L.A.’s Minimum Wage Increase: A Tale of Three Studies

Three studies examining the economic impact of a minimum wage increase in the City of Los Angeles reached differing conclusions Thursday, just as L.A. County Supervisors said they too would consider commissioning an analysis of their own.

Beacon Economics Study

The Beacon Economics Study was subsidized by the Los Angeles Area Chamber of Commerce and focused specifically on Mayor Garcetti’s proposal to hike the minim wage from $9 to $13.25 an hour by 2017. Economists at the independent research and consulting firm crunched the data and looked into their crystal balls—and what they saw wasn’t pretty.

The study forecasted 73,000 to 140,000 fewer jobs over the next five years if the proposal were to be implemented. Labor costs could rise as much as 14%, they said, undermining tax revenues and forcing more businesses and jobs out of the city. 

The benefits to low-income residents, to be “modest” at best, would not be worth the negative impacts, the study concluded. As for plans to boost the minimum wage even higher to $15.25, Beacon Economics founding partner Christopher Thornberg described that prospect as “kind of a nightmare.”

UC Berkeley Study

The long-awaited study by UC Berkeley’s Institute for Research and Employment looked at the impact of raising the minimum wage to $13.25 an hour by 2017 and $15.25 an hour by 2019 with annual increases to follow. It was commissioned by the City of Los Angeles, but not without controversy.

Some council members and business groups say the results of the study were sure to be a foregone conclusion, and that UC Berkeley’s involvement constituted a conflict of interest. That’s because the mayor submitted a previous, favorable study by the institute when he unveiled his minimum wage plan last year.

Council Member Mitch O’Farrell was among the critics of the selection.

"I asked for an independent study," O'Farrell said. "Selecting UC Berkeley again for this independent analysis does not pass the smell test with me. They're the same entity that the mayor is basing his minimum wage proposal on."

As the critics predicted, the second UC Berkeley study was also largely optimistic. The researchers did acknowledge some drawbacks, such as a rise in business costs (projected at 0.9%), a subsequent dip in consumer demand, and some job losses. However, increased purchasing power on the part of low-income earners would mitigate all that, the study concluded. Overall, it projected that a hike in the minimum wage would result in a 30% average increase in earnings and annual job growth of 2.5%. 

Los Angeles County Federation of Labor Study

The labor group’s analysis was also highly favorable. Increasing the minimum wage to $15.25, it concluded, would result in 46,400 new jobs in the region and 25,000 in the city. Furthermore, a projected $5.9 billion in added wages would create “a stimulus effect for the region,” boosting tax revenue and reducing the need for spending on public assistance programs.

A city council committee is currently considering two proposals to hike the minimum wage. These include Garcetti’s proposal to raise it to $13.25 an hour, as well as a plan by some council members to raise it to $15.25. Meanwhile, a recent proposal by L.A. County Supervisor Sheila Kuehl would commission the Los Angeles County Economic Development Corp. to analyze the city’s studies, as well as any potential impacts to the county. That proposal is likely to be considered by supervisors this week.

Read more about Thursday’s dueling minimum wage studies here.