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<br /> <br />The Effects of a $15 Minimum Wage by 2019 in Santa Clara County and San Jose 37 <br /> <br />in San Francisco restaurants after the 2003 minimum wage law, especially in limited service <br />restaurants. Dube, Lester and Reich (2016) found that a 10 percent increase in the minimum <br />wage results in a 2.1 percent reduction in turnover for restaurant workers and for teens. Jacobs <br />and Graham-Squire (2010) reviewed studies of the impact of living wage laws on employment <br />separations and found that a 1 percent increase in wages is associated with a decline in <br />separations of 1.45 percent. <br />Turnover creates financial costs for employers (Blake 2000; Dube, Freeman, and Reich 2010; <br />Hinkin and Tracey 2000). These costs include both direct costs for administrative activities <br />associated with departure, recruitment, selection, orientation, and training of workers, and the <br />indirect costs associated with lost sales and lower productivity as new workers learn on the job. <br />Hinkin and Tracey (2000) estimate the average turnover cost for hotel front desk employees at <br />$5,864. A study of the cost of supermarket turnover by the Coca Cola Research Council <br />estimates the replacement cost for an $8 an hour non-union worker at $4,199 (Blake 2000). <br />Boushey and Glynn (2012) estimate that the median replacement cost for jobs paying $30,000 <br />or less equals 16 percent of an employee’s annual salary. <br />Pollin and Wicks-Lim (2015) estimate that 20 percent of the increased costs from a minimum <br />wage increase are offset by reductions in turnover. Similar estimates can be found in Fairris <br />(2005) and Jacobs and Graham-Squire (2010). In a small case study of quick service restaurants <br />in Georgia and Alabama (Hirsch, Kaufman, and Zelenska 2011), managers reported they offset <br />23 percent of the labor cost increases through operational efficiencies. <br />For our calculations below, we assume that 17.5 percent of the increase in payroll costs is <br />absorbed through lower turnover in the early years of the proposed minimum wage increase.18 <br />However, these turnover savings do not continue to grow at higher wage levels. Dube, Lester and <br />Reich (2016) find that most of the reduction in turnover occurs among workers with less than <br />three months of job tenure. <br />This result suggests that the effect of higher wages on increasing tenure dissipates as wage <br />levels increase. We therefore assume that the increases in wages after 2018 no longer result in <br />turnover reductions, yielding an overall lower rate of savings from turnover of 13.4 percent in <br />2019. <br />Impact of higher wages on worker performance <br />Paying workers more can also affect worker performance, morale, absenteeism, the number of <br />grievances, customer service, and work effort, among other metrics (Hirsch, Kaufman, and <br />Zelenska 2011; Reich, Jacobs, and Dietz 2014; Ton 2012; Wolfers and Zilinsky 2015). <br />Efficiency wage models of the labor market argue that wage increases elicit higher worker <br />productivity, either because when employers pay workers more, workers are more willing to be <br />more productive, or because they remain with the firm longer and thereby gain valuable <br />experience, or because higher pay tends to reduce idleness on the job. This theoretical result <br />8.A. - Page 51