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 57 The proposal to increase the minimum wage to $15 by 2019 will generate benefits and costs for workers and businesses in Santa Clara County and San Jose. Like all forecasts, our estimates of the benefits and costs are subject to some uncertainty. First, economic conditions, such as employment and wage growth in the absence of the policy, may differ in future years from the standard forecasts that we rely upon in this report. For example, in a recession employment would fall and wages would not grow as quickly. Our cost estimates might then be somewhat larger, but then so would our benefit estimates. Our estimates of the net effects are therefore likely to change, but not by a large amount. Second, our estimates rely on parameters that are themselves estimated with some uncertainty. We have tested the sensitivity or our calculations to these parameters. The results were encouraging, but require further research. The proposed policy would result in substantial benefits to low-wage workers and their families. The policy will raise wages for 115,000 workers in San Jose and 250,000 in Santa Clara County by 2019. On average, for workers getting increases, their annual earnings will increase by 17.8 percent or $3,000, in San Jose and $3,200 or 19.4 percent in Santa Clara County by 2019. These large increases in pay will raise overall wages in for-profit businesses by only 1.3 percent in San Jose and one percent in Santa Clara County. This amount is surprisingly small because many businesses already pay more than $15, because many of the workers who are now paid below $15 are already paid above the current minimum wage, and because the pay of low-wage workers makes up a smaller share of total payroll costs. Businesses will absorb the additional payroll costs partly through savings on employee turnover costs, higher worker productivity gains, and some automation (the substitution effect). Most of the increase in costs will likely be passed on to consumers via increased prices. Since labor costs make up only about one-fourth of operating costs, consumer prices will increase only slightly— about 0.3 percent in San Jose and 0.2 percent in Santa Clara County over the entire phase-in period. Prices will be most affected in the restaurant industry, where they will increase by 3.1 percent in San Jose and 2.9 percent in Santa Clara County. These higher prices by themselves would reduce consumer sales and reduce the demand for labor (the scale effect). But simultaneous positive effects on increased consumer spending from workers receiving wage increases will offset the scale and substitution effects. After taking into account all of these factors, we estimate that the proposed minimum wage policy would result in slower employment growth, reducing overall net employment (as a percent of total employment) in San Jose by 0.3 percent and in Santa Clara County by 0.1 percent by 2019, over the baseline. This estimate is cumulative (and so will be spread over several the phase-in period). In comparison, employment in the state is projected to grow 1.32 percent annually in the same time period. Most of the job declines reflect leakage of the increased spending into the rest of the region. When taking into account the surrounding counties, the net effect on jobs is close to zero. 8.A. - Page 71