Troubling Signs of Minimum Wage Damage in Los Angeles
The recent spate of local minimum wage hikes around the country is generating a lot of new data for economists to study, but so far I’ve been hesitant to focus on case studies.
There are a lot of reasons to be cautious in looking for minimum wage impacts on a city-by-city basis: it is easy to cherry pick, employment data at local levels can be volatile, growth rates rather than levels may be affected, and areas with stronger than average economies may be raising minimum wages.
In addition, disagreement in the literature on minimum wages illustrates that different comparisons or controls can easily give different answers. However, as I’ve been watching the data, one case is becoming too stark to ignore: Los Angeles.
In September, 2014, Los Angeles City approved hike to the minimum wage for hotel workers of $15.37. The wage went into effect in July, 2015, for hotels with 300 or more rooms, and will go into effect July, 2016 for 150-plus-room hotels.
Given the delay in the wage hike, it is not obvious that employment would be affected already. But BLS data on the accommodations industry (NAICS 721) for Los Angeles county is starting to look like serious impacts are occurring already.
The decline in year-to-year growth rates starts to show up in October, 2014, when growth falls below 2% for the first time in more than two years. Then in January, 2015, employment starts to actually shrink, and by June it is down 4.8% year over year. Zooming out, it’s clear that job losses of this magnitude in Los Angeles are not seen outside of recessions.
The BLS does not report seasonally adjusted data, but I did the adjustment using the same procedure they use and found accommodations have fallen by around 1,000 jobs so far this year.
There are, of course, a lot of reasons for caution here. Data from the more exhaustive QCEW survey suggests the decline in job growth in accommodations is overstated in the data I use here through the end of 2014. Unfortunately, QCEW data is only available through December, 2014.
This means that some of the job losses may be revised away in the future. However, the declines through June are large enough that is seems very likely that real employment declines are occurring.
Another reason to be cautious is that the employment effects are showing up after the hike passed but before it takes effect. Businesses are forward looking so this is not impossible, but the magnitude of the declines before the wage hike takes effect are somewhat surprising especially for the service sector. Finally, the hotel minimum wage hike is only affecting the City of Los Angeles, and this data is for the larger county of Los Angeles.
Reason for concern
Overall, the caveats here are significant, and despite the stark and significant decline in employment, the data should be considered just very suggestive at this point. However, it does represent one more reason to be concerned about the forthcoming minimum wage hike that will be affecting all Los Angeles County workers in all industries.
The service sector, and hotels in particular, should be less responsive to minimum wage hikes than many other lower wage employers. Tourism industries should be less price elastic than tradeables like manufacturing, and hotels don’t have a lot of alternatives, which makes transitioning the building to some less-labor-intensive use less likely.
Hotels, in other words, should have been more safe. Instead, they seem to be taking a big hit. While what we are seeing in Los Angeles so far is nowhere near conclusive, it should worry those who have been less concerned about big minimum wage hikes.