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<br /> <br />The Effects of a $15 Minimum Wage by 2019 in Santa Clara County and San Jose 19 <br /> <br />productivity box is placed first to highlight how businesses will respond to a minimum wage. <br />Automation here refers only to capital-labor substitution that is induced by the minimum wage, <br />not to the much larger degree of automation that has taken place for decades. Productivity <br />growth can come from automation, from workers working harder or smarter when pay is high, <br />and from workers having more experience, as when minimum wages reduce employee turnover. <br />Figure 6. UC Berkeley IRLE minimum wage model <br /> <br />Source: UC Berkeley IRLE Minimum Wage Research Group <br />Examine next the effects on workers, shown in the green boxes and move from left to right. The <br />first green box refers to the higher wages received by lower-paid workers. The next green box <br />accounts for the net effect of taxes and reduced receipt of public benefit programs on workers’ <br />income. Workers will pay more in taxes as their wages increase and eligibility for public benefits <br />will decline. The third box refers to how workers’ increased spending power out of their higher net <br />income translates into higher consumer demand and more jobs. We will refer to this mechanism <br />as the income effect of minimum wages. <br />Examine now the effects on businesses and again move from left to right. The higher minimum <br />wage will increase businesses’ payroll costs, but some of these higher costs will be offset <br />because employee turnover will fall, generating savings in recruitment and retention costs. Firms <br />may also find that higher-paid and more experienced workers will be more productive, which <br />could also offset payroll cost increases. In other words, one effect of a higher minimum wage is to <br />induce more efficient management practices. <br />8.A. - Page 33