In a victory for progressives this morning, the Los Angeles City Council voted 14 to 1 to raise the minimum wage in the City of Angels to $15 per hour by the year 2020. Los Angeles is now the largest city in the United States to have committed to that increase, following similar pledges passed by Chicago, Seattle, and San Francisco. The new law is primarily intended to affect medium- to large-sized businesses rather than small businesses—it only applies to businesses employing 25 workers or more. Some estimate that it will raise the wages of roughly 800,000 workers in LA, and help raise many poorer residents into the middle class.
However, members of the business community, including the Los Angeles Chamber of Commerce, believe that an increased minimum wage won’t be a net benefit for the city, suggesting that it might actually force layoffs. Ruben Gonzalez of the LA Chamber of Commerce is quoted in Reuters:
“There is simply not enough room, enough margin in these businesses to absorb a 50-plus percent increase in labor costs over a short period of time…”
While it’s possible that increases could have some short-term gains for workers (the studies on the minimum wage and employment are not determinative), the debate about their efficacy often misses a much deeper problem: the misguided blue model policies that are instrumental in creating such poor economic conditions for the middle and lower classes. Measures like the $15 minimum wage are at best feel-good band-aids that avoid the bigger problem of the blue model’s unsustainability. At worst, they seek to superimpose elements of the blue model onto a changing world, thereby making life more difficult for mid-size businesses that provide jobs, reducing employment, and increasing the pace of automation.
One good way to start helping cash-strapped workers is to make the costs of doing business, and the costs of living, cheaper. In California many artificial factors that businesses face—certain kinds of taxes and regulations, for example—suppress wages. And other policies raise the cost of living by sending housing and utility expenses through the roof. Fixing these problems could do more to increase business productivity and boost wages than a mandated minimum wage likely ever would.