Angeles Chamber of Commerce sponsored a study of their own, conducted by the independent research firm Beacon Economics. Beacon took direct aim at the claims in the Berkley study, and said that minimum wage earners might suddenly be able to inject their walking-around money into the economy, yes, but that the "cost hit taken on by business is of greater magnitude." They claim that this will cause job growth to stagnate.

For more on work and wages, check out our documentary on underage miners:

In FiveThirtyEight, Ben Casselman stayed away from either partisan position, writing that this isn't actually much of a raise at all. First of all, he argued, by 2020, $15 will be just $13.75 in today's dollars. And when you further adjust those $15 for the horrifying cost of living in LA, the picture gets even worse:

Taking a cue from some data generated by a March report on housing prices that the Economic Policy Institute released, the local blog Curbed synthesized a brutally pessimistic view of the city after the wage increase, and titled it "Every Single Part of Los Angeles is Unaffordable on $15 [an] Hour."

One problem is that Los Angeles isn't good at providing affordable housing. "I think there's a wide agreement that we need more housing in Los Angeles, and we need more affordable housing so that we address that unaffordability problem on the cost end as well," Krekorian acknowledges.

Read more about minimum wage fights from VICE News.

Krekorian says that there's going to be "additional economic analysis in the third year," and claims that while the the new law puts the city on track for some kind of change, the government is not stuck to that track if it turns out to be "unduly harmful."

But predictions aren't just about what's about to happen in Los Angeles. This is thought to be catching on, and possibly becoming a national movement.

Towns like Seattle and San Francisco approved similar measures, but those are two of America's coastal liberal strongholds, chock full of tech money, and—perhaps most importantly—both with populations under 1 million. Los Angeles, meanwhile, is the second largest city in America with almost 4 million people.

Krekorian says he hopes the move it will "shape the national dialogue around the minimum wage," and that similar strategies will be necessary "until our Congress, and every state acts to try to address this terrible problem of increasing wage inequality that we have in this country."

After Los Angeles passed its measure, New York Mayor Bill de Blasio said the shift toward $15 an hour was a "grassroots movement." Democratic Presidential candidate Martin O'Malley—who successfully pushed for a minimum wage increase a year ago in Maryland when he was that state's governor—also came out in favor of a $15 wage.

Others, like Arindrajit Dube, an economist who backs some minimum wage increases, are withholding their endorsements. Dube balked slightly at $15 an hour for fast wood workers in a New York Times story from 203, citing "concerns that it might lead to the substitution of automation for workers." In a Washington Post blog post that same year, he was quoted as saying, "We just do not know what a $15 [an] hour minimum wage would do based on the type of careful research designs that have become the hallmark of modern labor economics."

John Cassidy of The New Yorker pointed out that there's precedent for this increase, though. Back in the 1990s, Princeton economists studied a sudden and controversial wage increase and found that paying workers in New Jersey drastically more than those in neighboring Pennsylvania didn't have much of an effect on employment. Other economists tried to replicate their experiments. Some confirmed them. But some endorsements were less glowing, and a few showed that low-skilled workers were adversely affected by the hike.

Cassidy didn't use the New Jersey–Pennsyvania example to show that the wage hike will help more than it hurts. Instead, he pointed out that this isn't the first time there's been a huge scale experiment into what giving people a big raise actually does.

Even if there's no definitive answer about where we're headed, Krekorian says he sees minimum wage earners in Los Angeles as living in a "painful economic environment." Only will tell whether this latest idea will alleviate some of that pain.

Follow Mike Pearl on Twitter.