The Cost of a Minimum Wage Raise

A few months ago, the Los Angeles City Council passed a resolution raising the city’s minimum wage to $15 per hour by the year 2020, and already some companies—particularly in the city’s lucrative garments industry—are preparing to move locations or slow hiring. The Wall Street Journal reports:

The wage law also will result in higher prices, said Steve Barraza, chief executive of Los Angeles designer and manufacturer Tianello Inc. Already as wages have increased over the past two decades, the company has focused on luxury products, which are profitable but produced in lower volumes.

Those products require fewer workers to make […]He does fear that his suppliers, however, will move out of the city.Brian Weitman, chief executive of STC-QST LLC, a supplier of items such as zippers, pocket linings and buttons, says the exodus is already on its way. He said clients have told him they plan to move out of downtown L.A. before the wage law is fully phased in.The higher minimum wage, he said, will likely speed the conversion of the downtown area from warehouses and small factories to luxury lofts and high-end restaurants. “Five years from now, there won’t be manufacturing in the city anymore,” he said.

This flight of manufacturing businesses and the stable jobs they provide encourages an infill of luxury industries, hollowing out the middle and working classes and turning districts into playgrounds for the hip and rich.

According to the WSJ, other cities like St. Louis, New York, and Washington, D.C are now looking to Los Angeles for guidance. Policy experimentation at local levels of government, including in cities, is a good thing—the “laboratories of democracy” have been a mainstay of American success. And American communities are diverse enough that a policy will sometimes work well in one place and terribly in another. But some policies—even well-intentioned ones—tend not to work, and a high minimum wage is one of them. Seattle and San Francisco, it is true, have $15 minimum wages, and they are flourishing. But they are also two of the most unequal cities in the United States. Most of their wealth is produced in their burgeoning tech sectors, which employ smaller numbers of degree-holding workers, and in these West Coast hubs it is harder for the working class to find unskilled labor positions.LA should bear the examples of San Francisco and Seattle in mind as it approaches 2020. And the cities watching LA should make their decision based on what kind of places they would like to be.