$15 an hour, rip­pling through the econ­omy, wouldn’t be as good or bad as each side claims

Los Angeles Times - - MONDAY BUSINESS - By Don Lee don.lee @la­times.com Times staff writer Tif­fany Hsu in Los An­ge­les con­trib­uted to this re­port.

What has long been a hy­po­thet­i­cal ques­tion may soon be­come a real one: What would the na­tional econ­omy look like with a $15an-hour min­i­mum wage?

Com­mu­nity ac­tivists and politi­cians see a $15 min­i­mum wage as the an­ti­dote to the ills of ris­ing in­equal­ity, a way to re­duce poverty and stim­u­late the over­all econ­omy. Busi­ness own­ers warn it will tie their hands in down­turns, drive small em­ploy­ers out of busi­ness and lead to mil­lions of lay­offs.

The re­al­ity is not that sim­ple: An in­crease to $15 an hour would rip­ple through the U.S. econ­omy in some un­ex­pected ways that are, gen­er­ally, not as bad or as ben­e­fi­cial as each side claims.

The push for a higher min­i­mum wage has gained mo­men­tum over the last few years.

Seat­tle, San Fran­cisco and most re­cently Los An­ge­les have adopted a f loor of $15 an hour to take ef­fect over the next few years. That’s more than dou­ble the cur­rent fed­eral min­i­mum wage of $7.25.

Other cities such as Chicago, Oak­land and Wash­ing­ton, D.C., have raised the min­i­mum wage, but not as much. At least a dozen other cities and states, in­clud­ing New York and Ore­gon, may soon fol­low.

The re­cent move­ment is rooted in years of stag­nant wages and a gen­eral dis­af­fec­tion from the slow and un­even re­cov­ery since the Great Re­ces­sion of­fi­cially ended in 2009.

Like the Gilded Age in the late 1800s, the last quar­ter-cen­tury has seen fab­u­lous in­come gains for cor­po­ra­tions and in­di­vid­u­als at the top, but very lit­tle for every­body else.

It’s true that higher min­i­mum wages would ad­dress some of that in­equal­ity, lift­ing many Amer­i­cans from poverty.

Al­most 60% of work­ers who are paid on an hourly ba­sis — some 44 mil­lion peo­ple — cur­rently make less than $15 an hour, La­bor Depart­ment fig­ures show. If the min­i­mum went up to $15 to­mor­row, nearly half of those work­ers would get at least a 50% bump in pay.

And it’s not just teenagers and young adults who would ben­e­fit. More than 8.4 mil­lion peo­ple earn­ing less than $10 an hour to­day are in the prime of their work life, be­tween ages 25 and 54. About 62% of th­ese work­ers are women, many with chil­dren.

Yet the benefits from higher wages would be off­set for many by a re­duc­tion in gov­ern­ment benefits that low-wage work­ers now re­ceive, such as child-care sub­si­dies or public aid for food, hous­ing and medicines.

Mil­lions of work­ers would have more money in their pock­ets to spend, boost­ing de­mand for goods and ser­vices. But they would also prob­a­bly face in­creased prices in the mar­ket­place as re­tail­ers, restau­rants, child­care cen­ters and other busi­nesses that em­ploy lowwage work­ers shift the higher la­bor costs to their cus­tomers.

When Oak­land’s min­i­mum wage jumped from $9 an hour to $12.25 in March, res­i­dents no­ticed many stores tacked on a dime or a quar­ter to an as­sort­ment of items.

Cre­ole food caterer David Smith went fur­ther, jack­ing up the price of his dishes by $2 to $3 a plate. “I had to,” says Smith, 35, who has three em­ploy­ees.

Longer term, many low­paid work­ers could lose their jobs or find fewer open­ings as em­ploy­ers cut back to cope with the higher wage re­quire­ments.

An anal­y­sis by the non­par­ti­san Con­gres­sional Bud­get Of­fice last year es­ti­mated that rais­ing the min­i­mum wage to $10.10 an hour, which some law­mak­ers had pro­posed, would re­sult in half a mil­lion jobs lost. At $15 an hour, the hit would prob­a­bly be in the mil­lions.

“Fif­teen dol­lars still scares me,” says Harry Holzer, a Ge­orge­town Uni­ver­sity econ­o­mist, adding that what might be doable in high-priced cities such as Seat­tle and San Fran­cisco could prove more dif­fi­cult in other ar­eas.

No doubt higher wages will push some strug­gling com­pa­nies into bank­ruptcy, es­pe­cially smaller ones that op­er­ate on thin mar­gins.

But other busi­nesses will do just fine, maybe even thrive, with im­proved pro­duc­tiv­ity and greater sales gen­er­ated as weaker ri­vals fold and con­sumers pump more money into the econ­omy.

Some busi­nesses will adapt by out­sourc­ing more. Oth­ers will try to speed up au­to­ma­tion and sub­sti­tute la­bor with ma­chines, shrink­ing lower-wage jobs in the process but also adding some higher-pay­ing ones to han­dle new tech­nolo­gies.

How all of th­ese com­pet­ing forces play out is any­body’s guess.

But as the push for higher min­i­mum wages spreads, work­ers and em­ploy­ers are al­ready be­gin­ning to en­vi­sion life in a $15an-hour world.

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