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Staff Report 1.A 04/08/2019
DATE: April 8, 2019 Ld� TO: Honorable Mayor and Members of the City Council through City Mana FROM: Ingrid Alverde, Economic Development Manager Nancy Sands, Economic Development Specialist SUBJECT: Workshop to Discuss Current Federal, State and Local Minimum Wage Laws and to Receive Direction Regarding a Potential City of Petaluma Municipal Ordinance Regulating Minimum Wage Paid to Applicable Workers RECOMMENDATION It is recommended that the City Council discuss the agenda materials and staff presentation regarding current Federal, State and local minimum wage laws. As part of the Council's deliberation, staff recommends that the Council consider and provide staff direction on potential regulations applicable to employers that are subject to local minimum wage laws. BACKGROUND Introduction On April 4, 2016, California Governor Jerry Brown signed legislation (SB 3, Leno) that will raise the state minimum wage by set amounts each year to reach $15.00 per hour by January 1, 2022 for employers with 26 or more employees and January 1, 2023, for employers with 25 or less employees (Attachment 1). After the $15.00 per hour threshold is reached, the state minimum wage will increase annually based on the Consumer Price Index (up to 3.5 percent per year). The Bill maintains existing exemptions in the State's minimum wage law and provides for a suspension of the wage increase schedule during economic downturns, subject to approval by the Governor. North Bay Jobs with Justice (NBBJ), a workers' rights and labor advocacy group, has asked the City Council to adopt a local minimum wage ordinance that would accelerate the timeline set by SB 3 and remove certain employer exemptions allowed under state law. NBBJ is making similar requests of other North Bay jurisdictions including the cities of Cotati, Sebastopol, Santa Rosa, Novato, and Sonoma. Since 2015, organizations like NBBJ and its partners have worked with other cities such as Emeryville and Redwood City to pass minimum wage ordinances. The minimum wage law being suggested by NBBJ would set a minimum wage of $12.75 per hour effective July 1, 2019, and $15.00 per hour effective January 1, 2020. From January 1, 2021, onward, the minimum wage would increase annually based on the Consumer Price Index. This wage would apply to workers who work two or more hours a week. Federal, State, and County employees are excluded by law, as are student learners for the first 160 hours of employment and certain disabled workers, in deference to Federal laws. Employers would be subject to this ordinance regardless of their industry, organizational structure (e.g., nonprofit vs. business), or number of employees. See Attachment 2, "Summary of Proposed Minimum Wage Ordinance," which was provided by NBBJ. NBBJ has provided data estimating that approximately 9,000 positions in the City of Petaluma, or about 28 percent of the total number of jobs in the City of Petaluma, would receive a raise under the suggested $15 per hour minimum wage ordinance. This estimate includes individuals currently being paid $15.00 or more per hour, who would likely also receive a wage increase as pant of the ripple effect of the ordinance. An Overview of Minimum Wage Laws The minimum wage established by Federal, State, and local laws sets the lowest wage an employer may pay to workers. The lowest wage may depend on the type of worker, the number of hours worked, and other factors. Under current laws, California's minimum wage is $11.00 per hour for employers with less than 25 employees and $12.00 per hour for employers with 26 or more employees, which will grow to $15.000 per hour by January 1, 2022, for employers with 26 or more employees and by January 1, 2023, for employers with 25 or less employees. After the wage reaches $15.00 per hour, it will increase annually based on the Consumer Price Index or no more than 3.5 percent. Local jurisdictions such as cities and counties have the legal authority to set a minimum wage that is higher than the federal or state minimum wage (Attachment 3). Local jurisdictions also have the legal authority to structure their minimum wage ordinances in different ways provided that the minimum requirements of the agency superseding it (e.g., federal, state, etc.) are met. However, local minimum wage laws do not apply to Federal, State, or County employees (including school employees). Twenty-four California jurisdictions have adopted ordinances that establish a minimum wage higher than the State's minimum wage. Several cities, particularly in high cost areas such as Los Angeles and the San Francisco Bay Area, have passed ordinances setting local minimum wages at $15 or higher. A few cities—including Emeryville and San Francisco—have passed wage ordinances that regulate other labor practices, such as paid sick leave, scheduling, and worker conditions. 2 Has the City passed a wage ordinance in the past? Yes. On November 20, 2006, the City Council established a living wage requirement for specified City funded contracts and city employees (Ordinance No. 2256 N.C.S., Chapter 8.36). The ordinance provides for certain exemptions based on the type of employer or employee, a process to be excluded from the ordinance, and a narrow definition of "employee," for purposes of calculating to whom the ordinance applies. For example, this ordinance does not apply to employees of nonprofit organizations; employees subject to certain labor codes; disabled employees (whose minimum wage is dictated by Federal laws that consider other Federal benefits the disabled employee is receiving); volunteers, and others. The ordinance provides a "credit" to employers who provide health insurance to employees covered by the ordinance, thereby lowering the wage required; and it stipulates other requirements, such as'paid time off for full-time and part-time employees. Finally, it sets an annual increase based on the Consumer Price Index for the San Francisco Bay Area (CPI -U), published by the Bureau of Labor Statistics. The purpose of this ordinance is stated as being: "[T]o protect the public health, safety and welfare ... by requiring that public funds be expended in such a manner as to facilitate individual self-reliance...'." Other goals of the wage include the following: • assure that covered employees "earn an hourly wage that is sufficient to live with dignity and to achieve self-sufficiency;" • "decrease poverty, increase consumer income, invigorate neighborhood businesses and reduce the need for taxpayer -funded social service programs;" • "set a community. economic standard that permits workers to live above the poverty level." DISCUSSION At the simplest level, the wage ordinance being proposed by NBBJ would accelerate the timeline for reaching a $15.00 per hour minimum wage by 3 years for large employers and 4 years for small employers. It also includes an annual increase that would continue to set the minimum wage in Petaluma higher than the state. Arguments in favor NBBJ provides information about its minimum wage ordinance proposal in a Fact Sheet (Attachment 4) and a Q&A sheet (Attachment 5). These handouts cite research showing that California's current minimum wage is not enough for Sonoma County's minimum wage workers to make ends meet. Passing a local ordinance with a minimum wage that is higher than the state minimum wage would help low-wage workers in Petaluma address the high cost of living in Sonoma County and provide other benefits to the community, such as those listed in the City's living wage ordinance. 3 To support its proposal, NBBJ offers the following statistics: • A self-sufficiency wage for Sonoma County in 2017 was $23.00 per hour (according to the California Budget and Policy Project), which is far below the 2019 state minimum wage ($11.00 or $12.00 per hour, depending on the number of employees). • Nearly half of Sonoma County renter households pay more than 30 percent of their gross monthly income for rent; one quarter pay more than 50 percent for rent. According to the US Department of Housing and Urban Development, families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. • In 2018 a Sonoma County renter needed to earn an hourly wage of $35.44 to afford the fair market rent for a two-bedroom apartment (without spending more than 30 percent of their gross monthly income for housing costs). A minimum wage worker would need to work 128 hours a week --ostensibly through multiple jobs to afford the fair market rent for a two-bedroom apartment in Sonoma County. NBBJ has also provided a paper entitled "Estimated Impact of a Proposed Minimum Wage Law for the North Bay," (Attachment 6), which is authored by Ian Perry, Garret Stain and Ken Jacobs of the UC Berkeley Labor Center. Perry et al. analyze state economic data from 2017 to estimate the workers who would receive wage increases because of the proposed wage ordinance in Petaluma: • more than half are in their 30s or older and 95 percent are in their 20s or older; • about 24 percent have children; • most are full-time workers who work year-round; • they contribute more than half of their family's income; • they primarily represent Latino, immigrant, and female populations. Perry et al. also provide a review of the research on the effects of low wages and the impact of wage increases. These studies suggest that raising the minimum wage can result in the following benefits to the community: • reducing poverty among low-wage workers; • improving the physical and mental health of low-wage workers, thereby reducing negative public health outcomes; • reducing reliance on public assistance programs; • increasing the amount of money spent locally by low-wage workers, thereby boosting the economy; • reducing turnover and related costs for businesses. The Petaluma Downtown Association conducted a survey on the topic of the suggested local minimum wage ordinance (Attachment 7). About'half of the 97 respondents indicated they are in favor of mandating a $15.00 per hour local minimum wage. Paraphrasing the written comments in the survey, the arguments in favor include wanting to show that employees are valued by paying a fair wage; doing what's right to keep the community viable; paying employees above- Gl poverty wages so as not to exploit them; and a belief that $15.00 is a reasonable minimum wage for Sonoma County. Arguments opposed In the various outreach efforts conducted by staff, Petaluma business leaders expressed a sense of appreciation for the high cost of living and its impact on workers across the wage spectrum. However, concerns were expressed about how a local minimum wage ordinance would affect their businesses: • It will be a hardship to employers both financially and organizationally. Employers will likely be increasing wages not only for those who earn less than $15.00 per hour, but also for those who earn just above $15.00 per hour. The higher the wage increase and the more employees that are affected, the more time employers will need to plan for the financial impact and manage the implementation organizationally. The proposed wage ordinance would give employers less than a year to implement increases that would significantly impact their labor expenses, which not only include wages but also FICA, Medicare, and workers compensation contributions that are also tied to wages. • It would hurt small, locally -owned businesses as well as businesses that that compete in markets where labor costs are lower. The Petaluma Downtown Association conducted a survey about the suggested minimum wage ordinance, and several survey respondents expressed concerns that a $15.00 per hour minimum wage would force locally -owned companies to raise prices and/or hire fewer employees, particularly seasonal or inexperienced employees (such as teenagers). These actions would then lead to a drop-off in customers, business owners needing to work longer hours, and/or the business needing to close altogether. Another perspective comes from businesses that sell globally and/or are subsidiaries of larger companies located in other states or parts of the world. These businesses already have difficulty competing on price or justifying their labor costs to parent companies. The concern is that a mandatory wage increase coming from the City will be another reason the parent company will consider relocating out of Petaluma. • It reflects a lack of appreciation for what businesses are already doing. Many businesses have been planning in good faith for the state's 2022/2023 deadline. Accelerating that deadline by two years shows a lack of appreciation for the challenges employers already are facing to meet this deadline. • The competitive market is addressing wage issues. Many employers already have increased their wages because the local competitive labor market is demanding it. Employers with low wages are having difficulty recruiting and retaining quality employees, which in turn is making their organizations less successful. Wages have become a tool for competitive advantage both for employers and employees. 5 By increasing wages unilaterally, employers with high wages lose the edge they have and will need to increase wages above and beyond the $15.00 per hour rate. • It won't address the real problem. Passing a local minimum wage ordinance will have negative effects on business without addressing the primary reason it is so expensive to live here – the shortage of housing. How Will Employers Adjust? Organizations must address the increase in expenses resulting from a wage increase. Studies on both sides of the wage increase issue agree there are several ways to do this, including: • Reduce employment numbers • Raise prices • Expect more from fewer workers • Introduce operational efficiencies to reduce costs—for example, through automation, better management of operations, or changing suppliers. Based on their review of the literature on minimum wage increases, Perry, et al. argue the following: • wage increases have a negligible effect on employment; • price increases are distributed across the spectrum of consumers and therefore felt less heavily upon one group; • higher expectations and operational efficiencies lead to improved processes and more productive employeespositives, not negatives; • employee morale improves and turnover decreasesagain, a positive impact in the long run. Perry et al. also address the concern that employers will relocate in response to minimum wage increases. They argue that business relocations are determined more by real estate prices and access to consumer markets than by differences in labor costs. These arguments are also discussed in "Is a $15 Minimum Wage Economically Feasible," an article published by an economics non-profit called Dollars & Sense (Attachment 8). Author Jeannette Wicks -Lim provides context for the national effort to raise the minimum wage to $15.00 per hour and discusses what happened after the city of Seattle adopted a $15.00 per hour minimum wage ordinance was passed. Her assessment is that "[b]usinesses should ... be able to adjust to a $15.00 minimum wage ... as long as it is implemented at a reasonable pace." How would a Minimum Wage Ordinance be Structured and Implemented? Should the City Council decide to pursue a minimum wage ordinance, decisions will need to be made regarding how the ordinance will be structured and implemented. Conducting outreach to employers and other cities that have already implemented a minimum wage ordinance will be helpful in writing an ordinance that meets the needs of the community and the goals of the City Council. In addition, staff will need to develop and implement a plan for notifying employers n about the change, explaining their responsibility in posting information about the law, and creating materials such as wage posters. How Would a Wage Ordinance be Enforced? Enforcement will be an important component of a wage ordinance. One option would be to enforce the ordinance based on complaints and regular audits of employers, which is fair to employees but also potentially expensive and logistically challenging. Another option would be to enforce based on complaints only: this model would be more straightforward and less expensive to enforce; however, a downside to be considered is that this model may exclude employees who fear retaliation or do not understand their rights. The City of Emeryville enforces its wage ordinance based on complaints and on audits. It outsources both functions. It is important to note thatEmeryville's wage ordinance is more complex than the ordinance being suggested by NBBJ. This makes enforcement in Emeryville more complicated and more expensive than it would likely be in Petaluma. Redwood City, which passed a wage ordinance similar to the one being proposed by NBBJ, , outsources its wage ordinance enforcement to the City of San Jose Office of Equality Assurance, which also provides contractual wage enforcement services to seven other cities. Penalties/fines may be considered as part of the enforcement plan, and these will need to be set at a level to discourage employers from violating the ordinance. It will need to be decided which City Division would manage enforcement and the collection of penalties. Support to Employers In the interest of helping employers plan for and implement a minimum wage ordinance, the City Council may consider directing staff to develop an assistance plan. Components of such a plan might include one-to-one business advising and/or workshops for different types of businesses. To the extent possible, staff would leverage existing County and State resources (such as the Small Business Development Center) as part of the support plan. Status of Similar Ordinances in Other North Bay Cities NBBJ has made minimum wage presentations to the City Councils of Sonoma, Cotati, Novato, and Sebastopol, but no ordinances have been adopted as a result. Staff in Cotati report that its Council was interested in the presentation but has not taken further action. Sebastopol is taking a "wait and see" approach, particularly in the aftermath of the February 2019 flooding in that city. In Novato, the minimum wage ordinance continues to be a topic of discussion, with some Council members in favor but City staff recommending against adoption. PUBLIC OUTREACH 7 Input about the minimum wage proposal was solicited from the business community in several ways. Staff personally contacted the CEO of the Petaluma Area Chamber of Commerce, the Executive Director of the Petaluma Downtown Association, and leaders of several Petaluma businesses, via phone, email, or in-person meetings. In addition, the Economic Development Division included information about the workshop and an invitation to provide feedback in its quarterly newsletter sent out on March 26, 2019; it received one response. Finally, the Petaluma Downtown Association sent a survey to 955 contacts; 539 opened the email that contained the survey and 97 completed the survey and/or provided written input in the comment section. FINANCIAL IMPACTS Financial Impacts, to the City as an Employer The salary schedule for the 2018/2019 Fiscal Year lists six job titles that pay less than $15.00 per hour; of those, three pay less than $12.75 per hour. These job titles represent part-time, seasonal staff hired by the City's Parks & Recreation Division. The number of people hired to fill those job titles may vary from year-to-year. However, based on an analysis of payroll costs from 5/25/2018 to 9/14/2018, it is estimated that the payroll costs will increase approximately $13,000 during the first summer after the $15.00 per hour wage requirement goes into effect. Additional costs after that year will be tied to the increases in the Consumer Price Index. By comparison, when adopting its minimum wage ordinance in 2018, Redwood City estimated an initial fiscal impact of $122,000 to bring 226 hourly City employees to the $15.00 per hour wage. However, it was predicted that wage increases for minimum wage employees would prompt changes to the City's hourly wage structure beyond employees at the minimum wage level. Taking into account the adjustment of wages for both minimum wage and non -minimum wage employees, Redwood City estimated the fiscal impact of its minimum wage ordinance to be $500,000, over a two-year period. The City of Novato estimates that raising the minimum wage to $15 per hour for City employees on the State's timeline (i.e., on January 1, 2022) will result in a fiscal impact of $422,220 over a three-year period. If the City accelerates this timeline and raises the minimum wage to $15 per hour by 2020, the fiscal impact is estimated to be $414,388 over a two-year period. These fiscal analyses were based on part-time employees working the maximum number of hours (1,040) over the two- or three-year periods. Financial Impacts to the Cityfor Implementation & Enforcement The City of Emeryville adopted a minimum wage ordinance in 2015, and in 2017 implemented a Fair Work Week ordinance that also includes paid sick leave and requirements for the hospitality industry. The City's enforcement model for these ordinances are both audit- and complaint - driven. In Fiscal Year 2018/2019, $100,000 was budgeted for enforcement of these ordinances, and the City plans to increase its enforcement budget in the next fiscal year. In addition to paying for enforcement, Emeryville has contracted with consultants to conduct two surveys to assess the impact of the minimum wage and Fair Work Week Ordinance. The City of El Cerrito has a wage ordinance similar to the one being proposed in Petaluma. The ordinance has been in place since 2015. Its enforcement model is complaint -driven, and since 2015, the City has received two complaints. The City has a hybrid model that incorporates staff time for initial outreach to the business and time for a contract attorney to conduct research. The staff member who manages this program estimates the enforcement cost at less than $5,000 per complaint. Given the City of Petaluma's code enforcement resources and budget, staff propose a complaint - driven model should Council choose to adopt a minimum wage ordinance. Assuming two complaints per year, enforcement would require 10 — 20 hours per year for staff to receive and process the claim, including attorney time. ATTACHMENTS 1. Table of State of California Minimum Wage Increases through 2023 2. Summary of Proposed Minimum Wage Ordinance fiom NBBJ 3. Presentation to the League of Cities, "Local Minimum Wage Laws and the Challenge of Balancing Interests" 4. North Bay Jobs for Justice Fact Sheet 5. North Bay Jobs for Justice Q&A 6. UC Berkeley Labor Center paper: "Estimated Impact of a Proposed Minimum Wage Law for the North Bay" 7. Petaluma Downtown Association Survey Results 8. "Is a $15 Minimum Wage Economically Feasible?", article in Dollars & Sense 9. Other Input fiom Community Members 9 Attachment 1 Schedule for California Minimum Wage rate 2017-2023 Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More January 1, 2017 $10.00/hour $10.50/hour January 1, 2018 $10.50/hour $11.00/hour January 1, 2019 $11100/hour $12.00/hour January 1, 2020 $12.00/hour $13.00/hour January 1, 2021 $13.00/hour $14.00/hour January 1, 2022 $14.00/hour $15.00/hour January 1, 2023 $15.00/hour Source: State of California Department of Industrial Relations Attachment 2 Summary of proposed Citywide Minimum Wage Ordinance for Novato, Petaluma, Santa Rosa, Sebastopol, Cotati, and Sonoma Please note references to the language of specific provisions in minimum wage laws implemented by the cities of Emeryville (2015), San Mateo (2016) and Cupertino (2016). 1) Wage Rate: $15 an hour phased -in over two years July 1, 2019 $12.75 an hour July 1, 2020 $15.00 an hour Note: the law would cover all employees performing at least 2 hours of work a week for an employer within the geographic boundaries of the city. 2) COLA: (based on the San Francisco -Oakland -San Jose Consolidated Metropolitan Statistical Area) will be automatically applied annually beginning July 1, 2021. 3) Possible extra year for phase-in for small employers with less than (10-25 TBD) employees. July. 1, 2019 $11.66 an hour July 1, 2020 $13.32 an hour July 1, 2021 $15.00 an hour Note: California minimum wage phases into $15 an hour by 2022 for large employers (26 or more employees) and for small employers (25 or less), the phase-in reaches $15 an hour in 2023 with COLA 2024; 4) Exemptions and Qualifications: Employees of governmental agencies including federal and state agencies, public higher education and school districts are exempted but city employees are included. Employees classified as `Learners' (of any age) who have no previous similar or related experience in a given occupation may be paid less than the proscribed minimum period of their employment. "An employee who is a Learner as defined by the California Industrial Welfare Commission shall be paid no less than 85 percent of the applicable minimum wage for the first 160 days of employment. Thereafter the employee will be paid the applicable minimum wage rate" (San Mateo) Employees who work from home in the city (at least 2 hours a week) for an employer located outside the city are covered. 5) No Tip Credit: "An employer may not deduct any amount from wages due an employee on account of any tip or gratuity, or credit the amount or any part thereof, of a tip or gratuity, against and as a part of the wages due the employee from the employer." (San Mateo) 6) Hospitality Service Charge: "All separately -designated amounts charged and collected by an employer from customers that are for service provided by employees or are described in such a way that customers might reasonably believe that the amounts are for those services, shall not be retained by the employer, but shall be paid in their entirety to worker(s) performing services for the customers from whom service charges are to be collected." (Emeryville). Examples of such service charges include food and beverage delivery to a hotel room, catering at banquets or transporting luggage for a hotel guest. 