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 34 5. EFFECTS ON EMPLOYMENT A principal goal of the proposed minimum wage policy for San Jose (Santa Clara County) is to raise the earnings of low-wage workers, while minimizing the tradeoffs in economic costs. In previous sections, we have assessed the benefits to low-wage workers as well as the impact on businesses’ operating costs in particular industries. In this section we consider whether the proposed policy would generate net gains or losses to the city’s (county’s) economy. In Section 5.1, the key issues concern how much employers will substitute equipment or skilled labor for unskilled labor and how much of their cost increases employers will pass on in the form of higher prices. In Section 5.2, we discuss who might pay the costs of the higher minimum wage. Higher prices reduce consumption demand, which translates into reductions in employment and economic activity. Section 5.3 examines the increased spending that derives from the higher income of low-wage workers. We take into account the effects of taxes and reduction in public benefits on the affected workers’ take-home pay and the rate at which their households spend income compared to others. Greater spending from consumers increases economic demand, which translates into increases in employment and economic activity. The net effects on the economy will then depend upon the sum of the effects estimated in each of these three sections. Section 5.4 estimates these net impacts on economic activity and employment. 5.1 Automation, productivity and substitution away from unskilled labor It is often argued that a higher minimum wage will lead firms to reduce their use of workers. This reduction in labor demand can occur through two different channels: one involves substituting capital for labor, i.e., automation or mechanization of jobs while keeping sales at the same level; the other involves lower demand for workers when prices increase and sales fall. We discuss here the automation channel and consider the effect on sales in the following section. Automation: economic theory and measurement Mechanization does not necessarily lead to a net loss of jobs. As David Autor (2014a; 2014b) points out, machines (including smart robots) do not just substitute for labor; they are also complements to existing jobs and they can lead to the creation of new jobs and industries. Indeed, previous rounds of automation and computerization have created more jobs than they destroyed. Moreover, automation does not involve only the replacement of labor by machines. It also involves the replacement of old machines (think manual cash registers) with newer ones (think electronic cash registers and electronic screens like iPads). 8.A. - Page 48