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 43 Panel A: Reduction in employment due to capital-labor substitution and productivity gains Panel A in Table 10 shows our estimates for the reduction in the number of jobs due to both capital-labor substitution effects and productivity gains. With an assumed capital-labor substitution elasticity of 0.2 and a productivity effect of 0.005, we find a negative employment effect of about 1,190 jobs. Panel B: Scale effects due to reduced consumer spending Panel B in Table 10 presents our estimates of the reductions in consumer spending from the higher payroll costs that are generated by the suggested minimum wage increase in 2019, in both (1) San Jose and (2) in San Jose, the rest of Santa Clara County and 9 nearby counties (Alameda, San Mateo, San Francisco, Santa Cruz, Monterey, San Benito, Contra Costa, San Joaquin, and Merced). Row 3 restates the total net percentage increase in payroll costs from the proposed policy, accounting for savings from reduced turnover costs. This number comes from the top line of Table 6, using the same assumption that expected savings from reduced turnover will be 17.5 percent in 2017, 17.5 percent in 2018 and 11.30 in 2019. Similarly, Row 4 in Table 8 restates the percentage change in prices from Table 6. Percentage changes in prices are equal to the percentage change in operating costs (after accounting for savings from turnover). Row 5 presents our estimate of the reduction in consumer spending in San Jose from the price increase. As previously discussed, we estimate that each 1 percent increase in consumer prices results in a -0.72 percent decline in consumer spending. We apply this price elasticity of demand to the percentage increase in prices and then multiply by annual consumer spending in San Jose.21 The result is an estimate of $64 million cumulative reduction in consumer spending by 2019. We then use IMPLAN to estimate the total reduction in consumer demand, including multiplier effects.22 Row 6 then translates these results into numbers of jobs. Panel C: Income effect-- cumulative increases in wages from proposed minimum wage increase Panel C of Table 10 presents the estimated income effect: increases in consumer demand deriving from increased incomes of low-paid workers. The income effects are presented first for San Jose (column 1), and then detailed for a broader region (column 3). The additional increase in income effects coming from the broader region is detail in column 2. We estimate that only 65 percent of workers are affected by scenario A work and live in San Jose. As a consequence, the income effect presented in column 1 captures only the positive effects of a boosted consumption for 65 percent of affected workers. Column 3 presents a more complete picture of these income effects: 99 percent of affected San Jose workers live in Santa Clara County and nine nearby counties. Row 7 shows the total wage increase from the proposed law for all affected workers. These estimates are taken from Table 4, converted to nominal dollars in 2019. Row 8 adjusts the total wage increase for an estimated loss of 14.75 percent due to reduced eligibility for public assistance programs, as well as lost worker income due to reductions in consumer spending from 8.A. - Page 57