7) Waiver By Collective Bargaining Agreement: "All or any portion of the applicable requirements of this Chapter shall not apply to employees covered by a bona fide collective bargaining agreement to the extent that such requirements are expressly waived in the collective bargaining agreement in clear and unambiguous terms." (Cupertino). Unionized workers may decide to opt -out of the minimum wage law in order to bargain for enhanced benefits in exchange for an hourly cash wage below the new minimum wage. 8) Enforcement: Right of Private Action "An employee claiming harm from a violation of this Chapter may bring action against the employer in court to enforce the provisions of this chapter and shall be entitled to all remedies available to correct any violation of this Chapter, including but not limited to back pay reinstatement, injunctive relief or any civil penalties as provided herein. An employee who is' a prevailing party in an action to enforce this chapter is entitled to reasonable attorney fees, witness fees and costs." (San Mateo) 9) Other Enforcement Provisions: Employees covered by the minimum wage law should be protected from retaliation by the employer if they file a complaint with the city about alleged violations and noncompliance. "It is unlawful for an employer or any other party to discriminate in any manner or take adverse action against any person in retaliation for exercising rights protected under this chapter." (Cupertino) For employers not complying with the law, the city may assess fines and penalties including liquidated damages and revoking or suspending business licenses, permits, and registration certificates. Attachment 3 LEAG-U F OF CALIFORNIA -111 - � Local Minimum Wage Laws and the Challenge of Balancing Interests Wednesday, May 4, 2016 Opening General Session; 1:00 — 3:00 p.m. Sky Woodruff, City Attorney, EI Cerrito and Larkspur, Special Counsel, South San Francisco DISCLAIMER: These materials are not offered as or intended to be legal advice. Readers should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. Copyright © 2016, League of California Cities®. All rights reserved. This paper, or parts thereof, may not be reproduced in any form without express written permission from the League of California Cities®. For further information, contact the League of California Cities® at 1400 K Street, 4th Floor, Sacramento, CA 95814. Telephone: (916) 658-8200. League of California Cities® 2016 Spring Conference Marriott, Newport Beach League of California Cities® 2016 Spring Conference Marriott, Newport Beach Local Minimum Wage Laws and the Challenge of Balancing Interests by Sky Woodruff, Principal, Chair of the Public Finance Practice Alex Mog, Associate, Municipal and Special District Law Practice I. INTRODUCTION Recently a movement to increase the minimum wage to $15 per hour has gained momentum in places across the country. With little chance of Congress raising the federal minimum wage in the immediate future, advocates of raising the minimum wage have instead focused on the enactment of state and local minimum wage laws. In California, where the minimum wage is currently $10 per hour, numerous cities have recently enacted or increased the local minimum wage rate, including Los Angeles, San Francisco, San Jose, Palo Alto, and El Cerrito. The State of California also recently enacted legislation that will increase the minimum wage statewide to $15 per hour over the span of a few years. The adoption of an increase in the state minimum wage will likely reduce the pressure on cities to adopt local minimum wage ordinances. However, individuals cities, especially in areas of the state with relatively higher costs of living or that want to accelerate increases more quickly, may nevertheless wish to adopt a local ordinance that establishes a minimum wage greater than what was established by the Legislature. This paper discusses some of the legal and policy issues to consider in drafting a local minimum wage ordinance. II. AUTHORITY TO ENACT MINIMUM WAGE LAW The Federal Fair Labor Standards Act of 1938 ("FLSA"), as amended from time to time, establishes a national minimum wage, which is currently $7.25 per hour. (29 U.S.C. § 206.) The FLSA expressly permits state and municipal governments to establish a minimum wage higher than the federal minimum wage. (29 U.S.C. � 218.) California has exercised this authority, and. adopted a separate statewide minimum wage. (Labor Code § 1182.12.) Because the FLSA authorizes a city to establish its own minimum wage, whether or not a city can adopt its own minimum wage is dependent upon California law. Until recently, the vast majority of California cities adopting local minimum wage laws were charter cities. Some have wondered whether a general law city may enact a local minimum wage. It appears that general law and charter cities have the same authority to adopt local minimum.wage ordinances. There is no express prohibition in state or federal law against general law cities establishing local minimum wage requirements. The California Constitution gives both general law and charter cities the power to "make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws of the state." (Cal. Const., art. XI, § 7.) It is well established that regulation of the employment relationship is an exercise of police power. (Metro. Life Ins. Co. V. Massachusetts (1985) 471 U.S. 724, 756; Salas P. Sierra Cheri. Co. (2014) 59 Cal. 4th 407, 423.) This includes the establishment of a minimum wage. (Metro Life Ins. Co, 471 U.S. at 756.) "The power to regulate wages and employment conditions lies clearly within a state's or a municipality's police power. States possess broad authority under their police powers to regulate the employment relationship to protect workers within the state. Child labor laws, minimum and other wage laws ... are only a few examples." (RUI One Cotp. v. City of Berkeley (9th Cir. 2004) 371 F.3d 1137, 1150 (internal citations omitted).) State law does not preempt a city's use of its police power to establish a minimum wage. To the contrary, the Labor Code expressly provides that "[n]othing in this part shall be deemed to restrict the exercise of local police powers in a more stringent manner." (Labor Code § 1205(b).) Nothing in the Labor Code suggests that this authorization applies differently to charter cities and general law cities. The California minimum wage law is a matter of statewide concern, equally applicable to general law and charter cities. (See State Bldg. Const. Trades Council of Cal., AFL-CIO v. City of Vista (2012) 54 Cal. 4th 547, 564.) However, the Legislature has authorized all cities to create more stringent minimum wage standards. Accordingly, there is no reason to believe that the Legislature intended to preempt a general law or charter city's use of its police power to establish a minimum wage. Ill. TIMING OF INCREASES AND AFFECTED EMPLOYERS A. Phase in Schedule Among the issues that has resulted in the greatest variation in crafting a local minimum wage ordinance is the decision of what the minimum wage will be. There is currently a movement, both nationally and in California, for states and localities to adopt a $15 per hour minimum wage. Many localities are adopting local minimum wage ordinances that provide for the minimum wage to eventually reach that rate, and the State of California has adopted legislation to create a $15 minimum wage for all employees by January 1, 2023 and for employers with 26 or more employees by January 1, 2022. Others that have already adopted a local minimum wage have elected not to use the $15 per hour target. Those jurisdictions will now have work through issues arising from the state's schedule of increases potentially being higher than the local rates in some years and the final year. A city considering a local minimum wage ordinance is now precluded from considering rates lower than those in the new state law. In addition to the hourly rate, cities must still determine how quickly to raise the minimum wage to the desired amount. For example, a city might choose to increase the minimum hourly wage by $1 every year on January 1 until the wage is $15 per hour, rather than implement the entire increase at once. A City must also consider whether to coordinate the minimum wage increase with increases adopted by other jurisdictions. There are potential implementation benefits to different jurisdictions within the same geographic area adopting the same increase schedule, such as greater public awareness of the increases. California's adoption of a new statewide minimum significantly alters many of the considerations of whether or not to adopt a local minimum wage ordinance. There are significant administrative costs and burdens in adopting and enforcing a local minimum wage ordinance, which must be considered relative to the benefits, particularly if an existing or proposed schedule of increases i differs only slightly from the state minimum wage. For example, if a local minimum wage is $0.25 more than the state minimum wage, the City would still bear the cost of enforcing the higher minimum wage, but perhaps without significant additional benefits to local low-wage workers. Cities might also want to consider the increased complexity employers could face if they have workers throughout California subject to slightly different minimum wage scales. The minimum wage increase passed by the Legislature and signed into law by Governor Brown, increases the California minimum wage to $15 per hour for employers who employ 26 or more employees as of January 1, 2022.1 For employers who employ 25 or fewer employees, the $15 per hour minimum wage will be effective on January 1, 2023. Beginning on January 1, 2024, the minimum wage will increase by an amount equal to the rate of inflation or 3.5%, whichever is less. Cities that believe the state minimum wage takes too long to reach $15 per hour may still wish to adopt a local minimum wage ordinance. For example, an ordinance that establishes a $15 an hour minimum wage for all employees by January 1, 2020, and thereafter increases by the amount of inflation, would provide higher wages more quickly to minimum wage employees than will be provided by the state minimum wage. It is advisable when presenting options to a city council and in drafting local minimum wage ordinances to take into account existing and potentially new state law regulating the minimum wage as well as neighboring jurisdictions' regulations to assess potential administrative complications for the city, employers, and employees. Among the administrative complications worth considering are additional enforcement burdens potentially resulting from schedules or rules that conflict with state law or regulations in adjacent cities. Finally, cities must consider whether the minimum wage should increase automatically every year after the final established wage rate is reached. Supporters of increasing the minimum wage note that the value of the minimum wage has fallen, in real terms, over time as a result of inflation. To rectify this problem, a city may decide to automatically increase the minimum wage annually by the same percent as the increase in the consumer price index. While automatic increases ensure that the minimum wage approximately keeps up with inflation, employers frequently object that such increases may result in financial hardship if their revenues do not increase enough to match steadily increasing labor costs. Options that have been identified to address that concern include capping the automatic increases at a maximum percentage and annual review by the city council to determine whether to allow an automatic increase to go into 1 The text of SB 3, signed by the Governor on April 4, 2016, is available at http://leginfo.ca.gov/pub/15- 16/bill/sen/sb_0001-0050/sb_3_bill_20160404_chaptered.pdf effect. Beginning in January, 2024 California's minimum wage automatically increases by an amount equal to the rate of inflation or 3.5%, whichever is less. B. Small Business Exceptions In adopting a local minimum wage ordinance there will likely be a concern that increasing the minimum wage will be a significant financial burden on local businesses. To address this potential problem, there may be a desire to adopt a separate minimum wage for small and large employers, due to a belief that large employers have a greater ability to absorb the costs of an increased minimum wage. For example, if an ordinance established a timeline for the minimum wage to reach $15 per hour in four years for large employers, the ordinance might establish a six year time period before small employers were required to pay their employees that same minimum wage. It is well established that a city may enact economic regulations that treat various individuals or businesses in different manners. A statutory classification that does not differentiate between individuals or businesses on account of a suspect classification, such as race or gender, does not violate equal protection as long as "there is any reasonably conceivable state of facts that could provide a rational basis for the classification." (F.C.C. Beach Comm'ns, Inc. (1993) 508 U.S. 307, 313.) This is a low burden for a city to meet, and there are numerous conceivable rational bases for treating small and large employers differently under a minimum wage ordinance. (See Intl FranchiseAss'n, Inc. P. City of Seattle (9th Cir. 2015) 803 F.3d 389, 407.) Despite the clear legal authority to apply different minimum wage rates to small and large employers, there are many policy reasons a city council might nevertheless desire one uniform minimum wage. Most notably, an increased minimum wage is generally adopted for the benefit of low wage workers. A low wage worker is not less deserving of an increased wage simply because he or she works for a small employer. Depending on the economy of a particular city, treating small employers differently might result in the benefits of an increased minimum wage not reaching a large portion of the city's low wage workers. Furthermore, creating two different minimum wages levels is likely to substantially increase the administrative burden of implementing and enforcing a local minimum wage ordinance. However, it is important to note that California's new minimum wage law creates two separate wage rates for large and small employers, which might create an expectation of a similar distinction in local minimum wage ordinances. IV. EXCEPTIONS AND SPECIAL CONSIDERATIONS There are many considerations a city must address in adopting a local minimum wage ordinance. A city has broad discretion to design a unique ordinance, as long as it does not result in a worker being paid less than the state or federal minimum wage, or is otherwise in conflict with state or federal law. For example, a city must decide what workers, if any, will be exempt from the minimum wage requirement. A brief discussion of some of these special considerations is below. A. State Formula Cities may wish to exempt certain types of employees from the local minimum wage ordinance, or apply special rules to certain employees. However, developing these exceptions and rules might be difficult. Generally, cities have relatively little experience and expertise in regulating employment conditions in comparison to the state. When drafting a minimum wage ordinance, a city is unlikely to think of every possible employment situation that might justify a deviation from the standard minimum wage rate. In contrast, the state has developed a wide range of wage rules over a period of decades. A simple way for a city to take advantage of the state's developed set of rules is to draft the minimum wage ordinance to require that whenever the Labor Code or Department of Industrial Relations regulations require an employee to be paid using a formula based off of the state minimum wage, the same formula shall apply to workers within the city, except that the local minimum wage rate shall be used. For example, the Labor Code includes a learners exception that allows an employee with no previous or related experience in the occupation to be paid 85% of the minimum wage during the employee's first 160 hours of employment. (Labor Code 1192; Industrial Welfare Commission Order 4-2001, §4(A).) If a city does not provide any exceptions to its minimum wage ordinance, employers in the city would be required to pay "learners" the entire local minimum wage. In contrast, adopting state wage formulas, but substituting the local minimum wage rate, would allow employers to pay "learners" 85% of the local minimum wage. Adopting state wage formulas, but requiring the local minimum wage to be used, allows a city to take advantage of the state's existing set of detailed regulations, while also ensuring the local minimum wage applies to the maximum extent possible. B. Collective Bargaining Agreements State and federal law both prohibit a collective bargaining agreement from establishing a wage rate below the respective state and federal minimum wage. (29 CFR § 541.4; Civil Code § 1668, 3513.) However, nothing prevents a city from exempting employees subject to a collective. bargaining agreement from the city's minimum wage requirement, as long as such agreement still complies with all federal and state labor laws. A city may decide that exempting collective bargaining agreements is beneficial for workers because it allows employees to bargain on all elements of compensation, rather than simply subjecting these workers to a uniform minimum wage rate. For example, workers might decide that it is beneficial to agree to wage rates below the local minimum wage in exchange for greater health care benefits. Generally, a collective bargaining agreement may only waive statutory rights if it is "clear and unmistakable" that such a waiver was the intent of the agreement. (Metro. Edison Co. v. N.L.B B. (1983) 460 U.S. 693, 708.) If a city wants to exempt collective bargaining agreements from the local minimum wage ordinance, the city may consider incorporating standards for agreements to follow in order to be exempt from the local minimum wage. Such a requirement would help ensure that employees are aware of the rights they are agreeing to waive. C. Treatment of tips and commissions Local ordinances should also address the treatment of an employee's tips and commissions. California law prohibits an employer from counting the tips received by an employee toward the payment of the California minimum wage. (Labor Code § 351.) In contrast, an employer is generally allowed to count commission payments toward the payment of minimum wage. (Labor Code § 200.) The reason for this distinction is straight forward - a tip is a voluntary payment made by a customer directly to an employee, whereas a commission is a portion of the proceeds of a sale shared with an employee by an employer. Allowing tips to be counted toward the payment of minimum wage would decrease the impact of a minimum wage increase on some employers, perhaps increasing support for the ordinance. However, it would also necessarily decrease the benefit of a local minimum wage increase to tipped workers. Restaurants and other businesses with a high percentage of tipped workers are often among the businesses that are most vocal about the economic effects of a local minimum wage increase. Early and meaningful discussions with representatives of that sectot—both employers and employees—can help a city understands the interests to be balanced in crafting a local policy about how to treat tips as part of a minimum wage ordinance. Similar consideration exists regarding the treatment of commission income. D. Service Charges Many advocates, of adopting local minimum wage rates also support mandatory disbursement of hospitality service charges to employees. Examples of hospitality service charges include delivery fees and room service charges at a hotel. Additionally, a small number of restaurants have eliminated tips and implemented a flat service charge. The rationale behind requiring the distribution of service charges to employees is to ensure that the employee performing the service task receives the charge for that task. Furthermore, customers may consider these types of hospitability service charges to be in -lieu of a tip, and therefore leave a smaller tip or no tip at all. This results in a loss of tip income for employees, but with the hospitability service charge revenue actually going to the employer. Requiting employees to receive the revenue from any hospitability service charges ensures that the employee performing the service receives the fee for that service. There are many issues to consider in adopting a requitement that hospitality service charges be given to employees. There may be reasons to exclude certain charges, and a city must decide what type of service charges to include within the requirement. For example, a delivery charge might be excluded because that charge is necessary for an employer to offset the costs of maintaining a delivery vehicle. Similarly, cities must decide what employees will share the service charge revenue. Does that revenue only go to the employee performing the actual task (like a delivery), or to other non -management employees who perform other related tasks (like making the pizza). Restaurants that have eliminated tips and implemented service charges say that the charge allows them to ensure that "back of the house employees" (like cooks and bussers) receive a share of the charge.2 Furthermore, cities must consider the implementation challenges of adopting this type of requirement. It is far more difficult for a city to enforce this type of requirement than it is to enforce a minimum wage ordinance. Generally, an employee does not have knowledge of how much hospitality service charge revenue an employer collected, and therefore the employee, and city, have no easy way to determine if the employee is getting his or her legally required share. V. ENFORCEMENT Cities that adopt a local minimum wage ordinance must also consider how to enforce the ordinance. An individual who is paid less than the state minimum wage can currently report that violation of the Labor Code to the Department of Industrial Relations using a well-established procedure, and the Department of Industrial Relations has extensive experience investigating such reports. In contrast, cities generally do not have existing personnel or infrastructure in place to take on a new enforcement obligation. Even if a city has staff that can take on enforcement, they are unlikely to have experience with wage issues or auditing business financial records to determine whether the legally required amount has been paid to an employee. A city must decide how much resources and staff time to dedicate to enforcing a local minimum wage law. Some cities may decide it makes more sense, practically and financially, to hire a consultant or organization with more expertise in this area to assist in the investigation and enforcement of possible violations. Below is a brief discussion of some possible enforcement tools cities may utilize. A. Linking Compliance to Business License One tool for enforcement of a minimum wage ordinance is to incorporate compliance into the city's business license regulations. An employer could be required to certify that it complies with the requirements of the minimum wage ordinance whenever it applies for a license renewal. Additionally, failure to pay all employees the local minimum wage could be grounds for revocation of a business license. The threat of losing a business license may be a more effective enforcement tool than fines or other forms of punishment. Although business license revocation or non -renewal provides a powerful remedy, a city would still have to be prepared to conduct investigations of non-compliance complaints. 2 Tips are the property of the employee, and the Fair Labor Standards Act of 1938 and United States Department of Labor regulations significantly restrict the ability of employers to require tips to be pooled and shared with employees Nvho are not "customarily and regularly" tipped. (29 U.S.C. § 203(m); 76 Fed. Reg. 11,832,18,841-42 (April 5, 2011); see also Oregon Rest. & LodgingAssn u. Pei -g,, _ F.3d No. 13-35765, 2016 WL 706678 (9th Cir. Feb. 23, 2016).) These restrictions do not appear to apply to hospitality charges, which are the property of the employer. Accordingly, a City can mandate that hospitality charges be shared by tipped and non -tipped employees. Additionally, if a city's business license ordinance explicitly states that it is adopted only for revenue generating purposes, a city may want to amend the ordinance before using it as a tool to regulate and enforce a minimum wage ordinance. B. Enforcement Tools 1. Code enforcement A city may include within its minimum wage ordinances authority to utilize the full range of traditional enforcement tool provided to cities, such as imposing administrative citations and pursing civil enforcement. In developing the range of enforcement tools available, it is important to remember the relatively unique nature of a minimum wage violation. Unlike most municipal code violations, violation of the minimum wage ordinance directly and personally impacts a single individual, the employee. The purpose of enforcement must be to ensure that employees receive the compensation to which they are entitled. Accordingly, cities may consider approaching minimum wage violations differently from other violations. For example, giving staff broad discretion to waive or reduce fines enables staff to use the promise of a reduction as a tool to ensure employers make employees whole as quickly as possible. 