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<br /> <br />The Effects of a $15 Minimum Wage by 2019 in Santa Clara County and San Jose 40 <br /> <br />and Reich (2015) collected a large sample of restaurant price data in and near San Jose, before <br />and after a 25 percent minimum wage increase in 2013 (from $8.00 to $10.00). Their results <br />indicate that most of the costs are passed through to consumers in higher prices. Using scanner <br />data from supermarkets, Montialoux et al. (forthcoming) find a similar effect for retail prices. <br />Effects on profits and rent <br />Some economists have argued that many firms have captured above-normal profits in recent <br />decades. An increase in the minimum wage could therefore reduce such economic rents. We <br />attempted to include such an effect in our model, but were stymied by limited data on the <br />proportion of reduced profits that would be borne within the study area. <br />Our simulations did confirm that insofar as payroll cost increases are partly absorbed by profits, <br />then the scale effect is smaller. The reduced profits have much less effect on the income effect <br />because propensities to spend are low among shareholders and managers, and because much <br />of the profit decline affects capital owners outside of the study area. As a consequence, including <br />a fall in profits in our model would have led to more positive effects on employment. <br />Minimum wage increases will likely affect the composition of businesses within and among <br />industries. Aaronson, French and Sorkin (2015) find that minimum wage increases raise both exit <br />and entry rates among restaurants, suggesting that entering firms arrive with a business model <br />that is more oriented to the higher wage minimums. These higher-wage firms could be instituting <br />business methods that improve productivity or improve product quality, or both. It is not possible <br />for us to quantify these secondary effects, as they require more data on such adjustment <br />mechanisms than are available. <br />Franchisee-franchiser relationships and commercial rental leases could also be altered by <br />minimum wage increases. Franchises are particularly important among restaurants. In principle, <br />franchisees could pass their increased costs to franchisers, either through a relaxation of fees or <br />land rent. However, data on such changes are not available, to our knowledge. Effects on <br />commercial rents are also difficult to detect, in part because of the lack of data and in part <br />because such leases are typically of longer duration. <br />5.2 Scale effects of increased prices on reduced sales of consumer goods <br />Economists use the term price elasticity of consumer demand to refer to the effect of an increase <br />in prices on reducing consumer demand. Taylor and Houthakker (2010) report price elasticities <br />for six categories of goods and services that together cover all of consumption. We adjust their <br />health care elasticity to -0.20, to take into account changes in the structure of health care <br />provision since the 1990s, and then compute a weighted average elasticity across the six <br />categories using personal consumption expenditure shares from the U.S. Consumer Expenditure <br />Survey (McCully 2011). The result is a price elasticity of consumer demand of -0.72.20 <br />8.A. - Page 54