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LA Cuts Off the First Rung of Its Economic Ladder

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LA Cuts Off the First Rung of Its Economic Ladder

May 21, 2015

In a near-unanimous vote, the Los Angeles City Council has decided to increase the city’s minimum wage from $9 to $15 an hour, a 67 percent change to be phased in over the next five years. Once a measure can be formalized, Mayor Eric Garcetti promises to sign it into law. But if Los Angeles insists on raising the minimum wage, it should exempt workers 22 and younger. Otherwise, the higher minimum will price teens and students out of jobs and prevent them from getting valuable work experience.

Some argue that Los Angeles can easily absorb this increase, because compensation levels in the city are relatively high. According to the Bureau of Labor Statistics, the median hourly wage for the Los Angeles-Long Beach-Glendale metro area was $18.32 in 2014. But the presence of many high-paying professions masks the destructive effects the new minimum wage will have on industries that offer entry-level positions. Median wages for local dishwashers, bar backs, ticket takers, and fast-food workers run between $9.00 and $9.10. It’s naïve to assume that all these positions will survive the increase. Businesses don’t have to pay the minimum wage to workers they choose to let go or don’t hire in the first place. Many positions will be automated, or employers will give additional responsibilities to more experienced workers.

California law allows workers between 14 and 17 to earn 85 percent of the minimum wage for their first 160 hours of work. Under the new wage law, teens could then be hired for an hourly wage of $12.75—a good deal for them, but a steep sum for employers to pay a worker with virtually no experience. The full $15 minimum wage will also apply to tipped positions—popular jobs for high school and college students. (The federal tipped minimum wage is $2.13, but tips must bring average hourly pay up to $7.25).

Some workers will get a raise under the new minimum wage, but it will come at the expense of cutting off other people from work opportunities. The nonpartisan Congressional Budget Office acknowledged this reality last year, when it estimated that 500,000 people would lose their jobs if the federal minimum wage increased to $10.10. The associated job losses would be even larger with a minimum wage of $15.

Wage advocates are celebrating today, but their victory will bring negative effects that Los Angeles can ill afford. A minimum wage more than twice the federal level, even one that is gradually phased in, will be a powerful drag on the city’s labor market and local economy. And no effect will be more harmful—and more inexcusable—than cutting off the first rung of the career ladder for young Americans.

 

Jared Meyer is a fellow at the Manhattan Institute for Policy Research. He is the coauthor with Diana Furchtgott-Roth of Disinherited: How Washington Is Betraying America’s Young (Encounter Books, May 2015). You can follow him on Twitter @JaredMeyer10.

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