2. Private right of action Another option is including within the ordinance a private right of action for employees, which would help ensure employees receive the full protection of the ordinance. Cities do not always have the resources or expertise to uncover every violation, and a private right of action allows any individual harmed by a violation of the minimum wage ordinance to pursue the compensation he or she is entitled too. Individuals being paid the minimum wage also often lack resources to initiate legal action to recover unpaid wages, but nonprofit organizations exist in many communities that can assist employees who believe that they may not be receiving legally required compensation. Although a court would likely find that a minimum wage ordinance contains an implied cause of action, including an explicit private right of action within the ordinance telegraphs to employees that they have the ability to sue to enforce their compensation rights. C. Pooling Investigation and Enforcement with Other Local Government Agencies Neighboring cities may also want to consider pooling resources to investigate and enforce their local minimum wage ordinances: A small city may not have the resources, or the need, to dedicate significant staff time to enforcement. If cities work together they can share expertise and expenses, such as sharing the cost of a full time consultant to investigate possible violations. The formality of the relationship between cities can differ depending on the manner and scope of the cooperation. However, formal cooperation and pooling of resources likely only makes sense if the cities have adopted similar minimum wage ordinances. This is another reason why cities may want to consider or replicate the ordinances other nearby jurisdictions have adopted when drafting their own ordinance. VI. SICK DAYS Cities may also wish to adopt minimum sick leave benefits at the same time that they adopt a local minimum wage ordinance. Advocates of such minimum benefits argue that the lack of sick leave can have significant financial consequences for low-wage workers if they are forced to take time off due to sickness or to care for a family member. Advocates also point to the public policy benefits of sick leave, such as a reduction in the spread of illness because sick employees have the ability to stay home. The California Health Workplaces, Health Families Act of 2014 implemented statewide sick leave requirements effective July 1, 2015. (Labor Code 5 245 et seq.) The Act requites employers to provide eligible employees with one hour of sick leave for every 30 hours worked. Employers may limit the use of sick leave to 24 hour or three days paid sick leave per year, and may limit the total accrual of sick leave to 48 hours or 6 days. Additionally, sick leave advocates are currently gathering signatures to place an initiative on the November 2016 ballot that that would amend the Act to provide increased sick leave benefits, such as raising the minimum permitted usage cap to 48 hours or 6 days per year.3 Since the state law has been in effect for less than a year, and may change again soon, cities may wish to wait before implementing their own minimum sick leave requirements to better understand some of the challenges of implementing a minimum sick leave requirement and in order to better identify what deviations from the state law would be beneficial for a city to adopt. On the other hand, advocates have suggested that the new sick leave requirement is as inadequate as the current minimum wage, so there is just as much reason to enhance the benefit at the local level as there is to increase the minimum wage. VI. CONCLUSION A movement to increase the minimum wage to $15 per hour has gained momentum in places across the country, and the California Legislature recently adopted legislation to eventually increase the minimum wage to $15 statewide. Prior to the adoption of an increase in the California minimum wage, many cities adopted or were considering adopting local minimum wage ordinances. The Legislature's recent action may decrease some cities desire to adopt local ordinances, but other cities may nevertheless move forward with adopting and implementing a local minimum wage. In drafting a local minimum wage ordinance cities must decide on a schedule for increasing that wage, whether to make the minimum wage applicable to all employers regardless of size, and whether to create any exceptions to the ordinance, among other considerations. Additionally, cities must evaluate whether the minimum wage ordinance is an appropriate method for adopting local sick leave requirements or a requirement to distribute mandatory service charges to staff. Given the adoption of a new statewide minimum wage, cities must also weigh whether the benefits of a new local minimum wage ordinance justify the significant administrative costs and burdens of adopting and enforcing a local minimum wage ordinance. 3 The text of the proposed ballot measure is available at http: / /-,vww. oag. ca.gov/system/ files/initiatives /pdfs/ 15-0105 %20%281linimum%2OWage%29_0.p df 2621406.9 Authors: Sky Woodruff, Principal, Chair of the Public Finance Practice Alex Mog, Associate, Municipal and Special District Law Practice Meyers Nave (800.464.3559, meyersnave.com; Oakland, Sacramento, San Francisco, Santa Rosa, Los Angeles, San Diego) All Sonoma County Residents Who Work Hard and Play by the Rules Deserve a Fair Wage! The California state minimum wage in 2019 is $12 an hour for large employers.* This is not a fair wage because low-wage workers cannot make ends meet in high cost Sonoma County, particularly given skyrocketing rents and housing costs.* In California cities can set their own minimum wage higher than the state. North Bay Jobs with Justice proposes a $15 minimum wage by 2020 for the cities of Sonoma, Sebastopol, Santa Rosa, Petaluma, Cotati and Novato that will increase the incomes of more than 47,000 affected low-wage workers by $2900 annually.1 Why Raise the Minimum Wage Now? ➢ From 1979-2016 inflation-adjusted wages for the upper 10 percent of the county workforce increased by 26 percent, but remained flat for the bottom 60 percent, while wages for the lowest 20 percent dropped by 11 percent.2 ➢ A true living or self-sufficiency wage for Sonoma County in 2017 was $23 an hour for two parents each working full-time to support two children—yet more than half of the new jobs created in the county between 2014 and 2024 will pay less than a livable wage.3 ➢ Between 2000 and 2016 median rents in Sonoma County increased by 25 per cent, while median annual renter incomes increased by only 9 percent.4 ➢ The median age of workers receiving a pay increase is 33, and on average, affected workers contribute more than half of their family's income. Fifty percent of all women workers, 27 percent of white workers, 51 percent of Latino workers, and 46 percent of immigrant workers will receive pay increases. s Attachment 4 l 6" � s3 NORTH w B �. JOBS = JUSTICE Raising the Minimum Wage: How Will the Community Benefit? ➢ Raising the minimum wage is an economic stimulus because low-wage workers will spend increased earnings locally on basic necessities. ➢ Boosting the minimum wage will cut poverty rates and make affected workers less reliant on public subsidies like Food Stamps and Medicaid. ➢ Increasing the minimum wage will make housing more affordable by offsetting rising rents. 6 Contact North Bay Jobs with Justice at: northbayiwi(&2mail.com or 707-293-2863 For more information please see NorthBayJobswithJustice.org *In 2019 the California minimum wage is $11.00 an hour for small employers with 25 or fewer employees and $12 an hour for large employers with 26 or more employees; The California minimum wage for will be incrementally phased -in to $15 an hour for all employers by 2023 and then increased annually in 2024 based upon the rising cost of living (COLA). California Department of Industrial Relations — Minimum Wage https:llwti)w dir.ca. govldlsel�q minimum�aM,htm References (1) Ken Jacobs and Ian Perry — $15 Minimum Wage in California: Who Would Be Affected by the Proposal to Raise California's Minimum Wage? UCB Labor Center March 2016 http:Hlaborcenter.berkeley.edu/15-minimum-wage-in-california/ Ian Perry, Garrett Strain, and Ken Jacobs — Estimated Impact of a Proposed Minimum Wage Law for the North Bay, UCB Labor Center October 2018 http•//laborcenter berkeley.edu/north-bay-minimum-wage/ (2) Jesus Guzman — The State of Working Sonoma County November 2018 http//northbyiobswithiustice.ot•g/reports.php (3) Sara Kimberlin and Amy Rose — Making Ends Meet: How Much Does It Cost to Support Family in California? CBPP December 2017 https://calbud�zetcenter org/resources/making-ends-meet-much-cost-support-family-california/ Jesus Guzman — The State of Working Sonoma County November 2018 http://northbayiobswithiustice.ori/i-ei)orts.php (4) Jesus Guzman - The State of Working Sonoma County November 2018 http://northbayiobswithiustice.org/repoi-ts.php (5) Ken Jacobs and Ian Perry — $15 Minimum Wage in California: Who Would Be Affected by the Proposal to Raise California's Minimum Wage? UCB Labor Center March 2016 (6) Daniel Aronson, Summit Agarwal, and Eric French — The Spending and Debt Response to Minimum Wage Hikes, March 2009 http://faculty.chicagobooth.edu/erik.hurst/teaching/minwagecons I 60.pdf Annette Bernhardt, Ian Perry, Lindsay Cattell - Low Wage Work in California: 2014 Chart Book http•//Iaborcenter.6erkeley.edu/pdf/2014/chat-tbook.pdf t s as P.O. Box 427, Santa Rosa, CA 95402 + NorthBayJobswithJustice.or + NorthBayJWJ �r gmail.com 4 707-293-2863'thy"iii Attachment 5 Questions and Answers: North Bay $15 An Hour Citywide Minimum Wage Campaign North Bay Jobs with Justice and the Alliance for a Just Recovery (AJR), a coalition of labor, environmental, faith, and immigrant rights organizations is proposing that the cities of Sonoma, Sebastopol, Novato, Petaluma, Cotati, and Santa Rosa implement $15 an hour (by 2020) citywide minimum wage laws to establish a regional minimum wage higher than the State of California's.* What is the problem? ➢ According to anew report by Jesus Guzman, "The State of Working Sonoma County 2018," 20 percent of all Sonoma County residents and 40 percent of Latino residents belong to working poor families earning annual incomes of less than $50,200, with at least one member reporting income from work. ➢ From 1979-2016 inflation-adjusted wages remained flat for the bottom 60 percent of the county's workforce, while wages for the lowest 20 percent dropped by 11 percent.I ➢ Thirty percent of Sonoma County workers earn less than $14 an hour.2 ➢ According to the California Budget and Policy Project (CBPP), a living or self-sufficiency wage for Sonoma County in 2017 was $23 an hour yet more than half of the new jobs created in the county between 2014 and 2024 will pay less than a livable wage.3 ➢ Between 2000 and 2016 median rents in Sonoma County increased by 25 per cent, while median annual renter incomes increased by only 9 percent. ➢ Nearly one in two Sonoma County renter households are rent burdened and pay more than 30 percent of their gross monthly income for rent.; one quarter are severely rent burdened and pay more than 50 percent for rent. ➢ In 2018 a Sonoma County renter needed to earn an hourly wage of $35.44 to afford the fair market rent for a two-bedroom apartment (and to spend no more than 30 percent of their gross monthly income for housing costs). A minimum wage worker needed to work multiple jobs and 128 hours a week to afford the fair market rent for a two-bedroom apartment in Sonoma County.4 What is the California minimum wage? ➢ The California minimum wage in 2019 is $11.00 an hour for businesses with less than 25 employees and $12.00 an hour for businesses with more than 26 employees. The California minimum wage for will be incrementally phased -in to $15 an hour for all employers by 2023 and then increased annually in 2024 5 based upon the rising cost of living (COLA). What is a citywide minimum wage law? ➢ A citywide minimum wage law covers all workers employed at least 2 hours a week at a workplace or home inside the city limits. Federal, state, and county employees are excluded by law, as are student learners for the first 160 hours of employment and certain disabled workers.6 What are proponents of $15 citywide minimum wage proposing, and how many workers will receive a wage increase in each city? ➢ North Bay Jobs with Justice and he Alliance for A Just Recovery is proposing a citywide minimum wage law for the above cities phased in by 2020 in two steps: $12.75 an hour by July 1, 2019, and $15.00 an hour by July 1, 2020. On July 1, 2021, the citywide minimum wage will be adjusted annually based upon the increase in the cost of living. ➢ Based upon calculations by the UCB Labor Center the number of workers receiving a wage increase in each city is as follows:7 Santa Rosa: 25,000 Petaluma: 9,000 Novato: 9,000 Sonoma: 2,000 Sebastopol: 1,000 Cotati: 1,000 What other California cities and regions have implemented citywide minimum wage laws? Twenty-four California cities have implemented citywide minimum wage laws higher than the state minimum wage, including. ➢ The City and County of San Francisco, $15 an hour by 2018; ➢ The cities of San Jose, Santa Clara, Palo Alto, Los Altos, Milpitas, Mountain View, Sunnyvale and Cupertino, $15 an hour by 2019; ➢ The Cities of San Mateo, Belmont, Daly City and Redwood City, $15 citywide minimum wage by 2020, and more cities in San Mateo County are expected to pass similar laws; ➢ The City of Los Angeles and cities of Long Beach, Pasadena, Malibu, and Santa Monica and the County of Los Angeles, $15 an hour by 2020. What are the characteristics of workers receiving a pay raise? ➢ According to a report by the UCB Labor Center, 27 percent of white workers, 51 percent of Latino workers, 46 percent of immigrant workers, and 50 percent of women workers will receive pay increases. ➢ Seventy-two percent of workers receiving a pay raise belong to working poor families earning less than $50,200 a year. ➢ The median age of workers receiving a pay increase is 33, and on average, affected workers contribute more than half of their family's income.9 N G7 �A P-+ P.O. Box 427, Santa Rosa, CA 95402 + NorthBayJobswithJustice.org + NorthBaY twJ(Lygrnaii.eonl + 707-293-2863 How much will the annual incomes of affected workers increase? ➢ By 2020 the annual income of affected workers will increase by $2900. For most low-wage workers the increased income will help to pay for spiraling rents that jumped by 35 percent immediately after the Tubbs fire in October 2017.10 Who are minimum wage employers? What is their financial position? ➢ According to the National Employment Law Project, two-thirds of minimum wage workers are employed by large businesses with more than 100 employees. ➢ The top 50 low-wage employers include Wal-Mart, Target, Taco Bell, McDonald's, Subway, Burger King, Starbucks, Wendy's, Sodexho, and Dollar Tree. These companies have not only recovered from the Great Recession of 2007-2009, but are earning higher revenues than prior to the recession and in 2012 paid their CEOs, on average, $9.4 million annual compensation. 11 ➢ Corporate profits are now the largest share of Gross National Product while wages are the lowest share of GNP since 1973.12 ➢ Between 1979 and 2013 productivity increased by 89 percent for California workers but median hourly compensation (both wages and benefits) for nonsupervisory production workers increased by only 3 percent adjusted for inflation. 13 How will raising the minimum wage affect the local economy? ➢ Raising the minimum wage does not lead to higher unemployment. Most economists now agree that modest incremental increases in the minimum wage have no discernible effect on employment. In 2003 San Francisco implemented the first citywide minimum wage law at $8.50 an hour. Subsequent research demonstrated no negative impacts on restaurant employment; substantial worker pay raises; and less than 5 percent price increases by restaurants. 14 ➢ Because low-wage workers tend to spend increased earnings locally on basic necessities, a minimum wage increase will stimulate the local economy, spur greater business activity, particularly for small businesses, and create new jobs to meet increased consumer demand. ➢ According to the Federal Reserve Bank of Chicago, every $1.00 in hourly wage increase for a minimum wage worker results in $2800 in new consumer spending by his or her household over the following year. 15 Will increasing the minimum wage result in substantial price increases by businesses? ➢ A 2015 study by University of Massachusetts economists estimated that fast-food giants like McDonald's could adjust to a $15 an hour minimum wage phased in over four years without cutting profits, by increasing prices by 3 percent per year (15 cents annually per Big Mac) and by realizing cost savings from declining employee turnover and increased worker productivity. 16 ➢ In November 2012 voters in the City of San Jose approved a citywide minimum wage ordinance that increased the city's wage floor by 25 percent from $8 to $10 an hour in March 2013. Two University of California Berkeley economists compared price data from 884 San Jose limited and full-service a restaurants six months prior to the implementation of the $10 citywide minimum, and six months afterwards. Overall restaurants responded to the wage hike by increasing prices, on average, by 1.45 wpercent.17 P.O. Box 427, Santa Rosa, CA 95402 + NorthBayJohswithJostiee.or + NorthBa JywJLtgmail.com + 707-293-2863 '> ,I ➢ UC Berkeley Labor Center researchers estimate that implementing a $15 an hour minimum wage (by 2020) in the North Bay will increase restaurant -operating costs bey 2.1 percent and will yield a cumulative 1.8 percent price increase by North Bay restaurants.) How do the taxpayers benefit? ➢ By raising the minimum wage fewer workers will receive public assistance such as Food Stamps, Medi - Cal, and Section 8 affordable housing, etc. ➢ From 2007-2012 the average annual expenditures for public assistance to California low w,agewol:kers and their families by local, state and federal government was $14.3 billion. 19 Contact North Bay Jobs with Justice at: northbayiwi(i�gmail.com or 707-293-2863 For more information please see North BayJobswithJustice.arg 'The Alliance for° A Just Recovery (AJR) includes: North Bay Jobs with Justice, North Bay Labor Council, North Bay Organizing Project, Sonoma County Conservation Action, 350Sonoma, Democratic Socialists of America North Bay, Sonoma County Transportation and Land Use Coalition, Transition Sonoma Valley, Graton Day Labor Center, Sonoma County Democratic Party, Greenbelt Alliance, Christ Church United Methodist, Sonoma Valley Housing Group, and Friends of Public Banking Santa Rosa. The Sierra Club is not a formal member of the AJR but the club supports all the policy recommendations in the AJR's `common agenda for a just, equitable, and sustainable recovery. P.O. Box 427, Santa Rosa, CA 95402 NorthBay.labswith,iustice. org • NorthI3ay.1wJ(ri gmailxom + 707-293-2863 '' References ' Seethe full report at http:www.northbayjobswithiustice.org/reports 2 Ian Perry — Loiv TYage Work in California Data Explorer 2018, UC Berkeley Labor Center http•//laborcenter berkelev edu/low-wage-work-in-california/ Jesus Guzman - The State of Working Sonoma November 2018 http:www.northbayiobswithiustice.org/reports 3 Sara Kimberlin and Amy Rose — Making Ends Meet: How Much Does It Cost to Support A Family in California? CBPP December 2017 https•//calbudgetcenter ort;/resources/making-ends-meet-much-cost-support-family-califoriiia/ 4 National Low -Income Housing Coalition — Out of Reach: The High Cost of Housing 2018 https•//nlihc org/sites/default/files/oor/fiiles/i•epoils/state/OOR 2018 CA.pdf s California Department of Industrial Relations — Minimum Wage https://www.dir.ca.aov/dlse/faci minimurnwage.htm 6 National Employment Law Project —Minimum Wage Basics April 2015 https•//raisetheminimumwage.com/resource/city-minimum- wa e-laws=recent-trends-and-eeoiioiiiic-evidence-on-local-minimum-wages 7 Ken Jacobs and Ian Perry — $15 Minimum Wage in California: Who Would Be Affected by the Proposal to Raise California's Minimum Wage? UCB Labor Center March 2016 http//laborcenter berkeley.edLi/I5-minimum-wage-in-california/ 8 UCB Labor Center—Inventory of US City and County Minimum Wage Ordinances 2018 http://Iaboi•center.berkeley.edu/minimum- wage-living-wage-resources/inventory-of-us-city-and-county-minimum-wage-ordinances/ 9 Ian Perry, Garrett Strain, and Ken Jacobs — Estimated Impact of a Proposed Minimum Wage Lary for the North Bay, UCB Labor Center October 2018 http//laborcenter berkeIey.edLdnorth-bay-minimum-wage/ 10 Ian Perry, Garrett Strain, and Ken Jacobs — Estimated Impact of a Proposed Minimum IT'age Lmv for` the North Bay UCB Labor Center October 2018 http•//laborcentei•.berketey.edLi/north-bay-minimum-wage/ 11 National Employment Law Project — Big Business, Corporate Profits, and the Minimum Wage July 2012 https•//raisetheminimuniwage com/resource/big-business-corporate-profits-and-the-minimum-wagel 12 Patricia Cohen, "Pay Checks Lag as Profits Soar", New York Times, July 13th 2018, https//www nygimes com/2018/07/13/business/econamy/wages-workers-profits.html 13 Annette Bernhardt, Ian Perry, and Lindsay Cattell - Loiv Wage Work In California: 2014 Chartbook April 2015 UCB Labor Center http//Iaboreenter.berkelev.edLi/pdf/2014/chai-tbook.pdf 14 Arindrajit Dube, Suresh Naidu, Michael Reich — The Economic Effects of a Citywide Minimum TT'age July 2007 Michael Reich, Peter Hall, and Ken Jacobs - Living Wage Policies at San Francisco Airport: Impacts on Mages and Businesses 2003 http//irle berkelev edu/files/2003/Livinp--Wage-Policies-at-San-Francisco-Airport.pdf Arindrajit Dube, T. William Lester, and Michael Reich — Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties November 2010 http•//irle berkelev edu/files/2010/Minimum-Wage-Effects-Across-State-Borders.pdf 15 Daniel Aronson, Summit Agarwal, and Eric French — The Spending and Debt Response to Minimum Wage Hikes, March 2009 http//faculty chicagobooth edu/erik,hiirst/teaching/minwagecons160.pdf 16 Robert Pollin and Jeanette Wicks -Lim — A $15 Minimum Mage: Hoiv the Fast Food Industry Could Adjust fJ'ithout Shedding Jobs University of Massachusetts Political Economy Research Institute 2015. httpH ers 351-400/WP373.pdf 17 Sylvia Allegretto and Michael Reich — Are Local Minimum Yf'ages Absorbed by Price Increases? Estimates from Internet -based Restaurant Menus UCB Institute for Research on Labor and Employment 2016 http://irle.berkeley.edu/files/2015/Are-Local- Miniinuin-W ages-Absorbed-by-Price_-Increases.pdf 18 Ian Perry, Garrett Strain, and Ken Jacobs — Estimated Impact of a Proposed Minimum TT'age Law for the North Bay UCB Labor d Center October 2018 http•//laborcenter.berkeley.edu/tioilli-bay-minimum-wage/ 48 d19 Annette Bernhardt, Ian Perry, Lindsay Cattell - Loiv Mage Work in California: 2014 Chart Book ') htto://laborcenter.berkelev.edu/pdf/2014/cliai-tbook.pdf a P.O. Box 427, Santa Rosa, CA 95402 • NortllBay7obswithJiistice.orp- + NorthBavJwJ4i�mail.com + 707-293-2863 r# f Contents Overview....................................................:............................................................................................3 Section1: Impact Estimates...............:...........................................................................................4 Dataand Methods...................................................................................................................................4 ImpactEstimates.......................................................................................:.............................................4 Section 2: Review of Economic Research Literature............................................................. 9 Introduction..........................................................:....................................................................................9 The Research Literature on Minimum Wage Effects.............................................................................9 The Effects of Minimum Wage Laws on Workers and Families...........................................10 Impact on Low -Wage Workers' Earnings.................................................................................................10 Evidence from local minimum wage laws....................................:.......................................................................10 Evidence from state and federal wagelaws........................................................................................................11 Demographics of Affected Workers....................................................................................................:......11 Effects on Poverty and Use of Public Assistance Programs.............................................................12 Impact on poverty and income inequality............................................................................................................12 Impact on use of public assistance programs.....................................................................................................13 Societal Effects of Minimum Wage Increases.......................................................................................13 The Effects of Minimum Wage Laws on Businesses.................................................................14 Impacton Employment and Hours......................:...................................................................................15 Evidence from local minimum wage laws...........................................:................................................................1s Evidence from state and federal minimum wage laws.....................................................................................17 Impacton which workers are hired........................................................................................................................19 Automation and substitution awayfrom unskilled labor................................................................................19 Reductions in paid hours relative to working hours.........................................................................................20 Impacton retail businesses.....................................................................................................:.....................:..........20 Impacton Firms' Costs..............................................................................................................::::.................21 Impacton Prices..............................................................................................................................................22 Impacton Profits.............................................................................................................................................23 Impacton Employee Turnover. ....................................................................... .......................................... 