Los Angeles Mayor Eric Garcetti proposed this week that the city raise the minimum wage to $13.25 by 2017. The current minimum wage in Los Angeles is $9.00 per hour. This is the minimum wage for all of California, but some cities throughout the state have enacted even higher minimum wages. For example, San Diego has approved a minimum wage of $11.50, and San Francisco voters will decide later this year whether they want to increase that city’s minimum wage to $15 per hour. This potential wage increase of nearly fifty percent in Los Angeles carries with it serious pros and cons that have to be considered both by anyone planning on creating a new business in Los Angeles, or anyone considering expanding a business to Los Angeles.
How Would the Minimum Wage Increase Work?
According to USA Today, the proposed increase would make the minimum wage in Los Angeles one of the highest in the nation. Of course, the mayor cannot act unilaterally, and will need the approval of the City Council to make the increase law. As the proposal stands now, the increased would be gradually phased in. In 2015 it would jump to $10.25, then in 2016 it would increase to $11.75, and finally in 2017 it would increase to $13.75. Then, in the future, additional increases would be tied to the Consumer Price Index for urban wage earners.
What is the Consumer Price Index?
According to the United States Department of Labor’s Bureau of Labor Statistics, the Consumer Price Index (CPI) is a “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” It reflects the spending patterns of two population groups: (1) all urban consumers and (2) urban wage earners and clerical workers. The Los Angeles minimum wage would be tied to the second population group, the actual wage earners. The total consumer group includes unemployed and retired people, as well as other non-traditionally employed people. The CPI is based on the prices of all goods and services that the relevant population purchases for consumption. Major groups include:
- Food and Beverages;
- Medical Care;
- Education and Communication; and
- Other Goods and Services.
The reason that a minimum wage would be tied to the CPI is so that it can rise as workers experience increases in their day-to-day living expenses. So that when the cost of milk, gas, clothing, and medication increase, so do wages, so that the minimum wage does not lose its value.
The mayor explained his reasoning for proposing the increase to radio station KNX 1070 earlier this week. He said, “From the president to local leaders in other cities, we’ve seen Republicans and Democrats alike say our minimum wage simply is too low, that people cannot support themselves. And I’ll tell you what, the cost to me and to everybody listening to this, to people who work full time but can’t afford to feed their families or get health care, that means we pick up the tab…Our recession is lagging because we don’t have buying power at the bottom end of the economic scale. That means poor people have no money to spend in our shops and everything else is suffering.”
The mayor’s statement points out the inherent conflict that all small business owners will have to consider when deciding whether to support the increase in the minimum wage. On one hand, it will increase wages, which will increase the cost of doing business. On the other hand, it will increase the amount of money consumers have to spend at small businesses, since they too are wage owners, so at the end of the day it could actually increase profits.