AgdaPkt 2017-09-25 Closed and Joint SA PFA

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The Effects of a $15 Minimum Wage by 2019 in Santa Clara County and San Jose 18 2. THE UC BERKELEY IRLE MINIMUM WAGE MODEL In 2015, the UC Berkeley Institute for Research on Labor and Employment (IRLE) minimum wage group developed a structural model to study the prospective impacts of a $15 minimum wage in Los Angeles.6 This model was further enhanced to study the effects of a $15 minimum wage in New York State (Reich et al. 2016). The current report, which uses that model, contains two components: • A wage simulation model that predicts the number of workers that will be affected by (i.e., receive) minimum wage increases. The results of this model are described in the first part of this report, and the model itself is described in detail in the appendix. • An economic impact model that predicts the effect of minimum wage increases, given the structure of the workforce affected, on consumer demand. We focus on the latter in this section. We also adapt the model to apply to San Jose and Santa Clara County in particular. Our estimates draw on standard government data sources, the large body of economic research on the minimum wage, other research studies, and a standard regional economic model (IMPLAN). These data sources and models are fully documented in the text, accompanying endnotes, and in the appendix. Our economic impact model recognizes that higher minimum wages will affect labor supply and labor demand. Adjustments to labor supply include lower employee turnover and lower job vacancy rates. Adjustments to labor demand include possible substitutions of capital for labor and skilled labor for unskilled labor, greater worker productivity when wages rise, reductions in employment because higher prices reduce sales, and increases in employment because workers’ spending out of their higher income will increase sales and employment. The net effect depends upon the magnitudes of the individual adjustments, again taking into account interactions among them. The labor demand model draws from standard labor economic textbook analyses. For industry labor demand, these analyses incorporate “substitution” and “scale” effects in labor, capital, and goods markets. For a formal version of this labor demand model, see Cahuc, Carcillo and Zylberg (2014). Since our concern here is on the effects of an economy-wide minimum wage, we add an “income effect.” The income effect accounts for changes in the level of economic output when wage increases lead to increased consumer demand. Model Structure Figure 6 summarizes our model qualitatively in a flow diagram. The green boxes refer to the effects on workers and the red boxes refer to the effects on businesses. The automation and 8.A. - Page 32