24 Impacts on Firm s'Operations and Productivity...................................................................................25 Impact on Health Benefits and Pensions...............................................................................................25 The Effects of Minimum Wage Laws on the Local Economy................................................26 BorderEffects..................................................................................................................................................26 The UC Berkeley IRLE Minimum Wage Model............................................................................27 ModelStructure.............................................................................................................................................28 Model Calibration and Dynamics............................................................:................................................29 Conclusion................................................................................................................................................30 References..........................................................................................................................................32 ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 2 Overview North Bay Jobs with Justice, the North Bay Labor Council and other labor, environmental, and community organizations will propose a $15 -an -hour citywide minimum wage by 2020 to the cities of Novato, Petaluma, Sonoma, Sebastopol, and Santa Rosa. This paper analyzes the prospective impact of that proposal in the four North Bay counties—Marin, Sonoma, Napa and Solano. The proposal would raise the minimum wage in these cities on a faster timetable than the state as a whole (see Table 1). Under the proposal, the minimum wage would be raised to $12.75 on July 1, 2019, and to $15.00 on July 1, 2020. In Section 1 of this report, we estimate the effects of the wage increase on workers and businesses, and place the proposal in context with other local minimum wage laws. In Section 2, we review the economic research literature on the effects of minimum wage increases on workers, employment, and business operations. Table 1. Wage Schedule for the Proposed Minimum Wage Policy 2018 $10.50 — $10.50 — 2019 $12.75 21.4 . $12.53 19.3 2020 $15.00 17.6 $14.48 15.6 Source: Authors` analysis of OES data. .Note: Constant dollar values are calculated using the average annual change for the past ten years of the West Urban Regional Con- sumer Price Index for Urban Wage Earners and Clerical Workers (CPI -M. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY Section I -, Impact Estimates Data and Methods In the tables below we present estimates of the number of workers affected by the proposed law, the size of the wage gains for affected workers, and the demographic and job characteristics of affected workers. We use the current state minimum wage schedule (reaching $15 by 2023) as the baseline; and estimate the effects of this proposal (reaching $15 by 2020) over and above the current state policy. Our estimation method accounts for projected wage growth at the bottom of the wage distribution, interim increases in the state minimum wage, and projected employment growth. We use the 2015-2016 American Community Survey (ACS) to estimate the wage distribution and characteristics of covered individuals working in the counties of Marin, Napa, Solano, and Sonoma (the proposed minimum wage policy will not cover self-employed, state and federal workers). See our technical report for more detail on data and methods (Perry, Thomason, and Bernhardt 2016). Impact Estimates, We estimate that about 192,000 workers—or about 36 percent of the North Bay's workforce— would receive a pay raise by 2020 under the proposal (see Table 2). This estimate. includes 152,000 workers who earn below the new minimum wage and would be directly affected by the increase, and another 40,000 who earn just above the new minimum wage and would receive wage increases due to a ripple effect. Table 2. Cumulative Number of Workers Affected by the Proposed Minimum Wage Policy 2019 149,000 117,000 32,000 28.2% 2020 - 192,000 152,000 40,000 35.7% Source: Authors' analysis of ACS, OES, and QCEW data. Note: The proposed minimum wage policy will not cover self-employed, state, and federal workers. Directly -affected workers are those with wages below the proposed new minimum wage in each year. Indirectly -affected workers are those with wages slightly above the proposed new minimum wage, who will receive an increase via the ripple effect. The number of directly -affected workers and indirectly-offected workers may not sum to the total number of affected workers due to rounding. Workers' hourly wages and annual income would rise under the proposed law, resulting in a total increase in aggregate earnings of $565 million (in 2018 dollars) by 2020. Wages of affected workers would rise by an average of $1.74 per hour. Average annual earnings would increase by about $2,900 per year (see Table 3). It is important to note that these pay increases would be in addition to the raises workers would receive under the current state minimum wage policy, which is set at $11.00 in 2019, and $12.00 in 2020. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY Table 3. Cumulative Pay Increases for Workers Affected by the Proposed Minimum Wage r •dollars) Average Cumulative Hourly Wage Increase $0.98 $1.74 Average Cumulative Annual Earnings Increase $1,600 $2,900 Average Cumulative Percent Annual Earnings Increase 10.1% 15.8% Total Aggregate Cumulative Increase In Earnings (millions) $244 $565 Source: Authors' onatysis of ACS, OES, and QCEW data Note: Resutts are cumulative across the phase-in years Contrary to common belief, only 6.4 percent of affected workers are teenagers, and more than half are in their thirties or older (see Table 4). Workers of color (Black, Latinx, Asian, and Other) constitute approximately 60 percent of the workers receiving raises. Affected workers have a wide range of educational backgrounds, with half having at least some college experience and 15 percent holding a bachelor's degree or higher. Median annual earnings of affected workers are only half of those of the overall North Bay workforce, yet affected workers bring home about half of their family's income. Table 4. Demographic and Job Characteristics of Workers Affected by the Proposed Minimum Wage Policy by 2020 (all figures are percentages unless Otherwise noted) Gender Male 51.3 49.9 34.7 Female 48.7 50.1 36.7 Median Age 40 33 Age 25.3 Race/Ethnicity 16-19 3.1 6.4 20-29 22.9 36.5 57.0 30-39 23.1 21.4 33.1 40-54 33.6 23.5 24.9 55-64 17.3 12.2 25.3 Race/Ethnicity White 53.1 40.2 27.1 Black 4.3 4.5 Latinx 28.5 41.4 51.9 Asian 9.8 9.4 34.0 Other 4.2 4.5 37.5 table 4 continued ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 5 continued Table 4. Demographic and Job Characteristics of Workers Affected by the Proposed Minimum Wage Policy by 2020 (all figures are percentages unless otherwise noted) Less than High School w12.0 20.8 61.7 High School or G.E.D. 19.5 28.8 52.7 Some College 26.6 27.6 37.1 Associate's Degree 9.3 8.2 31.5 Bachelor's Degree or Higher 32.6 14.6 16.0 Country of Birth U.S. Born 71.8 63.6 31.6 Foreign Born 28.2 36.4 46.2 Family Structure Married 48.6 34.7 25.5 Have Children 41.7 34.5 29.5 Family Income Relative to Poverty Level Less than 100% of Poverty Level 7.3 12.1 59.1 100% to 150% of Poverty Level 5.2 11.8 81.5 150% to 200% of Poverty Level 6.5 13.2 72.0 More than 200% of Poverty Level 81.0 63.0 27.7 Average Worker Share of Family Income Median Individual Annual Earnings (2017 Dollars) 60.2 $39,400 49.0 $19,900 Full -Time / Part -Time Worker Full -Time (35 or More Hours per Week) 76.8 65.2 30.3 Part -Time (Fewer than 35 Hours per Week) 23.2 34.8 53.6 Full -Year / Part -Year Worker Full -Year (50-52 Weeks per Year) 82.1 76.7 33.3 Part -Year (Fewer than 50 Weeks per Year) 17.9 23.3 46.5 Health Insurance Provided by Employer . Yes 72.9 56.5 27.7 No 27.1 43.5 57.4 Source: Authors' analysis of ACS, OES, and QCEW data. Note: Only workers covered by the proposed minimum wage law are included in this table. See note for Table 2, ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 6 The industries where the most affected workers hold jobs are: retail trade (17.1 percent), food services (12.9 percent), and health services (8.4 percent). Most affected workers are employed in the private, for-profit sector; non-profit and public employees are less likely to be affected than the overall workforce (see Table 5). Table S. Impact Estimates for Major Industries by 2019 All Sectors Agriculture, Forestry,.Fishing, Hunting, and 3.1 5.3 Mining Construction 6.2 .4.6 26.4 Non -Durable Manufacturing 4.8 3.1 22.5 Durable Manufacturing 5.6 5.3 33.6 Wholesale Trade . 3.1 2.6 Retail Trade 12.0 .17.1 51.1 Transportation, Warehousing, and Utilities 3.8 3.6 Information 1.9 1.0 Finance, Insurance, Real Estate, and Rental and Leasing 5.7 3.3 20.8 Professional, Scientific, and Management 4.9 2.5 18.3 Administrative and Waste Management Services 4.5 7.0 55.8 Educational Services 8.2 5.5 24.1 Health Services 12.3 8.4 24.4 Social Awssistance 2.9 3.9 Arts, Entertainment, Recreation, and Accommodation 4.3 5.9 48.7 Food Services 7.5 12.9 61.5 Other Services (except Public Administration) 4.4 6.0 47.9 Public Administration . 4.8 2.1 15.3 Sector Private, For -Profit 76.8 85.5 39.7 Private, Non -Profit 8.8 6.9 27.8, Public 14.3 7.6 19.0 Source. Authors' analysis of ACS, OES, and QCEW data Note: Blank value for "Percent of Industry That is Getting a Raise" indicates insufficient sample size for that category. Only workers covered by the proposed minimum wage law are included in this table. See note for Table 2. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 7 Table 6 shows an analysis of the proposed minimum wage policy's impact on business costs. For example, we estimate that payroll costs in the restaurant industry would rise by 6.7 percent by 2020. Since payroll costs constitute 31 percent of operating costs in the restaurant.industry, operating costs would increase by 2.1 percent (compared to 0.4 percent for the retail industry and the overall economy by 2020). This would lead to a cumulative price increase of 1.8 percent in restaurants by 2020 -but this i.ncrease'would be spread over two years, a 0.9 percent increase in 2019, and a 1.0 percent increase in 2020. Price increases would be negligible for the retail industry and the rest of the economy. Once again, it is important to note that these increases would be in addition to the increases due to the current state minimum wage policy scheduled to reach $11.00 per hour by 2019 and $12.00 per hour by 2020. Table 6. Cumulative Impact of the Proposed Minimum Wage Policy on Business Operating Costs and Prices for Select Industries and the Overall Economy Food Services % Change in Payroll Costs* 3.2 6.7 Labor Costs as % of Operating Costs 30.7 31.4 % Change in Operating Costs 1.0 2.1 Year over Year Price Change 0.9 1.0 Cumulative % Change in Prices 0.9 1.8 Retail Trade % Change in Payroll Costs* 1.5 3.4 Labor Costs as % of Operating Costs 10.8 10.9 % Change in Operating Costs 0.2 0.4 Year over Year Price Change 0.1 0.2 Cumulative % Change in Prices Overall Economy % Change in Payroll Costs* 0.1 0.8 0.3 1.8 Labor Costs as % of Operating Costs 22.1 22.2 % Change in Operating Costs 0.2 0.4 Year over Year Price Change 0.2 0.2 Cumulative % Change in Prices 0.2 0.3 Source: Authors' analysis of ACS, OES, QCEW, Economic Census, U.S. Census Annual Retail Trade, Wholesale Trade, and Services Reports, and BEA data. * "% Change in Payroll Costs" is net of savings frorn reduced turnover expenses, and includes additional payroll tax and workers' compensation expenses. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 0 0 Sectmon 21: Revmew of Economic Research Literature Introduction As cities and counties across the country increasingly debate whether to establish their own minimum wage laws, policymakers are understandably asking a host of questions. What do we know about the impact on workers and their families? What does research tell us about the effect of local wage mandates on employment? Do businesses move outside city or county borders in response to minimum wage increases? In this section, we address these and related questions.1 Economists agree that minimum wage laws have large positive effects on workers' pay and their families' living standards. Raising the minimum wage increases earnings for workers at the low end of the labor market, the majority of whom are adults. Women and workers of color benefit disproportionately. In addition, new research on the effect of minimum wage increases documents important reductions in family poverty rates. Moreover, low-wage workers and their families are often forced to rely on public assistance programs to meet their basic needs; new research on food stamps finds that raising the minimum wage reduces their reliance on this program. We also review the economic research on the impact of minimum wage laws on,businesses. The weight of the evidence suggests that moderate minimum wage increases have insignificant to non-existent negative effects on employment and work hours, reduce worker turnover and increase worker retention, and result in small, one-time price increases in heavily -affected industries, such as restaurants. We also explain how conflicting findings on the employment impact,of the minimum wage can be traced to differences in the rigor of the research methods. i Below we summarize the empirical evidence on the effects of minimum wage laws on workers, families, and businesses. Where possible, we highlight research on local minimum wage laws. However, since most of the existing local laws have been in place a short time, the data that are needed for rigorous research on the recent laws are only now becoming available. Several new papers examine the effects of recent city minimum wage laws, though none have yet gone through a peer review process. Earlier economic impact studies on San Francisco and Santa Fe are also instructive. We also draw upon the much larger body of research on the impacts of state and federal minimum wage increases. Recent studies that compare adjacent counties from different states with different minimum wages and studies that measure changes in the distribution of wage-earners before and after minimum wage increases are especially relevant. The findings from these studies speak directly to policymakers' concerns that businesses might reduce employment or relocate outside their city's borders in response to a local minimum wage law. This section draws on material presented in Reich, Jacobs and Bernhardt (2014) and Reich et al. (2015). ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH RAY Workers and Families The primary goal of raising the minimum wage is, of course, to raise the pay of low-wage workers. . A broad consensus in the economic research literature agrees that minimum'wage laws raise pay for workers on the bottom rungs of the labor market (for an extensive review, see Belman and Wolfson 20.14). Researchers also consistently find that the affected workers are largely adults and disproportionately women and people of color. In addition, new research on the effect of minimum wage increases shows important reductions in family poverty rates. Finally, we review what is known about reliance on public assistance programs by low-wage workers and their families. In assessing the impact of a minimum wage increase on low-wage workers' earnings, it is important to keep two facts in mind. First, many low -paid workers earn wages somewhere above the old minimum wage level but below the new level. Consequently; not all workers who are directly affected by an increase will receive the full amount of that increase. Second, researchers have also documented a "ripple effect" from minimum wage increases in which employers give raises to workers who are earning above, but near, the new minimum wage (Wicks -Lim 2006; Autor, Manning and Smith 2016; Cengiz, Dube, Lindner, and Zipperer 2018). As a result, it is not completely straightforward to estimate either how many workers benefit from minimum wage increases or the policy's impact on their earnings. Dube, Naidu and Reich (2007) assessed San Francisco's minimum wage law when it was first implemented in 2004, using a before -and -after survey of restaurant employers in San Francisco and in nearby parts of neighboring Alameda County. They found that the average wage of workers at surveyed restaurants rose from $10.22 before to $11.01 after the increase, with pay rising twice as much among fast-food restaurants compared to table -service restaurants: They also found evidence that the increase compressed the wage distribution among restaurant workers by raising the bottom of the distribution (not by hurting pay for higher -wage workers). Before the policy, 49.7 percent of restaurant workers earned less than $8.50; afterward, only 5 percent did. The authors also tested whether compliance with minimum wage laws decreased after the law passed; they found no evidence of decreased compliance. Jacobs and Reich (2014) recently conducted a longer-term assessment of San Francisco's minimum wage law. They estimate that 55,000 workers in the city (or about 14 percent of the private sector workforce) receive higher pay because of the ordinance, amounting to a cumulative increase of $1.2 billion in wages in the ten years since the laws' inception. They also found additional evidence that the law had a significant impact on workers' earnings over time. The wages of San Francisco workers earning at the bottom of the distribution (the 10th percentile) jumped in 2004, when the law was implemented. This wage, when measured to take account of inflation, did not change even during the recession that began in December 2007 because the city's minimum wage standard is indexed ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 10 to inflation. By contrast, the 10th percentile wage in the surrounding counties,. without an indexed minimum wage, declined over that same time period. Schmitt and Rosnick (2011) studied the wage impacts of both the San Francisco and Santa Fe laws, These authors found that wages increased in a range of low-wage industries in both cities.2 In San Francisco, for example, the average wage of fast-food workers increased 9 to 11 percent by the third year of the ordinance, and as much as .12 percent in low-wage industries overall. Pay for fast-food workers in Santa Fe increased by similar amounts, together with wage increases of 2 to 9 percent in the retail industry and 5 to 15 percent for low-wage industries overall. (See also ReynlS, Segal and Bleeker (2005) for similar findings.) Allegretto et al. (2018) examined the earnings effects of recent minimum wage laws in Chicago, Oakland, San Francisco, San Jose, Seattle, and the District of Columbia. The authors find that a 10 percent increase in the minimum wage increases earnings in the food services industry between 1.3 and 2.5 percent, depending on the model used. This study is the most comprehensive assessment to date of the earnings effects of city -level minimum wage increases. WIM Finally, a broader literature has looked at state and federal minimum wage increases and estimated their impact on workers' earnings. In their comprehensive review of existing research, Belman and Wolfson (2014) estimate that changes. in the minimum wage typically affect about 10 to 20 percent of the labor force (and sometimes as much as 30 percent), counting both direct and indirect effects. Allegretto et al.'s (2017) review. of 17 estimates from five recent studies of the minimum wage indicates that a one percent increase in the minimum wage increases average earnings between 0.19 and 0.21 percent. Research consistently finds that the pay of both adults and teens is affected by minimum wage increases (Allegretto, Dube and Reich 2011; Giuliano 2013). We also note broad agreement among economists that raising the minimum wage reduces income inequality by pushing up the wage floor relative to the. median wage (Lee 1999; Autor, Manning and Smith 2016). Evidence on who benefits from minimum wage increases comes mainly from prospective studies (conducted when a minimum wage law is first being considered). In these studies, researchers analyze government survey data and estimate the number and characteristics of workers likely to be affected, given wage thresholds being considered by law makers. Reich, Allegretto, and Montialoux (2017) evaluated the projected impact of California's statewide minimum wage increase from $9 to $15 an hour by 2023. They find that the minimum wage increase will affect 38 percent of California's labor force, resulting in.a 25.4 percent increase in annual pay 2 The authors also examined the impact of the 1993 minimum wage law in Washington DC, but found that the size of the increase was too small to raise wages in those industries (too few workers were affected). They conclude that the law therefore did not constitute a meaningful policy experiment. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 11 increase for the average affected worker. Contrary to the common perception that minimum wage workers are mainly teens, 96 percent of affected workers in California are in their twenties or older and 58.2 percent are in their thirties or older. Workers of all education levels will benefit, with less educated workers.benefiting the most (52.7 of affected workers have no college education). Over a third of affected workers have children (36.4 percent) and, on average, affected workers in California bring home 50.4 percent of their -family's income, suggesting that they are primary breadwinners in their families and are not providing supplementary income. Finally, workers of color disproportionately benefit: 54.8 of eligible Latino/a workers and 36.2 percent of Black workers will get a raise under the California law. These findings on the demographics of affected workers are corroborated by prospective studies on the impact of proposed city minimum wage laws. Reich, Jacobs, Bernhardt and Perry (2014a -c, 2015) have consistently found that minimum wage increases mostly affect adult workers and disproportionately benefit workers of color. At the national level, Cooper (2017) analyzed the likely effects of the Raise the Wage Act of 2017, a bill that would raise the federal minimum wage from $7.25 to $15 per hour by 2024. He found that the proposal would raise wages for 41.5 million workers (22.5 million directly, the remainder indirectly), or 29.2 percent of the U.S. workforce, generating $144 billion in additional wages over the phase-in period. Cooper (2017) projects tkat 90 percent of workers who would receive a wage increase are 20 years old or older (the average age of affected workers is 36) and 63 percent work full-time (63 percent). The majority are women (55.6 percent), nearly half (46.6 percent) have some college experience, and more than a quarter (28 percent) have children. Of those workers who have children, the majority are the primary breadwinners, earning on average 63.8 percent of their family's total income. As in prospective studies of California, a federal minimum increase would disproportionately affect workers of color: 40.1 percent of black workers and 33.5 percent of Hispanic workers would receive an increase directly or indirectly. Compared to the large volume of research on the employment effects ofminimum wage laws, few studies have examined the impact on poverty and income inequality. Dube (2017) finds that higher minimum wages increase incomes at the bottom of the family income distribution, reduce the percent of individuals living below the poverty line, and, in particular, reduce extreme poverty (families with incomes less than one-half the poverty line). The reductions in poverty are somewhat larger for black and Latino individuals, for those with less education, and for children under 18. Rinz and Voorheis (2018) use a unique dataset combining survey and administrative data to show that. minimum wage increases generate long-term earnings growth for low-wage workers. They find that, for workers at the bottom of the income distribution, a ten percent increase in the minimum wage raises earnings growth by seven to eight percent, on average, over five years relative to workers who did not receive an increase. These results demonstrate that raising the minimum wage has durable, lasting effects for low-wage workers. