It should come to no surprise that a city as liberal as San Francisco is among those that passed a $15 an hour minimum wage.
It’s not your typical $15 an hour minimum wage – as the extremely high cost of living in San Francisco should be noted. With a cost of living 90 percent higher than the national average, a $15 minimum wage in San Francisco can hardly buy what a $15 minimum wage would buy in a cheaper state like Texas.
Furthermore, California already had a minimum wage far above the federal minimum ($9 at the time – now $10.50) when San Francisco’s was passed. Obviously, it’s much less drastic for a minimum wage to rise from $10.50 to $15 (a 43 percent increase) than from $7.25 to $15 (a 107 percent increase).
The $15 an hour wage is still being gradually phased in (currently $13, it’ll be raised to $14 on 7/1/2017, and $15 on 7/1/2018), and despite all the aforementioned factors, the laws of economics are still operating as expected.
According to the Washington Examiner, San Francisco’s higher minimum wage is causing an increasing number of restaurants to go out of business even before it is fully phased in, a new study by the Harvard Business School found.
The closings were concentrated among struggling, lower-rated restaurants. The higher minimum also caused fewer new restaurants to open, it found.
“We provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit,” report Dara Lee and Michael Luca, authors of “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit.” The study used as a case study San Francisco, which has an estimated 6,000 restaurants in the Bay Area and is ratcheting up its minimum wage. Restaurants are one of the largest employers of minimum wage workers.
The city’s minimum wage is currently $13 an hour, compared with California’s rate of $10.50 and the federal rate of $7.25. The city’s rate is set to increase to $14 in July and again to $15 next year. That rate, unlike federal law, does not include an exception for tipped employees. The rest of the Golden State will see the minimum rate rise to $15 in 2022.
Higher minimum wages also reduce the rate at which new restaurants open by 4-6 percent per $1 increase in the minimum, the study found.
The effects are clear (and will only get worse from here), but that didn’t stop California from passing what would make it the first state with a $15 an hour minimum wage by 2021.
Gov. Jerry Brown even admitted that “Economically, minimum wages may not make sense.” But his work wasn’t “just an economic equation,” and that labor is “part of living in a moral community.”
Well, at least there’s a liberal who has the guts to admit this ideas only sound good on paper, regardless of how they play out in reality. But what’s “moral” about raising wages so high, the very people you’re trying to help end up losing their jobs?
[Note: This post was authored by Matt Palumbo. Follow him on Twitter @MattPalumbo12]