04/14/2024

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Minimum Wage Increases Lead to Economic Uncertainty: A Case Study of the Proposed City of Los Angeles Minimum Wage Increase

The Center for Jobs and the Economy is a nonprofit research organization that provides economic data and detailed analyses of policies affecting state, regional and local economies. As part of its mission, the Center helps quantify the cost-of-living crisis in the state and various regions. This report, Minimum Wage Increases Lead to Economic Uncertainty: A Case Study of the Proposed City of Los Angeles Minimum Wage Increase, examines the overall effect of the proposed $30/hour minimum wage for travel and tourism industry workers currently being debated by the Los Angeles City Council.

While there has been extensive economic analysis of the impact of minimum wage increases, this report seeks to quantify the overall impact to the family budget, not just focused on the wage increase, but what that wage increase means in the context of overall household income. As demonstrated in this report, the full effects of the proposed wage increase can vary widely depending on individual household circumstances after taking into account factors such as increased tax liability, reduction of social program support and other income-based benefits, and whether workers retain their jobs and hours.

Moreover, there is little debate from economic and industry experts that minimum wage increases lead to higher unemployment. But growing research is looking beyond the numbers to better understand the real-world impact of that job loss. Ongoing research from Professor Seth J. Hill from the University of California, San Diego, expanded in this report, concludes that those most likely to be at risk of losing their jobs to a minimum wage increase are often those already at risk of homelessness. A sudden loss of wages would more than likely tip these individuals into homelessness, exacerbating an already out of-control humanitarian crisis on the streets of Los Angeles and elsewhere.

Drastic increases to a city’s minimum wage should be considered wholistically, not from a single economic indicator. This report seeks to demonstrate the complex nature of such action, including exacerbating the very issues it seeks to address. Increasing the economic burden on working families and increasing those at risk of homelessness are the unintended but real impacts of such an ordinance.

Key Findings

As stated above, this report assesses the economic and fiscal impacts of a motion by the Los Angeles City Council to revise minimum wage ordinances. The motion proposes increasing the minimum wage to $25 per hour in 2023 and $30 per hour in 2028, applicable only to workers in hotels with more than 60 rooms and specific workers at LAX.

  • Not everyone will benefit from the wage increase: The income effects of the proposed wage increase would differ based on factors like family composition, tax filing status, number of children, eligibility for income assistance programs, and whether workers retain their jobs and hours.
  • Income losses are felt greatest by single parents: The lowest wage gains, or losses in total income, would be in families with children due to the effect on tax credits and income assistance eligibility. In particular, single-parent families show a small income loss or near break-even under this analysis.
  • Extending a similar minimum wage to City of Los Angeles employees and L.A. Unified School District employees would cost hundreds of millions of dollars: Government workers are not affected by the ordinance. About 25 percent of City of L.A. and L.A Unified School District employees work in job classifications with beginning salaries below the ordinance’s levels. Providing these workers with an equitable $30 minimum wage would cost $130 million and $382 million respectively.
  • Payroll costs will lead to increased unemployment: The report estimates that the ordinance could result in a considerable number of job losses, especially in the tourism industry, due to the increased payroll costs and resulting effect on tourism and travel as the affected employers are forced to increase their prices. The travel and tourism industry has yet to recover from the pandemic recession, and further uncertainty created by the minimum wage ordinance will disproportionately impact smaller hotels and small businesses.
  • Unemployment will affect those already on the cusp of homelessness: The report expands on ongoing research being conducted by Professor Seth J. Hill at UC San Diego related to the impacts of minimum wage increases on homelessness. The city’s high cost-of-living has reduced economic security, especially for those in this wage band, preventing them from being able to accrue savings and could absorb even a short-term wage loss. 

     
    Additional research conducted by Oxford Economics demonstrates how the ordinance also hurts the city’s homelessness response by reducing much-needed revenue to the city, including revenue from the tourism-specific transient occupancy tax. This reduced revenue will ultimately lead to reduced services and funding available to address the city’s homelessness and housing crises.

    As outlined in our recent report, Special Report: Taylor Swift’s Impact on the Economy in Los Angeles County, travel and tourism provides significant and critical revenue to the entire region. In the case of the Eras Tour, nearly a third of a billion dollars in revenue and local economic activity is expected to be generated.

  • Only a small percentage of the City’s workforce is affected: The higher wages would only apply to about 3% of the current private sector workers within the wage band affected, and only half of them reside in the city, with the rest commuting from other parts of Los Angeles County.
  • Increasing the minimum wage will do little to address the city’s housing crisis: The proposed measure does not address the underlying housing supply shortage in Los Angeles, which would limit its impact on housing affordability. For some workers, the ordinance will make the problem worse by reducing their total income and limiting the money available to pay for rent, utilities, and other housing costs.

Conclusion

The report concludes that the net impacts of the proposed resolution are likely to be negative, with potential job losses, ability to increase homelessness as vulnerable workers are priced out of the labor market, and increased costs for working families and businesses when the full range of affected workers is considered. It also raises concerns about the reputation of Los Angeles as a tourist destination and its ability to compete with other regions for trade and big-name arts and entertainment activity. 

The report highlights it will cost the City of L.A. hundreds of millions of dollars if they were to provide their own employees an equitable minimum wage that they are mandating for travel and airport workers. 

Additionally, the report points out that jobs in the affected industries have not fully recovered from the pandemic’s impact, making it challenging for businesses to absorb major new costs. Overall, the report suggests that the proposed resolution may not be an effective solution to address the cost-of-living crisis and housing affordability in Los Angeles.

About the Center for Jobs and the Economy

The Center for Jobs and the Economy provides an objective and definitive source of information pertaining to job creation and economic trends in the United States. The Center is a 501(c)(3) public benefit corporation with governance consisting of a board of directors, board of governors and a research advisory council. Learn more at www.centerforjobs.org.

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