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 12 IMMMMMSMEMM Given that real wages have stagnated in recent decades, many low-wage workers depend on public assistance programs for basic survival. Jacobs, Perry and MacGilivary (2015) found that 56 percent of spending on food stamps, TANF cash assistance, Medicaid and CHIP, and the federal EITC is provided to members of working families, at an average cost of $153 billion a year between 2009-2011 (Jacobs, Perry and MacGillvary 2015). Researchers further found that more than half (52 percent) of families of fast-food workers are enrolled in one or more public programs, at an annual cost of nearly $7 billion. Again, low wages were the main predictor of public program enrollment (Allegretto, Doussard, Graham -Squire, et al. 2013). Does raising the minimum wage reduce reliance on means -tested public assistance programs? The answer may seem obvious, but West and Reich (2014) point out that the research question is more complex. If, for example, raising the minimum wage causes increased unemployment, more workers and families would have to rely on programs such as food stamps. The authors analyze state and federal minimum wage increases from 1990-2012 and find that, on average, a 10 percent increase in the minimum wage reduces food stamp program enrollment by between 2.4 and 3.2 percent, and reduces program expenditures by 1.9 percent.' They predict that an increase of the federal minimum wage to $10.10 would reduce enrollment in the food stamp program by about 3.5 million people and reduce federal expenditures on food stamps by about $4.2 billion per year. West and Reich (2014b) conducted a comparable study on the causal effects of minimum wage increases on Medicaid, with similar findings. Allegretto, Reich and West (2014) estimate that California would save $1.5 billion if the state minimum wage were increased to $13. Zipperer (2014) also examined the effects of minimum wages on these public programs and obtained similar results. More generally, since eligibility for programs such as SNAP and Medicaid are tied to the federal poverty level, Dube's (2017) finding that higher minimum wages reduce the poverty rate suggests that we should also expect reductions in enrollments in public assistance programs. A growing body of research suggests that minimum wage increases have significant downstream effects on social outcomes. Recent studies indicate that family income is a significant determinant of health outcomes (Hoynes, Miller, and Simon 2015) and school achievement for children (Dahl and Lochner 2012). Low wages are directly correlated with increased hypertension and obesity (Leigh . and Du, 2012). Recent research finds direct positive effects of improving wages and incomes on 3 Several studies have examined the relationship between the minimum wage and the Earned Income Tax Credit,'or EITC. Neumark and Wascher (2011) find that a higher minimum wage increases EITC benefits for families in deep poverty, while reducing EITC benefits for some subgroups. Lee and Saez (2012) argue that the minimum wage and EITC are complementary policies, not substitutes. The Congressional Budget Office (2014) argues that a minimum wage increase will not have a substantial effect on EITC spending, while Rothstein (2010) examines whether the positive effect of the EITC on female labor supply has lowered wages. While these studies are of interest, the EITC is quite different from programs such as food stamps. The EITC has a substantial phase-in period during which benefits increase and a long phase-out period, with eligibility ending completely at an annual income of about $48,000 for a family of four—quite a bit above the reach of the minimum wage. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 13 psychological well-being (Reeves, et al. 2017), children's birthweights and infant mortality (Wehby, . Dave, and Kaestner 2016; Komro et al. 2016) parental neglect (Raissan and Bullinger 2017), and crime (Akee et al. 2010; Agan and Makowsky 2018). While this research program is in its initial stages, existing evidence suggests multiple causal pathways from income to social outcomes. Income affects access to safe housing, a healthy environment, healthy food, and health care services (American Public Health Association 2016). There is a growing body of research on the effects of stress on health and children's development (Cooper and Stewart 2013). More research is needed to confirm the causal effects of minimum wage increases on social outcomes. Nevertheless, it is important to consider these long-term effects on families and communities when evaluating the impact of a minimum wage increase. Businesses The impact of the minimum wage on businesses—how many workers they hire, whom they hire, the prices they charge for their goods and services, their location decisions—is one of the most researched topics in economics, with hundreds of studies published over the decades. We do not attempt to summarize the full literature in this report; for recent reviews see Brown (1999), Neumark and Wascher (2006), Schmitt (2013), and Belman and Wolfson (2014). Economists' understanding of minimum wage effects has undergone significant changes over the past 20 years. This shift began with the groundbreaking work of Card and Krueger (1994), who analyzed employment in fast-food restaurants near the New Jersey and Pennsylvania border after New Jersey increased its state minimum wage. Card and Krueger found no measurable negative impact on employment. Since then, economists have increasingly recognized that raising the minimum wage does not automatically mean that employment will fall. Increased labor costs can be absorbed through a variety of other channels. For example, if turnover declines, employers save on recruiting and training costs at the same time that they reap the benefits of more experienced workers`who are more productive. When a cost increase affects all firms in an industry, firms can also raise their prices rather than reduce the number of employees. They may also experience lower profits. Modern economics therefore regards the employment effect of a minimum wage increase as a question that is not decided by theory, but by empirical testing. In what follows we summarize the research that in our opinion is best suited to assessing the effects of minimum wage increases on businesses. We also.give an intuitive explanation of the nature of the disagreements in the research literature about those effects. Before proceeding, it is important to mention that existing research has only studied moderate increases in the minimum wage, of the size discussed in previous sections. These studies can only, be suggestive of what might occur when minimum wages are increased significantly beyond past local, state, or federal mandates. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 14 Impact n Employment and Hours In this section, we review rigorous studies on the employment and hours impacts of existing city . minimum wage laws.4 We highlight the findings of a comprehensive assessment of recent minimum wage increases in Chicago, Oakland, San Francisco, San Jose, Seattle, and the District of Columbia (Allegretto et al., 2018). Lastly, we shed light on serious methodological flaws contained in a recent study purporting to demonstrate significant employment losses due to Seattle minimum wage law. Dube, Naidu and Reich (2007) studied the impact of San Francisco's minimum wage law after it increased from $6.75 to $8.50 an hour in 2004, using a unique quasi -experimental research design. They surveyed a sample of restaurants before the wage increase, and then re -surveyed the same businesses nine to ten months after. The sample included restaurants from San Francisco as well as neighboring East Bay cities that were not covered by the policy, allowing the researchers to compare outcomes at restaurants affected by the minimum wage mandate with those that were not. The study also was able to compare outcomes at fast-food restaurants with outcomes at full-service restaurants. After controlling for a variety of potential confounding factors, the authors found no statistically significant negative effects on either employment or the proportion of full-time jobs as a result of the San Francisco law. This finding holds for both full-service and fast-food restaurants (one might expect more sensitivity to a higher minimum wage in the latter). A follow-up study (Dube, Naidu and Reich 2014) found that restaurant employment in San Francisco rose slightly faster than in surrounding counties after the minimum wage increase, and again after San Francisco implemented two additional policies (paid sick leave and a health spending requirement). Trends in overall employment in San Francisco closely matched those in the surrounding counties during the same time period, indicating that the differential trends in restaurant employment were not caused by differences in economic growth between the two areas. Restaurants closed in San Francisco at a 2.8 percent lower rate than in nearby areas not covered by the law. This difference, however, was not statistically significant. Schmitt and Rosnick (2011) studied the impact of minimum wage increases in San Francisco and Santa Fe, comparing employment trends in these cities before and after their minimum wage increases 4 A few earlier studies are worth noting briefly. Potter (2006) studied the impact of Santa Fe's minimum wage law after it increased from $5.15 to $8.50 in 2004 using quasi -experimental methods. He found no statistically significant negative impact of Santa Fe's minimum wage increase on Santa Fe employment, both at an absolute level and relative to Albuquerque. Several additional studies of Santa Fe and San Francisco have been produced by the restaurant industry -backed Employment Policies Institute. In a study of Santa Fe, Yelowitz (2005a, 2005b) found an increase in the probability of unemployment for low -skilled workers and evidence of replacement of low -skilled adults by teens. In his study of San Francisco, Yelowitz (2012) found the opposite result: a decrease in teen work hours and no discernible effect on overall employment. Unfortunately, both Yelowitz studies suffer from serious methodological problems that make the results unreliable. Since higher wages are likely to increase the labor supply, unemployment rates can increase even as the number of people who are employed also increases. Pollin and Wicks -Lim (2005) replicate Yelowitz's (2005a) study but look at employment, rather than unemployment. They find no negative impact on employment. Furthermore, even if the reported results for each of the studies held, total compensation for teens and low -skilled workers would still have increased. Any employment or hours reductions would be more than offset by the increase in hourly earnings (Pollin and Wicks -Lim 2005; National Employment Law Project 2012). ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 1s to control groups of surrounding suburbs and nearby metropolitan areas.5 The authors found no discernible negative effects on employment, even three years after the respective ordinances were implemented. The authors focused on fast-food restaurants, food services, retail trade, and other low-wage industries. Allegretto et al. (2018) examine the effects of recent minimum wage laws in Chicago, Oakland, San Francisco, San Jose, Seattle, and the District of Columbia, finding insignificant employment changes in the food service industry (an industry with high concentrations of low-wage workers). The authors derived these results using state-of-the-art econometric techniques (event studies and synthetic. controls), providing the most comprehensive and rigorous assessment to date of the effects of local minimum wage laws. Many minimum wage studies lack credibility because they fail to identify a valid control group. The authors avoided this pitfall by running "falsification tests" to ensure selection of a valid comparison area for measuring the causal effects of the minimum wage policies. In particular, the authors tested whether employment and pay in the treated and comparison areas exhibited parallel trends during the years before the policy was implemented, and whether the outcomes of interest in the treated and comparison areas would have trended in parallel if the policy had never been enacted. These tests increased the likelihood that the estimated effects are indeed causal. Using these techniques, Allegretto et al. (2018) estimated employment effects of a 10 percent increase in the minimum wage that range from a 0.3 percent decrease to a 1.1 percent increase, on average, resulting in no significant negative effect on employment. These results are supported by a variety of robustness checks, including a test of whether the authors' methods detect earnings or employment effects in professional services, a high wage industry that should not be affected by the rninimum wage. While the above studies provide rigorous evidence that local minimum wage laws have little to no effect on employment, a recent study by researchers at the University of Washington, Jardim et al. (2017), received widespread news coverage for finding that Seattle's minimum wage increases resulted in significant employment losses.6 Several methodological flaws cast doubt on the credibility of these findings. These flaws are outlined in a letter to the Seattle Mayor's Office by Michael Reich (2017), who, together with other UC -Berkeley researchers, also analyzed the impact of Seattle's minimum wage and found no negative effects on employment (Reich, Allegretto, and Godoey 2017). Two of the study's primary flaws are described in detail below. First, Jardim et al.'s statistical techniques do not control for the effects of Seattle's booming economy during the years of the minimum wage increases. Instead, Jardim et al.'s results incorrectly imply that increasing Seattle's minimum wage to $13 an hour boosted employment in jobs paying $19 an hour or more (Zipperer and Schmitt 2017). This finding is implausible on its face, which is why other empirical research on minimum wages rejects statistical techniques that find wage and employment effects far 5 The authors also examined the impact of the 1993 minimum wage law in Washington DC, but found that the size of the increase was too small to raise wages in those industries (too few workers were impacted). They conclude that the law therefore does not constitute a meaningful policy experiment. 6 Jardim et al. (2017) found that a 1 percent increase in the minimum wage resulted in a nearly. 3 percent reduction in Seattle employment. This finding is far outside the bounds of most existing minimum wage research, which generally finds no negative effect on employment (Dube, Lester, and Reich 2016; Allegretto et al. 2017). ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 16 above the level of the minimum wage increase (Autor, Manning, and Smith 2016; Cengiz et al. 2017; Allegretto et al. Forthcoming). Jardim et al. mistakenly attributed losses in low-wage employment to increases in the minimum wage, when these losses are more likely due to the shifts in the Seattle labor market from low to higher wage jobs stemming from the city's economic boom (Zipperer and Schmitt 2017). Second, Jardim et al. exclude all employers with multiple locations in Washington state – accounting for nearly 40 percent of Seattle employment–from their analysis. Consequently, Jardim et al.'s methodology incorrectly codes as disemployed workers who moved from single -site employers to a multi -site employers (e.g. a chain restaurant or chain store) during the first two years of minimum wage increases. Both these flaws lead Jardim et al. to overestimate the negative employment effects of Seattle's minimum wage increases. If the findings of the small number of case studies discussed above are taken on their own, it would be difficult to draw broad conclusions about the impact of minimum wage laws. However, the results from studies of city and county minimum wage laws are corroborated by detailed research on state and federal minimum wage laws that"provide a much larger sample of events to study. Two innovative studies conducted by researchers from UC Berkeley, University of Massachusetts -Am- herst, and UNC -Chapel Hill are especially relevant (Dube, Lester and Reich 2010, 2016; Allegretto, Dube, Reich and Zipperer 2017). The researchers looked at every state and federal minimum wage increase in the U.S. over several decades and identified several hundred pairs of adjacent counties that were located on different sides of a state border with a minimum wage difference. This research design compares the employment trends of the most affected groups—teens and restaurant employees—across adjacent counties that were exposed to different minimum wage levels. It is therefore an excellent test of whether businesses relocate employment outside county borders to avoid being subject to a higher minimum wage. Using this research design, Dube, Lester and Reich'(2010, 2016) and Allegretto, Dube, Reich and Zipperer (2017) find no statistically significant effects of minimum wage increases on either employment or hours in restaurants and other low-wage industries, controlling for a range of regional and local differences that previous research did not include. Allegretto (2013) uses the same dataset to examine the effects of the subminimum wage for tipped workers (which has remained at $2.13 an hour at the federal level for more than two decades, but varies significantly across states). Focusing on restaurants, she finds no statistically significant evidence of negative employment effects in states with higher (or no) subminimum wages for tipped workers. Most recently, Cengiz, Dube, Lindner, and Zipperer (2018) pioneered a novel method –the "bunching estimator"—to measure the employment effects of minimum wage increases. The idea behind the method is to track over time how the minimum wage affects the distribution of workers at the bottom of the labor market. Following a minimum wage increase, the employment effect can be measured by taking the number of excess jobs at or above the new minimum wage and subtracting the number of missing jobs below that new minimum, controlling for other factors affecting the wage distribution. Cengiz et al. use this method to analyze the effects of 138 minimum wage increases between 1979 ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 17 and 2016 and find no statistically significant effect.on employment. They also find positive spillover effects for workers making above the minimum wage. About 40 percent of the overall wage gains from minimum wage increases went to workers making up to $3 more than the minimum wage. We highlight these studies because they combine state-of-the-art econometric methods with the most detailed datasets available, allowing researchers to control accurately for differences in local economic conditions that could confound the analysis. These studies also reflect a growing consensus among economists and policymakers: the employment effects of minimum wage increases range between very small and zero. Belman and Wolfson (2014) provide the most extensive summary of the minimum wage research since Card and Krueger (1995). They conclude that the employment effects of the minimum wage in the United States are "both vanishingly small and not statistically significant in even the most generous test" (p. 168). A separate review of minimum wage research by Schmitt (2013) similarly finds "the minimum wage has little or no discernible effect on the employment prospects of low-wage workers." . Most of the broader studies that find negative effects, as reviewed in Neumark and Wascher (2008), fail a fundamental necessary condition for identifying statistically unbiased estimates of minimum wage effects. The key issue is that their research design assumes that states that increase minimum wages are otherwise not different from those that do not increase minimum wages. Dube, Lester and Reich (2010, 2016) and Allegretto, Dube, Reich and Zipperer (2017) have shown in detail that this assumption is incorrect. In the states that increased their minimum wages, employment among low-wage workers was already growing more slowly two years before the implementation of the minimum wage increases, compared to states that did not increase minimum wages. Existing differences in regional employment trends that are unrelated to minimum wage policy can explain the differences in outcomes after the increases. As Allegretto, Dube, Reich and Zipperer'(2017) document, local comparisons make sense because nearby areas are much more similar than areas that are farther away. And when minimum wage effects are estimated using local comparisons—such as across adjacent counties on a state border—the negative effect on employment disappears? Totty (2017) corroborates this methodology by examining minimum wage effects without prior decisions on what control groups should be included. He finds that local controls should be included and that the minimum wage does not have significant effects on employment. Other studies that find negative effects on employment fail to adequately control for macroeconomic changes affecting employment. For example, Clemens and Wither (2016) found that a federal minimum wage increase from $5.15 to $7.25 per hour occurring from 2007 to 2009 reduced the national employment -to -population ratio by 0.6 percentage points. However, Clemens and Wither fail to control for the effects of the Great Recession (Zipperer 2016). Once proper controls are included for regional and industry differences in the effects of the Great Recession, there is no evidence of job loss due to the federal minimum wage increase (Zipperer 2016). 7 A recent report by the Congressional Budget Office (2014) projects that a $10.10 national minimum wage would raise wages for 16 million Americans, lift 900,000 out of poverty, and result in a reduction in jobs of 500,000. The report claims to synthesize recent research on teen employment, but it does so without making adjustments for research quality. The CBO's estimated elasticity for adult employment is unsupported by the recent empirical research, including that of Neumark and Wascher (2008), which found no measurable employment impact for adults. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 18 Some studies suggest that the employment effects of minimum wage increases are concentrated in reduced hours, rather than reduced jobs. For example, Jardim et al. (2017) report that Seattle's minimum wage increase to $13 resulted in a 6.9% decline in hours worked by low -skilled workers However, this study suffers from several methodological flaws described in the previous section. Cengiz et al. (2018) provide definitive findings with respect to hours worked. After analyzing the effects of 138 minimum wage increases between 1979 and 2016, Cengiz et al. find no statistically significant decline in the number of hours worked. Lastly, Sorkin (2015) and Meer and West (2016) suggest that there are long -run employment effects of minimum wage increases, which have gotten undetected in previous short -run analyses. This claim lacks rigorous supporting evidence. Allegretto et al. (2017) do not find employment effects four years after various minimum wage increases. Cengiz et al. (2018) use administrative data on hours from Washington State which increased its minimum wage by 22 percent between 1999 and 2000 and indexed the wage rate to inflation starting in 2001.The authors find no measurable effect from Washington state's minimum wage increases on net employment in the state. While this is only a single case study, the results are consistent with their larger analysis of state -level minimum wage Increases. In his review of minimum wage research, Schmitt (2013) considers several channels through which employers might adjust to increases in the minimum wage. One possible scenario is that employers will simply switch to hiring more skilled workers, thereby hurting the employment prospects of less educated workers and, in particular, black and Latino teens. Schmitt reviews several studies that have explicitly researched this question, some of which yield conflicting findings. Again, research design matters greatly here, and studies that thoroughly control for regional or local differences do not find evidence of labor substitution. For example, Allegretto, Dube and Reich (2011) examine the impact of the minimum wage on the employment of white, black, and Hispanic teens, covering the period from 1990 to 2009. After improving on previous research by controlling for regional differences, they find no statistically significant negative effects on employment or hours for teens, regardless of race or gender. In their contiguous counties dataset, Dube, Lester and Reich (2014) similarly find no evidence of such substitution by either age or gender. It is often argued that a higher minimum wage will lead firms to reduce their use of workers. This reduction in labor demand can occur through two different channels: one involves substituting capital for labor, i.e., automation of jobs while keeping sales at the same level; the other involves needing fewer workers when sales fall as prices increase. We discuss here the automation channel and consider the effect on sales later in this section. Mechanization does not necessarily lead to a net loss of jobs. As David Autor (2014a -b) points out, machines (including smart robots) do not just substitute for labor; they are also complements to existing jobs or lead to the creation of new jobs and industries. Indeed, previous rounds of automation and computerization have created more jobs than they destroyed. Moreover, automation does not ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 19 only involve the replacement of labor by machines. It also involves the replacement of old machines (think manual cash registers) with newer ones (think electronic cash registers and now iPads). Aaronson and Phelan (2017) recently studied the short -run impact of minimum wages on the automation of different kinds of jobs in the restaurant industry. Just as Autor'sjob mechanization hypothesis predicts, Aaronson and Phelan find that minimum wage increases reduce cognitively routine jobs (such as cashiers) while increasing the number of manually -routine and non -routine jobs (such as food preparation). As it turns out, these changes offset each other almost equally, resulting in no net change in employment. Similarly, Autor, Dorn, and Hanson's (2015) detailed empirical analysis of the effects of computerization on local labor markets found no net decline in employment. A recent study by Lordan and Neumark(2018) argues that increasing the minimum wage leads to a modest decrease in the share of automatablejobs held by low -skilled workers and an increase in higher skilled jobs. Unlike Aaronson and Phelan (2017), however, the authors do not report the effects of automation on net employment in low-wage industries. While minimum wage increases do lead to automation of some cognitively -routine, low-wage jobs, industries also experience concurrent increases in manually -routine and.non-routine jobs. Based on the preponderance of evidence from existing studies, we conclude that the short -run effects of automation on net employment due to minimum wage increases are not significant.$ Some commentators assert that a higher minimum wage will lead employers to cheat them of a portion of their wages. It is important to recognize that such practices already exist; the question at hand is how much the minimum wage increase will increase their intensity and prevalence. Although it is difficult to measure changes in wage theft, we know that employee -reported increases in pay (to a census surveyor) after a minimum wage increase match up well to employer -reported increases in pay on administrative reports that determine payroll taxes (Dube, Lester and Reich 2010). These results suggest that most employers comply about as much after the increase as before. Most of the studies cited above focused on employment in the restaurant industry. The retail industry is the second most intensive user of minimum wage and near -minimum wage workers. A few studies have examined the effects of minimum wages on the retail sector. In her research on the retail industry, Zeynep Ton (2012) finds that highly successful retail chains "not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance and better customer service than their competitors." Using County Business Patterns data and their border -county pair research design, Dube, Lester and Reich (2010) found no negative effects of minimum wages on retail employment. In a related study, Dube et al. (2006) compared the number of national retailers operating in San Francisco before and after the city minimum wage policy was implemented. They found that the number of top retailers grew, as did the number of stores. Overall retail employment 8 Long -run effects might be different. However, Dube, Lester and Reich (2010) do not detect any negative employments effects as long as four years after a minimum wage is implemented. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FORTH E (NORTH BAY 20 did not decline in San Francisco or Santa Fe, nor did employment in individual retail sectors, such as grocery stores, general merchandise stores, or clothing and accessories.9 The impact of minimum wages on the overall cost structure of a business varies significantly by industry. The.impact of the minimum wage on a firm's operating costs will depend on the share of the workforce at or below the new minimum wage rate, their average wage before the increase, and the share of labor costs in total operating costs. Operating costs include not only labor, but also materials, rent, maintenance, supplies, taxes, utilities, and energy costs. An industry may have large numbers of low-wage workers, but if labor is a relatively small share of the total costs of the firm, the wage increase will have a correspondingly small impact on the overall cost structure of the firm. In a prospective study of the San Francisco minimum wage, Reich and Laitinen (2003) carried out a representative survey of establishments. They estimated that a 25.9 percent increase in the minimum wage from $6.75 to $8.50 would result in a 1.1 percent increase in the overall wage bill. When viewed from the perspective of operating costs, a 26 percent increase would result in 82.0 percent of establishments experiencing an increase in operating costs of less than 1 percent or more, and 95.2 percent experiencing an increase in operating costs of less than 5 percent. Breaking down results by industry, they estimated that 17,9 percent of restaurants would experience an increase in operating costs of 5 percent or more, as would 8.6 percent of retail establishments. For manufacturing, entertainment, hotel, and personal service firms, the estimated increase in operating costs was close to zero. Polli.n (2004) similarly estimated that the average increase in firms' costs relative to sales under Santa Fe's 2003 minimum wage ordinance would be 1 percent; the average cost increase for hotels relative to sales would be 3 percent. Benner and Jayaraman (2012) analyzed the impact of a proposed increase in the federal minimum wage from $7.25 to $10.10 (a 39 percent increase, not accounting for inflation during the phase-in) on the food industry. They estimated a maximum increase.in operating costs for the food service and drinking establishment industry of 2.25 percent over three years, and 1 percent in the retail food industry. Reich, Jacobs, Bernhardt and Perry (2015) estimated that increasing the minimum wage in Los Angeles to $13.25 by 2017 would result in a 0.5 percent increase in operating costs across the economy by 2017. In the food services industry, they found that operating costs would rise by 3.9 percent by 2019, and in the retail industry costs would rise by 0.5 percent. To put these results in context, consider the following hypothetical example of how a 10 percent increase in the minimum wage'might affect costs in the restaurant industry. If one-third of restaurant workers were paid exactly the minimum wage or up to no more than 10 percent above the minimum wage (and if wages were evenly distributed), then these workers would receive a pay increase that would average half of the 10 percent increase in the statutory minimum. The increase in the wage bill would thus be one-third of 5 percent, or 1.67 percent. However, data were not available for comparisons to areas not covered by the minimum wage policy. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 21 Moreover, labor costs comprise about one-third of operating costs in the restaurant industry. A 10 percent increase in the minimum wage would therefore increase operating costs by one- third of 1.67 percent, or 0.56 percent. A larger minimum wage increase would imply a greater increase in costs. In the retail industry, the proportion of low-wage workers is lower than in restaurants; the proportion making exactly the minimum wage is also lower; and labor costs are only about 10 percent of operating costs. So the effect on costs in the retail industry would be even smaller than it is in the restaurant 'industry. The research results we summarized above are consistent with these hypothetical examples. Since a higher minimum wage applies to all employers in the geographic region affected by the policy, a firm that serves the local market, like a restaurant, will be able to pass through a share of the higher costs without suffering a disadvantage relative to its competitors. Belman and Wolfson (2014) survey seven studies of price effects of the minimum wage, all of which found some impacts on prices in industries highly affected by the minimum wage, namely restaurants. Dube, Naidu and Reich (2007) found that restaurant prices in San Francisco rose 2.8 percent more than those in neighboring Alameda County, following the implementation of a 26 percent increase in the city's minimum wage law. Using a very small sample, Hirsch, Kaufman and Zelenska (2011) found that two-thirds of the cost increase for quick -serve restaurants in Georgia and Alabama were offset by increases in price. Aaronson (2001) found that a 10 percent increase in the minimum wage results in a 0.7 percent increase in restaurant prices. In a novel study analyzing prices from 884 Internet -based restaurant menus before and after San Jose implemented a 2013 minimum wage increase, Allegretto and Reich (2018) found that restaurants increased their prices by 1.45 percent, on average, in response to a 25 percent increase in the city's minimum wage.10 These results suggest that restaurants can absorb the costs of minimum wage increases through modest price increases and cost savings from reduced worker turnover (see Section Q. Recent research by Cooper, Luengo-Prado, and Parker (2017) examines aggregate effects on prices and consumption in localities. They find that a 10 percent increase in the minimum wage results in a modest 0.3 percentage point increase in aggregate city -level prices over time and a slightly higher 0.4 percentage point increase in the price of food away from home. Policymakers may be concerned that these price increases, though small, could result in lower consumption by low-wage workers, making them worse off. However, Cooper, Luengo-Prado, and Parker (2017) find that households increased the quantity of food they consumed at home and away from home following minimum wage increases (meaning that the income effect of higher wages outweighed the substitution effect from higher prices). When these small price increases are considered in the context of who receives the wage increases, research shows a redistribution effect toward lower income families. Jacobs, Graham -Squire and Luce (2011) estimated the impact of a $12 minimum wage for large retailers on employees and consumers. 10 Responding to concerns that competition outside the city would prevent restaurants in San Jose from raising prices to offset labor cost increases, Allegretto and Reich (2018) found that restaurants less than a mile apart near the city's border had different prices for similar items. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 22 They found that if the entire cost were passed through to consumers, Walmart would increase prices 1.1 percent. The increased costs would be shared by consumers across the income spectrum, with 28.1 percent borne by shoppers in lower income households. By contrast, they found that the increase in workers' earnings would be large and concentrated, with 41.4 percent going to workers in families with incomes below 200 percent of.the federal poverty line. Previous prospective studies have made different assumptions on how much costs will affect prices— and therefore also profits. Card and Krueger (1995, ch. 10) provide an extensive discussion of this issue. As they point out, from the point of view of an individual employer in a perfectly competitive industry, profits would be unaffected only in the extreme case in which firms can costlessly replace low-wage labor with high -skill labor and/or capital, and without cutting output. Since such substitutions are costly, from this perspective a minimum wage increase would have to reduce profits. Firms do not envision a price increase as a solution, as they fear losing sales to their competitors. A different result emerges when Card and Krueger consider the point of view of an industry as a whole. This perspective is necessary since the minimum wage increase applies to all the firms in an industry. Now, when individual firms respond to the prospect of reduced profits by raising their prices, they find that other firms are doing the same. Some of the price increases will stick and the industry will recapture some of the reduced profits. However, since demand for the industry's product is not fixed, this increase in price entails some reduction in product demand, implying that industry output (and therefore employment) will fall. In other words, the price increase will permit employers to recover only a portion of their reduced profits. The above reasoning contains a key assumption: that firms' labor costs consist only of the wages they pay. As Card and Krueger and many other economists (such as Manning 2003, and Ashenfelter, Farber and Ransom 2010) emphasized, the presence of nonwage labor costs—such as the cost of replacing workers who leave—leads to different conclusions. In particular, minimum wage increases may reduce employee turnover costs. As a result, employment declines, price increases, and profit declines will all be moderated. Considerable evidence, moreover, suggests that turnover costs are an important feature of low-wage labor markets. Aaronson (2001) and Aaronson, French and MacDonald (2008) both find complete pass-through of costs in the restaurant industry. However, their data come from a period of much higher inflation, are based on a handful of observations per metro area, and they do not correct their standard errors for clustering. In contrast, Allegretto and Reich (2014) collected a large sample of restaurant price data in and near San Jose, before and after a 25 percent minimum wage increase in 2013 (from $8.00 to $10.00). Their preliminary results indicate that most, but not all, of the costs are passed through to consumers in higher prices. Note that since sales fall, it is possible that profits will fall as well. The evidence on whether profits do fall is extremely scant. The most important study remains Card and Krueger (1995), who obtain mixed results when examining the effects of minimum wage changes on shareholder returns for fast-food restaurant chains. Using British data, Draca et al. (2011) find a small negative effect on profits. However, one segment of this study uses data for firms in the British residential care industry. Firms in this industry were not permitted to increase prices, making the ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 23 results not very useful for other sectors. Harasztosi and Lindner (2015) examine a large (60 percent) increase in the Hungarian minimum wage, much of which was felt in manufacturing. These authors find that cost increases were entirely passed through, but employment did not change and profits did not fall. However, the relevance of the British and Hungarian studies for the U.S, is highly uncertain. r... t on EmployeeTurnover The correlation between low wages and high employee turnover is well documented (Cotton and Tuttle 1986). In 2011, 37 percent of food service workers and workers in hotels and accommodations voluntarily quit their jobs (Boushey and Glynn 2012). In an extensive study of minimum wage impacts on employment flows, Dube, Lester and Reich (2016) found that a 10 percent increase in the minimum wage results in a 2.1 percent reduction in turnover for restaurant workers and a 2.0 percent reduction in turnover for teens.. Dube, Naidu and Reich (2007) found an increase in the average tenure of workers in limited -service restaurants of three and a half months. Brochu and Green (2011) obtained similar results with Canadian data: Three studies analyzed the impact of living wage laws on employee turnover. A study of the Los Angeles Living Wage Ordinance (Fairris 2005) found a 35 percent reduction in turnover in firms that increased wages as a result of the law, with an -average increase of 23 percent. Reich, Hall and Jacobs (2005) found an overall decrease in turnover at the San Francisco International Airport of 60 percent for firms that were highly impacted by mandated pay increases. Turnover of airport screeners fell by 80 percent following a 55 percent wage increase, from $5.75 to $10 per hour. Howes (2005) found a 17 percent decrease in turnover following a 13 percent wage increase for homecare workers in San Francisco. Putting the living wage studies together, Jacobs and Graham -Squire (2010) estimate that for every 1 percent increase in wages in low-wage service positions, turnover declines by an average of 1.45 percent. The impact maybe smaller for broad minimum wage laws where all employers in a market increase their wages at the same time and the wage difference between firms remains the same (Manning 2011). Employers incur significant costs from employee turnover. This includes both direct costs for recruitment, selection, and training of workers and the indirect costs associated with lost sales, poor customer relations, and lost productivity as new workers learn on the job. The cost of worker replacement varies based on compensation, firm size, and skill level of the job. Hinkin and Tracey (2000) conducted a detailed study of non -managerial staff at four hotels, two in Boston and two in Chicago. Taking into account both direct and indirect costs, they estimated replacement costs ranging from $1,322 for room service wait staff and $2,077 for a line cook to $7,658 for an administrative assistant in sales and catering. A study of the cost of supermarket turnover by the Coca-Cola Research Council estimated the replacement cost for an $8 an hour non-union worker at $4,199 (Blake 2000). Boushey and Glynn (2012) find that the median cost of replacement for jobs paying $30,000 a year or less is 16.1 percent of an employee's annual salary. A statistical analysis of California businesses by Dube, Freeman and Reich (2010) obtained similar results. Jacobs and Graham -Squire (2010) estimate that 18 percent of the costs of a wage increase for school cafeteria workers would be offset by lower turnover costs. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 24 ligggigiliggI1111111 11111111 A higher minimum wage may reduce costs through additional channels that improve firm performance. In a small case study of quick -service restaurants in Georgia and Alabama, Hirsch, Kaufman and Zelenska (2011) suggest how firms adjust to higher wage mandates. These authors analyzed detailed payroll data and also surveyed managers and employees about human resource practices. The authors found no negative effect from the minimum wage increase on employment or hours worked. Managers reported they could offset 23 percent of the labor cost increase through operational efficiencies. Ninety percent of the employers reported they had or would increase performance standards, including requiring better attendance, requiring more proficient and faster performance of job duties, having workers take on additional tasks, and more quickly terminating workers who were not performing. Managers reported economizing on non -labor inputs, including water, electricity, and food wastage. Reich, Hall and Jacobs (2005) surveyed employers and employees at the San Francisco International Airport following the implementation of higher mandated compensation standards. Employers reported improvements in overall work performance (35%), employee morale (47%), absenteeism (29%), reductions in grievances (45%), reductions in disciplinary issues (44%), improvements in equipment maintenance (29%), reductions in equipment damage (24%), and improvements in customer service (45%). Employees reported that more skills were required of them (50%), that they were working harder on the job (44%), that they were experiencing greater stress on the job (43%), and that the pace of work had increased (37%). Reduced employee turnover means that workers will have more tenure with the same employer, which creates incentives for both employers and workers to increase training and therefore worker productivity. A large scholarly literature makes this point, and it has been emphasized recently by firms such as Walmart, TJ Maxx, and Gap as principal reasons underlying their announced policies to increase their minimum wages nationally to $10.00. However, because of the lack of data on individual productivity, the literature does not provide a quantitative assessment of the importance of the effect on productivity. If employers are required to increase their wages, they may compensate by reducing other benefits. For this reason, some of the local minimum wage laws count contributions towards health care towards meeting the minimum compensation requirement. Schmitt (2013) summarizes the empirical research, finding "small or no effects along these lines," either on the receipt of health insurance, on provision of family health insurance, or whether or not the employer paid the full premium. Dube, Naidu and Reich (2007) did not detect any decrease in the provision of health benefits in restaurants in San Francisco.11 Belman and Wolfson's (2014) detailed survey of minimum wage research found that the evidence of impacts on benefits was "thin," and that any effect on health insurance provision was concentrated in smaller firms. They find no impact on employer-provided pensions, which 11 Their surveys were carried out sufficiently prior to San Francisco's proposal to establish an employer minimum health spending requirement to avoid any contamination of the results. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 25 is not surprising given that this benefit is rare among low-wage workers. Since the provision of employment -based health benefits is closely correlated with wages, effects could be larger at higher minimum wage rates. ��'jjjJfii o 1j , Local Economy A common question is whether raising the minimum wage might act as an economic stimulus and engine of job growth, as low-wage workers spend their increased earnings in local communities. As discussed above, higher wages are absorbed by employers through a variety of channels, including lower turnover and increases in price. Higher prices will in turn reduce consumer demand for goods and services. At the same time, low-wage workers and their families are likely to spend a significant portion of their increased earnings from a minimum wage increase (Johnson, Parker and Soueles 2004), which increases demand for goods and services. Researchers at the Federal Reserve Bank of Chicago analyzed how a future federal minimum wage increase would affect aggregate household spending (Aaronson and French 2013). The authors calculate that a $1.75 increase in the federal minimum wage (from $7.25 to $9.00 an hour) would raise aggregate household spending by roughly $48 billion in the short term, increasing GDP by 0.3 percent. In a similar vein, the Economic Policy Institute recently estimated that the Harkin/Miller bill would result in an additional $35 billion in wages paid to affected workers by 2016. This projected rise in consumer spending would provide a net increase in GDP of $22.1 billion, creating roughly 85;000 new jobs (Cooper 2013). For local laws, the size of the locality and the proportion of workers who live and spend their income in the locality are also important. Reich, Jacobs, Bernhardt and Perry (2015) modeled the interaction between higher prices and higher wages on consumer demand in a prospective minimum wage study for the city of Los Angeles. They found that, on balance, the reduction in consumer demand from higher prices was offset by the increased purchasing power of low-wage workers receiving the pay increase. However, since not everyone employed within the city also lives within the city, some of the increased demand is spread to surrounding areas. As a result, they found the law would lead to a small net reduction in consumer demand and employment within the city. of Los Angeles and a small net positive increase in employment in the county as a whole. Since low-wage workers tend to live in lower-income neighborhoods, businesses in those neighborhoods will disproportionately benefit from the increase in worker spending. O Will higher local minimum wages lead to firms relocating outside the city? Most economic activity in the United States is concentrated in urban areas, where wages are higher. Despite higher wages—and much higher real estate prices—firms want to locate in cities. They seek the advantages of being near other firms in their industry, the market for their products, and sources of raw materials, transshipment points, and labor. The firms that locate in urban areas thus already are paying a premium. Of course, at the periphery of urban areas real estate prices are lower, creating an advantage that gets balanced against the benefits of being closer to customers and to other firms. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 26 Previous. research suggests that business relocations are determined more by real estate prices and access to consumer markets than by differences in labor costs (Kolko and Neumark 2007). Wages are also likely to rise just outside of a higher minimum wage city as businesses there will want to hold onto their workforce. Jekanowski et al. (2001) find that convenience and accessibility are the prime determinants of fast-food restaurant location decisions. The best recent evidence comes from Colbion et al. (2015), who examined sales and price data for 31 identical products from hundreds of retail stores in 50 metro areas. These authors document substantial store -based differences in prices for the same exact product, even within the same metro area. The persistence in price differences, even among nearby stores, indicates the presence of geographic frictions in consumer markets. In other words, small price differences did not lead consumers to switch to lower -price stores. On the other hand, the same study also found that consumers switch to low -price outlets when local unemployment rates increase, in part because the cost of time for unemployed shoppers is much lower than for shoppers as a whole. This evidence thus also indicates that spatial price differences, although not decisive for shoppers, are not completely irrelevant either. Not surprisingly, much depends on the size of the price differences. A number of studies have focused on the implied travel costs for consumers in deciding where to shop. Gopinath et al. (2011) estimate that such costs might be about $1.70 per mile (round-trip) for retail. Thomadsen (2005) collected data on prices, locations, and attributes of.every Burger King and McDonald's outlet in Santa Clara County and estimate a travel cost of $3 per (round-trip) mile. Implied travel costs of this magnitude make it unlikely that fast-food restaurants would want to' move away from their own customer base. 4WRIT) ger � ke 4.. el In 2015, the UC Berkeley Institute for Research on.Labor and Employment (IRLE) minimum wage group developed a structural model to study the prospective impacts of a $15 minimum wages in Los Angeles (Reich, et al 2015). Since then the model has been further developed to incorporate more of the direct and indirect effects of minimum wages on workers, businesses, and consumers, with more attention to possible automation and to the effects of higher wages on productivity growth. Our structural model recognizes that higher minimum wages will affect labor supply and labor demand. Adjustments to labor supply include lower employee turnover and lower job vacancy rates. Adjustments to labor demand include possible substitutions of capital for labor and skilled labor for unskilled labor, greater worker productivity when wages rise, reductions in employment because higher prices reduce sales, and increases in employment because workers' spending out of their higher income will increase sales and employment. The net effect depends upon the magnitudes of the individual adjustments, again taking into account interactions among them. The inspiration for the model derives from Marshall's Laws, a famous set of propositions about the labor market first developed by the great English economist Alfred Marshall in 1890.12 These laws, which are featured in every labor economics textbook, examine how employer demand for workers 12 To recognize Hicks' 1932 formulation of these laws in mathematical form, they are also known today as the Hicks -Marshall laws of derived demand. See Cahuc et al. (2014), ch. 4. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 27 .will respond to an industry -wide wage increase. Marshall worked out the effects by examining "substitution" and "scale" effects in labor, capital, and goods markets. (For a formal version of this labor demand model, see Cahuc, Carcillo and Zylberg (2014), ch. 2). Since we are interested in the effects of an economy -wide minimum wage,'we add an "income effect" to Marshall's Laws. This effect accounts for Keynesian -style effects on the level of economic output obtained when pay increases lead to increased consumer demand. Figure 3 summarizes our model qualitatively in a flow diagram. The green boxes refer to the effects on workers and the red boxes refer to the effects on businesses. The automation and productivity box.is placed first to highlight how businesses will respond to a minimum wage. Automation here refers only to capital -labor substitution that is induced by the minimum wage, not to the much larger degree of automation that has taken place for decades. Productivity growth can come from automation, from workers working harder or smarter when pay is high, and from workers having more experience, as when minimum wages reduce employee turnover. Figure 1. UC Berkeley IRLE Minimum Wage Model s u it f Source. UC Berkeley IRLE Minimum Wage Research Group. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 28 Examine next the effects on workers, shown in the green boxes and move from left to right. The first green box refers to the higher wages received by lower -paid workers. The next green box accounts for the net effect of taxes and reduced receipt of public benefit programs on workers' income. Workers will pay more in taxes as their wages increase and eligibility for public benefits will decline. The third box refers to how workers' increased spending power out of their higher net income translates into higher consumer demand and more jobs. We will refer to this mechanism as the income effect of minimum wages. Examine now the effects on businesses and again move from left to right. The higher minimum wage will increase businesses' payroll costs, but some of these higher costs will be offset because employee turnover will fall, generating savings in recruitment and retention costs. Firms may also find that higher -paid and more experienced workers will be more productive, which could also offset payroll cost increases. In other words, one effect of a higher minimum wage is to induce more efficient management practices. Higher payroll costs (net of turnover and productivity savings) will lead firms to increase, prices, leading to reduced consumer demand. We will refer to this adjustment mechanism as the scale effect, as it identifies reductions in the scale of output that will reduce the demand for workers. As we have already mentioned, businesses may also respond to higher minimum wages by increasing their investment in equipment. This substitution effect (think automation) also reduces their demand for workers. The income effect has a positive effect on employment, while the scale and substitution effects each have negative effects on employment. The sum of the income, scale, and substitution effects determines the net employment effect of the minimum wage, as shown in the blue box on the right side of Figure 3. Figure 3 is useful for understanding the basic structure of our model. But it leaves out some important details. First, the effects cin businesses and workers in the red and green boxes of the model occur simultaneously, not sequentially. The effects in reality are therefore captured only by examining the net effects on the economy and employment. These net effects are symbolized by the blue box at the right of the diagram. Second, Figure 3 omits some feedback loops that would make the figure unwieldy, but which are included in our estimates when applying the model. The net effect of minimum wages on employment equals the sum of the income, scale, and substitution effects. The income effect will always be positive, while the scale and substitution effects will always be negative. Whether the net effect is positive, zero, or negative therefore depends upon the relative magnitudes of its three components. These relative magnitudes in turn depend upon the quantitative responses of workers and businesses to a minimum wage increase. We refer to the model's parameters as the inputs that determine these multiple quantitative responses. Some of these parameters, such as the propensity to substitute capital for labor, may not vary with the magnitude of the minimum wage increase. Other parameters, ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 29 such as turnover cost savings, are likely to vary with the size of the increase. As with any economic model, we calibrate our model using the best data and research findings available. The model's parameters and dynamics must be consistent with two conditions. First, the model must be consistent with the very small effects that researchers find for the smaller pre -2015 increases in' federal and state minimum wages. Second, although labor demand in low-wage labor markets may be much less responsive to wages than is commonly thought, labor demand is not completely unresponsive. The model must therefore be consistent with growing negative effects if minimum wages were to reach extremely high levels, such as at $25 or $40 per hour. The big unknown, of course, is: At what level do the effects become visibly negative and how quickly do they become more negative? Reich (2016) shows that our calibrated model predicts extremely small effects for minimum wage increases of up to 25 percent, to a minimum wage of $10. At this minimum wage, the income, scale, and substitution effects are each very small. As the minimum wage reaches to higher levels, the (positive) income effect weakens since the propensity to consume of higher -paid workers is lower than that of lower paid workers. At the same time, the (negative) scale effect strengthens because turnover cost savings diminish and the price elasticity of consumer demand becomes higher for higher -priced goods.13 Our model is thus consistent with growing negative employment effects at higher minimum wage levels. We have tested our model's calibration by undertaking a series of robustness tests. The tests show that this net effect changes by small amounts when we vary the model's parameters (Reich 2016). Conclusion In 1994 David Card and Alan Krueger published a groundbreaking study that changed how economists view the minimum wage. Card and Krueger looked at employment in fast-food restaurants across the New Jersey and Pennsylvania border after New Jersey increased its state minimum wage. They found no measurable negative impact on employment. In the twentieth -an- niversary edition of their book, Myth and Measurement, Card and Krueger (2015) summarize the minimum wage research since their 1994 study, finding that the bulk of the literature confirms their original findings. As we reviewed above, a large body of research has since built upon their methodology. As a result, we have learned a great deal about how employers respond to increases in the minimum wage. First, minimum wage increases lead to net gains in worker.earnings and have no negative effect on employment. Second, turnover levels in low-wagejobs are high as workers leavejobs looking for better wages or because they are unable to stay in their jobs due to poverty -related problems such as difficulties with transportation, child care, or health. As a result, rather than eliminating jobs, raising the minimum wages can reduce turnover and increase job stability. Third, firms can absorb higher labor costs through other means as well. They can pass on some of the increased costs to consumers through higher prices or earn lower profits. In short, firms use a combination of strategies to adjust to higher minimum wages without cutting jobs or hours (Schmitt 2013). . 13 The capital -labor substitution elasticity is not likely to be higher or lower at higher minimum wage rates. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 30 Nonetheless, it is important to emphasize again that the existing research literature is necessarily limited to the range of minimum wage increases that have been actually been implemented. While these studies are suggestive, they cannot tell us what might occur when minimum wages. are increased significantly beyond past local, state, or federal mandates. In the most comprehensive assessment to date, Allegretto et al. (2018) examine the effects of recent minimum wage laws in Chicago, Oakland, San Francisco, San Jose, Seattle, and the District of Columbia, finding that benefits to low-wage workers of the higher minimum wage laws outweigh any costs. Finally, raising the minimum wage is not a cure-all, especially in the face of larger forces generating inequality that require national attention. 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Working Paper Number 116, Political Economy Research Institute. Available at: http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1092&context=peri_ workingpapers Yelowitz, Aaron. 2005a. "Santa Fe's Living Wage Ordinance and the Labor Market." Employment Policies Institute. Available at: https://www.epionline.org/wp-content/studies/yelowitz_09-2005.pdf Yelowitz, Aaron. 2005b. "How Did the $8.50 Citywide Minimum Wage Affect the Santa Fe Labor Market?" Employment Policies Institute. Available at: http://www.epionline.org/studies/ yelowitz_12-2005.pdf Yelowitz, Aaron. 2012. "The Labor Market Effects of Citywide Compensation Floors." Employment Policies Institute. Available at: http://www.epionline.org/studies/yelowitz_12-2005.pdf Zipperer, Ben. 2014. "Essays on the Minimum Wage." Unpublished Ph.D. dissertation. Department of Economics, University.of Massachusetts -Amherst. Zipperer, Ben. 2016. "Employment Fell Because of the Great Recession, Not The Minimum Wage." Economic Policy Institute. Available at: https://www.epi.org/publication/employment-fell-because- of-the-great-recession-not-the-minimum-wage-study-claiming-the-minimum-wage-harmed-low- wage-workers-fails-conventional-tests/ Zipperer, Ben and John Schmitt. 2017. "The'High Road' Seattle Labor Market and the Effects of the Minimum Wage Increase." Economic Policy Institute. Available at: https://www,epi.org/files/ pdf/130743.pdf ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 40 Ian Perry, MPP, is a research and policy associate at the UC Berkeley Center for Labor Research and Education. Garrett Strain is a graduate student researcher at the UC Berkeley Labor Center and a PhD. candidate in Sociology at the University of California, Berkeley. Ken Jacobs is chair of the,UC Berkeley Center for Labor Research and Education. Acknowledgments The authors thank Michael Reich for his generous comments and feedback, and Sarah Lawton, Jenifer MacGillvary, and Sandy Olgeirson for their help in preparing the report. This report was commissioned by North Bay Jobs with Justice, the North Bay Central Labor Council, and the Napa-Solano Central Labor Council. Ian Perry, Garrett Strain and Ken Jacobs. Estimated Impact of a Proposed Minimum Wage Law for the North Bay. Center for Labor Research and Education, University of California, Berkeley. October 2018. http:Hlaborcenter.berkeley.edu/north-bay-minimum-wage/. ESTIMATED IMPACT OF A PROPOSED MINIMUM WAGE LAW FOR THE NORTH BAY 41 N O O 0 N M 10 Cd Q) a; O w cd a) QI CO a) � bA "� Ln Ln Z 00 ?> 2 N Z W 0 Q W W 0 �'' V) U „) Z W Z W N Q 00 3 = �0 Z W C LL LL W Q Z F - M Attachment 7 W 0 F - Q w Z r • • • cu 0 0 0) M 0 0 4' ?: u 41 LA 4J (n 0 CU L) cu a) 0 0 u 0 0 .c 0 4.1 0 (U bio 0 C 0 Ln -4 m 41 0 -La E = E 0 m CL W = X Ln 2 ol Mo m a CL -a = 41 4� > m 0 0 o 0 4-1 Ln 4� 0 41 0 0) 0 W u CL E (U a) u 0 E 0 00 Z3 Ln -4 CL 41 0 -La CL 0 W = X Ln ol Mo txo 0 41 4� > m 0 Cj) 0 4-1 Ln 4� 0 41 m o 0 W 0 u I/) - U W u CL E (U a) u 0 E 0 00 Z3 Ln -4 CL 41 0 -La CL 0 W = X Ln ol txo txo 0 > m aj C 0 4-1 4� 4� 0 41 4j m o W 0 U 0 W 0 CL E (U a) 0 0 E 0 N H Ln -4 in -La CL 0 ol txo > m aj 0 4-1 CY) 4� 0 41 o 0 U 7 O E (y QJ M 4- o QJ O >' f6 CL t � . u� E r -I cu (U E E F- :N +_ iO L Id ai % z CL a W m r_ 'A O E E L CL N Ci0+Om G C7 ca N c N E C t Nv CL E o N i — C (A Z f0 N E -Q c U1 E L LL 0 0 O O -i +� O m O E 7 O (y a a QJ O >' 3 O Q- . u� E r -I cu C W aiL tA :3 O z iO L Id ai % z m W m r_ 'A E L Ci0+Om G c W cu Y tt Comments on how business would be affected: $15 is my minimum that I pay to employees, as I. feel that is the minimum living wage in Sonoma County. A $15.00 minimum wage would lead us to use more technology rather than hire staff members. The requirement of extremely costly health care, increased sewer & business costs have already eaten into the ability to run our business. While we have many employees that make well over $15.00/hour. We also have many positions that simply do not warrant a $15/hour wage and these positions could be replaced with automation. unfortunately if these jobs were eliminated this would eliminate many 1st jobs for local teens. Abroad increase in the minimum wage would negatively impact youth looking for their first job. I doubt any employer would choose a first time employee over a seasoned employee for $15.00 per hour. Let the market drive the wage as it already does! The survey should ask as to whether or not there are any businesses paying $11.00, If so, to whom. This is a 36% increase in the minimum wage. Quite a jump! A much more important question is how our community members who work for us are affected by having to work for poverty wages in the expensive Bay Area. If our businesses can't afford to pay something resembling a minimum wage, we need to raise our prices or we shouldn't be in business while exploiting our employees. Additional costs for vendors and suppliers most likely As a restaurant owner until there is a trip credit or an exemption for tipped employees I cannot support a higher minimum wage. As well the rate at which they want to phase it in is far to quick. That is not enough time for to evaluate and make changes in the business as that kind of increase cannot be absorbed. It will result in lay offs, schedule cuts or doors being shuttered. As a small business it's hard enough to keep going, an increase in minimum wage would only make it tougher At the farmers' markets we bring a collective of small, micro businesses together to share what they have to offer at a low cost. I believe the increase would effect them more than our business model. It will most likely make more difficult for those businesses to expand or even get started. Also the cost of their goods will increase which will make the challenge greater. Business has a serious responsibility to the local community. We can all do what's right to create a viable community. Greedy business is bad business. Employees are the true value of any company. We need to recognize their value by increasing the minimum wage. I am retired but I did own a restaurant in Petaluma for a quarter of a century and every cost of living impacts the bottom line however customers always seem to adjust because many of them were also receiving raises. I could not hire inexperienced workers for $15 an hour. Many of my best employees are in high schoolers I that I have trained in their first job. I would not be able to hire them at $15 an hour and pay them to be trained by an older mentor if they have no experience. I currently provide hourly wages above $15/hour and believe it is a reasonable minimum for Sonoma County. I would be more concerned if only some municipalities implemented the minimum, making the requirement uneven across the county. It is a bit surprising that many businesses can attract employees at the current minimum wage at all in today's labor market. I hadn't considered whether our cost of goods would increase so I'll need more info on that. But we have been starting all employees at $15 for several years now, because we wanted to make sure we would be viable with that increase. So far, we are. This does mean that we the owners don't take a pay raise, haven't in 7 years, but we make enough to live, and continue to give raises to employees. We believe a healthy community is based on equity. I have no employees so no effect there, but maybe I could then pay myself. I pay $20 an hour. I am in support of a living wage. I pay my employees a fair wage out of good business sense and not because it is shoved down my throat. We employ a lot of kids and hire them for their first job. They do not need a $15.00 an hour but those that do get it and more. Raising wages will force me as a small business owner and others as local suppliers to raise prices. Larger corporations can absorb these costs much easier over a long period of time. This effort will negatively affect the "Small Guy" or "Mom and Pop" businesses that make our Downtown community viable. The State effort is fair enough. I strongly support a living wage. People need to be able to afford to live in and frequent the businesses in the area where they live and work. This is a beginning. I am a small young business but nevertheless believe this is super important i would not be able to afford my employees and I would have to close my business! I would probably have more customers for my art If minimum wage were to increase suppliers would charge more for their products and in turn we would charge consumers more too. If the minimum wage is $15 then employees that think that the minimum wage is for starting employees they will request $18 or $20 an hour therefor making it impossible for small businesses. if you have more than 26 employees, which I do, the minimum wage is 12/hr. The only employees who receive minimum wage are the servers who are compensated by tips as well. Employers pay payroll tax on the tips, which can be very significant. Kitchen workers are paid an average of 20/hr. The market place has determined that pay level. They know their skills are very valuable and if we don't pay them that, someone else will. That would result in a lack of stability, huge turnover, way too much time spent on training. Everyone knows that you can't live on 12/hr in Petaluma, but its important to have some flexibility so we can hire high school students, give them opportunity and skills. You can always find work in the food industry, and I know many PHD's who have worked in restaurants throughout their college years. In the restaurant business I really think the entry level positions that get minimum wage is buskers and dishwashers. $15 to start is ludicrous it will impact my business so much so that I am rethinking resigning my lease. Add to the fact servers will make $15 an hour plus tips putting them at $45-$75 an hour and not having to legally share tips with cooks is really an in justice. It is possible that suppliers might pass on some of this to us, but it would also hopefully help our prospective residents earn more money to help them qualify to live here. Although even at $15 per hour, they would need more than one income in the household. It wouldn't effect my business but what is a horrible bummer is that it would probably effect a lot of other businesses due to the greed and high rent in this area. Not sure how businesses will be able to sustain a working space by not working themselves to death. I know a lot of business owners that can't afford an employee so they are over loaded with work or have to close their shop in order to take a day off because they can't afford to hire anyone. With wages and payroll taxes mixed with high rent it is all very hard to handle. I just took my first vacation in over 10 years because I just couldn't do it all... and I had to take a vacation ALONE and leave my family home because we couldn't afford to take a 'family' vacation. This area is becoming a very scary place to take a risk with business. I have a friend that would love to rent a spot downtown and can't afford it due to high rent, yet the place she is interested in sits vacant. It all just doesn't make sense. Commercial real estate owners aren't willing to lower their rent in order to allow someone else to live their dream. This little town doesn't allow big box stores yet how is a small business able to make it with big box rent? It's too much too fast. Take another year to raise it. minimum wage is a starting wage NOT A LIVING WAGE. This concept of a minimum wage is only useful to lower wage earners if a "top wage" is fixed to a lower wage. For example if minimum wage is X than a county employee and any vendor they purchase from may not be paid more than 5X. Basic economics; a higher minimum wages destroys the "middle class" The state has already insured lowering everyone quality of life, there is no need to accelerate it. Difference between $11/hours and $15/ hour is $650/month pretax IFF this is a full time job. Cant exactly think about renting or buying a house with that kind of money? It would encourage car ownership which would accelerate climate change adding all those cars to the streets. Next question; find me a high school kid who is worth $15/hour ? The business world needs a starting wage; an employee needs to earn a living wage. Minimum wage laws have good intentions and bad consequences. Costs will be passed along, and it's already hard enough to survive as a retail establishment with sky high rents in this area. Fewer people will retain jobs and fewer people will be hired. California is hell bent on self destruction, so it's not surprising this law is most likely going to take effect. Minimum wage should reflect the high cost of Sonoma County No impact Not only would our direct payroll and payroll taxes obviously be affected, additional costs would be passed on to us by vendors who would make up for an increase in their payroll costs. Our Business is seasonal retail business. During the Christmas holiday we hire High School, College and Seniors to work. It is difficult to find trained individuals to fill this void on a temporary basis. This opportunity gives the younger inexperienced individual a chance to learn retail operation and seniors a chance to earn a little money for the holidays. While a more experienced person might be worth the higher wage, and we do pay some employees on that basis. The temporary help, due to inexperience and lack of motivation, is not worth the increase in minimum wage. We will have to cut staff and eliminate work experience opportunities as well as a chance to earn extra holiday income for students and seniors alike. Our costs would increase, therefore our product would increase to the customers and we would lose business. We would not be able to retain all employees, and would be cutting back hours. We are a small business with under 5 employees at all times. We would be forced to schedule leaner shifts, and let go of employees while our owner works more instead of expanding his business through outside sales. In times of bad weather, such as this last rainy season, we were barely getting by. I couldn't imagine having to pay 36% MORE in wages. If that were to happen again we would possibly have to close our doors. Our prices would need to increase, which would pass on the cost to the community, eventually affecting customer base and the amount of employees we would retain. In addition, the competitive wage increase plan we provide for employees would need to be amended, therefore the employees whom had earned a rate increase would not be compensated. Instead, their potential increase would be doled out to afford just the minimum, which would de -incentivize longevity and career success. Overall costs would likely increase either as new employees are hired or from increased costs passed on from suppliers. However, workers receiving a higher wage often (not always) results in increased productivity and a more enjoyable work environment. Overall, it is my opinion that the benefits outweigh the costs. Payroll and payroll taxes would go up. We are at $14.00 minimum currently and are ahead of the curve getting to $15 minimum Fed wage for 2021\. Our supervisors and long time employees have exceeded $15 already. As long as consumer spending doesn't slow to much, we should be good and a horrible recession would not be good either. $15 minimum is a drop in the bucket for anyone trying to find housing in Sonoma County, but it will help our employees. People currently making $14 to $15 an hour would want a raise to reflect their experience and training. We would have to give everyone a raise, or our higher paid staff might go elsewhere. Probably have more customers with disposable income. Profit margin in business would be marginally affected as a higher wage also costs more than the wage. That's all. But I support it because the cost of living in Petaluma and Sonoma Co demands a higher wage. AND having a higher minimum wage in Petaluma may make it easier to recruit more qualified individuals who would be encouraged by the higher wage. Quite honestly the employees that are applying for the job market in my experience aren't worth the dollar amount. Lack of follow through and lack of desire to be a "good" conscientious employee. We'd probably have to close. Restaurant employees are already highly compensated by tipping. A higher min. wage will only serve to increase costs of doing business as a restaurant which is already tough as it is with only a national ave. profit margin of just 3.2%. Passing along the costs to customers will negatively affect affordability to dine out with their families. Small businesses with the owner working plus one employee might have trouble since they may be struggling to keep overhead cost down to have merchandise prices reasonable for[people to " buy locally" instead of online. Some may have to let an employee "go" in order to make it. Some may resort to paying people "under the table" in order to make ends meet. However, $12 is not a living wage and neither is $15 if you want to live in Petaluma let alone Sonoma County. If you are lucky enough to get a 40 hour a week job you are taking home less than $2K a month at $15 an hour and a two bedroom apt costs more than that!! Some states have two tier minimums: one for non-tipped employees & one for tipped employees. The average hourly rate for servers, including tips, is more than $20 per hour! Some would be out of business. That is way too fast of a roll out to $15\. 18 months? Businesses that rely upon minimum wage labor as a starting wage will really be unable to support that rapid of an increase in payroll without passing on significant price increases to their . This is going to be a big issue for us small businesses.. The best.thing would be too have tip employees be exempt for min wage increases. This will help with the domino effect it will have on the the bottom line operating cost. We will have to raise our prices of food and the consumer will not understand that concept and think our food is over priced. I think the only way out is to put a sur charge on the check to break out the cost so that they can see where their money is going. I do think that the min wage needs to go up to $15 but we have to figure out how to recoup the money so that it does not put us all out of business and forces us to charge $ 18 for a burger !ii!!!! Those businesses affected by minimum wage employees, will in many cases not be able to pass along this additional cost. At a time when retail is struggling anyway, this is an undue burden. The flip side of this, is that if a merchant does try to pass along those costs, people will not buy their product at those prices. This issue is a "feel good" issue that will not be supported by the consumer. We already pay a base of $13 per hour and raising the minimum ahead of the state planned increase to $15 would be difficult. We would have to offset that increase by raising our prices which could deter customers. We are as small restaurant with 43 employees. Our serving staff average 45 - 50 per hour, per shift. While we support others in the restaurant - BOH, etc. Do not feel it should apply to those employees that obtain tips. We would have to pass this cost onto the public via service charges or price increases. We currently pay $18-$20 per hour We currently pay more than minimum wage to get the cream of the crop when it comes to high school students. If the minimum wage is raised to $15 we will have to raise our wages up to $17 or $18 an hour and we cannot afford to keep all of the students we have working for us. We will need to let go at least 2-3 students and cannot afford to run our business effectively. We need to be reasonable as business owners and consumers and support each other as a community. It is unreasonable to expect wages to not keep up with inflation and to penalize business owners who take the moral high ground of paying a living wage by forcing them to compete with businesses that do not. This should not be a race to the bottom, but a race to the top. We need to raise to $15 in order to get good help. People cannot afford to live in Petaluma. We will pass to additional costs on to our customers. We run a hotel in Petaluma and the impact of the increase in minimum wage would impact the profitability of the business. The hotel rates in Petaluma are not like San Francisco, Napa, and the Peninsula. Therefore, this increase would cause to either increase room rates, which could adversely impact tourism and definitely our margins if we aren't able to drive revenue. While we are not paying minimum wage to our employees today, the increase to $15 is a substantial increase - it has other impacts on payroll tax, workman's comp, and other areas that are not factored. I strongly urge you to be careful on this matter and urge you to talk to Main St. America who run their businesses on a day-to-day basis. We will have to do our work with less people. We work very hard to use local businesses, suppliers, and service providers so our costs will increase significantly. We might be forced to source our business support elsewhere. We would have to release several employees and cut back hours. Our prices would also have to increase substantially to the point where I feel we would lose a lot of business. Costs for our supplies would also increase slightly We would need to cut staff and raise prices on everything we offer WE would probably have to close. Our payroll is already running 45 percent of gross sales. WE hardly make any profits at this rate. We wouldn't be able to sustain an increase of that sort. We likely would eliminate all front of house staff and be forced to change our model to a counter service only option. Laying off 16 - 20 members of our team With rent already being extremely high and cost of goods going up, we would have to close our doors if minimum wage increased. People don't think about small business when they consider increases in minimum wage. This would destroy many small businesses in the area With the price of rents for commercial spaces in Petaluma and enormous burden of taxes of doing business in California this would hurt all businesses and owners. An additional 35% increase in labor with the accompanying taxes will skyrocket our prices and hurt our business considerably. We would need to cut staff and this would hurt of businesses and service Would have to raise prices, let go part time help, customers would shop elsewhere. Any additional feedback is welcome $15.00 an hour is not a living wage anywhere in California. A business that is responsive to the local community is a viable business. A business that purports to be unable to be responsible is not needed or greedy. Let's be fair. a lower minimum wage encourages job creation which would keep kids from going to college and getting into debt. We are an agrarian society and we have lost touch of that; farmers needs lots of hands to get work done, encourage that by lowering minimum wage. after all we are an employed at will state, people can quit and get new jobs whenever they want to All aspects of running a business have increased in recent years. Many HR costs simply do not make business sense, I have a $13.00 employee that is $1100/month for kaiser. This is not a key position but because they are working all year they qualify for our healthcare plan. Increased HR costs are leading to increased automation. Appreciate the survey ahead of the workshop. Good idea! I have a specialty business so all of my employees have specific education and certification in order to work for me. So, they have a higher hourly wage. We sell optical medical devices. We are all certified opticians that are registered with the medical board. All of my employees HAVE to sell a decent portion of goods in order to have a job and maintain payroll. I own a specialty eyewear shop. What this town needs is someone that helps building owners with city planning. Also, building owners need to be open to help and feedback from the other business owners in town. I think this town could maintain a higher minimum wage if the proper planning was in place in regards to helping business owners with placing new businesses in town. I suppose that is in the hands of the brokers? Perhaps some regulation could be put in place to help the brokers? A meeting with business owners and brokers in regards to what is needed in the downtown area? This could maybe help keep more of a variety in the downtown area and less build up of similar businesses. Too many of the same type of business is not going to allow for constant foot traffic, therefore, not supporting an increase in minimum wage. I hope this doesn't get pitted as an us vs. them situation, where either businesses win or employees win. Good employers want their employees to, be paid fairly. We should all be unified in fighting for a $15/hour minimum wage. I think it's a great idea but needs to be approached in a much slower roll out such as 3-5 years like San Francisco did, and with advance notice. Otherwise you risk losing small businesses in the service industry I think the best thing is for all of the restaurants to get together and come up with our own city plan so that we are all on the same page. We on the west side are mostly sole owners and do not have the working capitol to deal with this HUGE impact that it will have on our, bottom line. On the other hand I do believe that $15 is a fair amount to pay employees based on our current cost of living and raising prices. Having tipped employees at a lower min rate and a surcharge after taxes is the only solution that I have come up with thus far to stay above water. If you put the minimum wage we will have to pass the cost to our customers. If you want to go after businesses with 26 or more people with minimum wage, go for it. Small businesses will be hurt by this. Costs will rise for both supplies and retail end. There is a reason San Francisco and other counties are so expensive, please do not let the North Bay follow in those footsteps. The state of California is already on track for a $15/hr wage in the next few years, why accelerate that with such big jumps? Small businesses do not have the capital behind them that large businesses such as Target and Wal-Mart do. If you want to combat people not being able to afford housing, go after rent control. Raising minimum wage and hurting small businesses will not help. Minimum wage jobs are not designed to be a career. We employ high school and college aged kids part time to make a little extra pocket money while they are still living off of their parents, and then they leave when they get their first "big - boy job". Minimum wage is not designed to support a household. It's frustrating to own a business in our current time. Work ethic has diminished and the need to even have a job is non existent. It's also a ethical issue. Let's do this! Even $15 is unreasonable as an hourly wage. It represents only 30K per year. Please DO NOT raise minimum wage. This will have a huge negative effect on our business and we run the risk of having to close our doors permanently. Please talk to businesses and get their input before making a decision. While I come from the hospitality world, this significantly impacts the restaurant business, where waiters are earning tips. Restaurants run extremely low margins and to ask them to absorb this burden is unrealistic and very discouraging. I also encourage you to talk to other cities, where this has been implemented. We have a hotel in Berkeley and they raised minimum wage there. The number of restaurants and small businesses that closed are directly correlated to this. Thank you for sending out this survey! Thanks for your great work. The $11/hr, min. wage listed in this survey and on the email campaign is incorrect. Min. wage is already @ $12/hr. Guess whoever sent this is not on min. wage. :) Thank you for the info. The reason the wage is 15 per hour in SF and East Bay is that it cost twice as much for housing than our area. Also why should a high school student living at home get $15 per hour working at a coffee shop? Its going to put small restaurants out of business. Star Buck may be able to afford it because of the scale of their purchasing power, same for Al fast food places. The State of California already has a mandated plan for wage increase. This plan will ruin the opportunity for young inexperience people to have the opportunity to learn a business or trade in Sonoma County, a chance to build some independence and self esteem. The possibility of growing up in a community they are proud to belong to, with a clean trouble free record. The unintended consequences of raising an already high starting rate need to be carefully considered. - Price hikes in the community - Suspended small business growth -Less entry level candidates will be considered (i.e. high school students who rely on jobs early on to propel them into higher education) There is a domino effect that happens with this increase. Impacting all employees. For instance, if we currently have long term employees that make 15 -17 per hour. It does not seem fair to bring in someone new at the 15 hour without having to increase existing employees. We all need to eat and have shelter. We may all have to make changes to ensure people are treated fairly but at a cost! We employ a lot of kids who don't require a "Living Wage" but for those employees that do, we choose out of good business sense to keep them working for us a living wage that allows them to live and thrive in our community. Let the Unions represent employees that work for large businesses and keep them away from small family businesses that are trying to compete with corporate chains and monopolies. The labor organization is using data from 2012 when the unemployment levels were near the highest levels ever. See ACS (American Community Survey). 1. Data source We use the 2012 IPUMS American Community Survey (ACS) (https://usa.ipums.org/usa/ We were recently affected by the $1 / hr increase from $11 to $12 due to the amount of employees we currently staff. That increase alone has been challenging. Most of our staff are gratuity based and the increase will adverse affect our business structure Making ns BY JEANNETTE WICKS-LIM ampaigns like 15Now and Fight for $15 are bucking convention and demanding minimum -wage hikes far larger than what has been past practice. Take, for example, the Fair Minimum Wage Act of 2007—one of the larger sets of increases in the federal mini- mum. This Act raised the federal wage floor by 40% in three steps: from $5.15 to $5.85 in 2007, $5.85 to $6.55 in 2008, and $6.55 to today's minimum of $7.25 in 2009. A $15 minimum wage, on the other hand, represents a more - than -100% increase in the federal mini- mum.The result? The fight for $15 has decisively changed the terms of today's minimum -wage debate. The ball got rolling in 2013 with the breakthrough $15 minimum ordinance in SeaTac, a suburb of Seattle, Wash. Since then, some of the country's larg- est cities, including Los Angeles, San Francisco, and Seattle, have followed suit, passing their own citywide $15 minimums. In June 2015, Massachusetts passed a statewide measure covering Medicaid -funded homecare aides. Later in the fall, New York State passed a $15 minimum wage law for fast-food workers. This sea change seems to have occurred overjust the past couple of years, dra- matically pivoting away from President Obama's soft pitches to raise the feder- al minimum to $9.00 in 2013 and, more recently, to $10.10 in 2015. These developments are certainly a remarkable political turnaround, but are these wage hikes economically feasible? The immediate pushback against these campaigns has questioned whether it's feasible to expect business- es to adjust to a minimum -wage hike of this size without generating major neg- ative unintended consequences. This opposition to a $15 minimum comes not only from expected corners—e.g., self-interested restaurant -industry lobbyists from the National Restaurant Association—but also from many econ- omists. The most widely discussed of the possible unintended consequence is the large-scale loss of jobs. Such an outcome would counteract the primary intended consequence of a $15 mini- mum wage—to improve the living standards of low-wage workers and their families. The rationale is that, if you raise the price of anything, the quantity de- manded of that thing will fall. This is how people usually interpret the basic could adjust to a $15 .IT& 1 laying off workersand without industry'sprofit margin. economic principle known as the"law of demand."That raises a serious con- cern that raising the wages of low- wage workers will cause their employ- ers to cut back on staff, leaving the workers worse off—either unem- ployed or working fewer shifts. The current state of research on this employment question, however, finds that minimum -wage increases do not produce significant job losses. This then raises an important policy ques- tion: Why haven'tthere been signifi- cant job losses when minimum wages have increased? First, the basic law of demand actu- ally says something quite different and more specific than just"if the price of something goes up, the quantity de- manded of that thing goes down." It actually says that if the price of some- thing goes up—and nothing else changes—the quantity demanded of that something goes down. In the real Attachment 8 world, however, other things are changing all the time. Moreover, rais- ing the minimum wage itself causes businesses to change how they oper- ate (more on this below). As a result, the minimum wage's actual impact on jobs depends on what other factors are changing at the same time. Here's a specific, relevant example: Seattle's 2013 ordinance calls for a series of progressive increases in its minimum wage, up to $15 by 2021 for most businesses. At the same time that the city adopted this new policy, the local economy had been growing (and continues to grow) at a healthy clip. This helps explain why, according to the Puget Sound Business Journal, "six months after the first wage in- crease to $11 per hour took effect, the fear of soaring payrolls shows no signs of killing the appetite of ... the Seattle restaurant world—for rapid expansion"The title of the article sums it up:"Apocalypse Not: $15 and the Cuts that Never Came" Employment growth in Seattle's res- taurant industry has not slowed. The main point is that if no signifi- cantjob losses result from minimum wages, then it must be the case that employers find other ways to adjust to their higher labor costs. And, in fact, past research has found that businesses often cover the costs of these higher wages by raising prices, re -directing some of their normal revenue growth into raises for their lowest paid workers, and finding savings from lower worker turnover, as higher wages strengthen workers' commitment to theirjobs. A minimum -wage hike, in other words, causes both employers and workers to act differently from how they would act in the absence of a minimum wage hike. Employers adopt new strategies to increase revenue to support higher wages, and the stronger loyalty of better -paid employees frees up reve- nue that would have been spent on JANUARY/FEBRUARY 2016 I DOLLARS & SENSE 1 5 recruiting, hiring, and training new workers. Put anotherway, the"all else equal" clause simply does not hold in the real world. It's important to note, too, that there are disadvantages for employers if they cut their workforce— a smaller staff can make it hard for a business to maintain or improve its ex- isting level of operation and also to re- tain or expand its customer base. Even though past minimum -wage hikes have been more modest than the $15 minimum of today's political campaigns, we can use the existing body of research to develop a well- informed view of whether it's feasible for businesses to adjust to a $15 mini- mum wage without shedding jobs. This is exactly what my colleague Robert Pollin and I explored in our re- search earlier this year—we examined the question of whether the national economy could adjust to $15 mini- mum wage while avoiding any major negative unintended consequences. Our analysis focuses specifically on the situation of the fast-food indus- try—the,industry expected to require the largest adjustments. According to the U.S. Department of Labor, the two occupations that make up more than ' 62% of the jobs in the fast-food indus- try—fast-food cooks and combined food prep and serving workers—are the lowest paid occupations. Half of cooks earned less than $8.87 and half of combined food -prep and serving workers earned less than $8.85 in 2014. If fast-food firms can adjust to a $15 minimum without any major neg- ative unintended consequences, other less -affected Industries should be able to adopt a $15 minimum more easily.. In our study, we provide a detailed analysis of the labor -cost increase the fast-food industry would face as a re- sult of a $15 minimum wage, taking as our starting point the situation as of 2013. We then use existing empirical research to make reasonable assump- tions about the variety of ways firms could absorb these cost increases without shedding jobs. We estimate that a $15 minimum, phased in over four years, would raise the overall business costs of the aver- age fast-food restaurant by about 3.4% per year. About half of this cost in- crease could be covered through rais- ing prices by 3% per year and assum- ing that quantity demanded will fall by about 1.5% due to the higher prices. This would mean, for example, that the average McDonald's outlet could cover about half of its total cost increase by raising the price of a Big Mac by $0.15 per year for four years—for example, from $4.80 to an eventual $5.40. ofwork are unlikely to be re'placed by technology routine manual The fall in demand due to these price increases, however, is small enough that it can be more than offset by the rise in demand for fast food fur- nished by a healthy, expanding econo- my. Consumers tend to consume more fast food as their income grows. Over the past 15 years, industry sales have been growing at a slightly faster pace. than the overall economy, or about 2.5% per year. As a result, even with the price increases, the fast-food industry should grow and add jobs,just at a somewhat slower pace. But note: this slower job growth is less concerning than one ini- tially maythink. Workers'gains in earn- ings per hour as a result of a $15 mini- mum wage—averaging 60% across the fast-food workforce—far outstrip the loss in earnings due to 1.5% fewer fast- food work hours added to the economy. The remaining half of the cost in- crease could then be covered through cost savings due to lower turnover and by channeling more of the fast-food revenue growth generated by the growing U.S. economy toward payroll. 6 1 DOLLARS & SENSE I JANUARY/FEBRUARY 2016 We also found that, after these adjust- ments are made—increased prices, reduced worker turnover, and a more equitable distribution of the gains from growth—businesses will not have to cut into their profit rate at all. In other words, fast-food restaurants could adjust to a $15 minimum wage without laying off workers and without shrinking the industry's profit mar- gin—the least desirable option from the perspective of employers. There is one other possible outcome to consider: Will employers try to avoid higher labor costs, over the longer term, by replacing some workers with ma- chines? So far, the empirical evidence of such capital -labor substitution suggests no. Preliminary research by Chicago Federal Reserve economist Daniel Aaronson and his colleague Brian Phelan indicates that jobs with a high level of routine manual work—the lion's share of low-wage positions in the fast- food industry—are unlikely to be re- placed by technology in response to minimum wage hikes. This indicates that fast-food employers will tend to look first to other ways to adjust to a $15 minimum wage, before replacing their workers with robots. Since there are other ways for fast-food firms to adjust to a $15 minimum wage -as described above—it seems unlikely that employers would seek technologi- cal substitutes for their workers. Businesses should, in other words, be able to adjust to a $15 minimum wage without having to shed jobs, as long as it is implemented at a reasonable pace. Such a policy, therefore, should provide major benefits for the lowest -paid work- ers in the United States. JEANNETTE WICKS-LIM is an assistant research professor at the Political Economy Research Institute at UMass-Amherst. SOURCES: Robert Pollin and Jeannette Wicks - Lim, "A $15 U.S. Minimum Wage: How the Fast Food Industry Could Adjust Without Shedding Jobs, Political Economy Research Institute, Working Paper #373(2015). Attachment 9 Other Input from Community Members Cooper, Claire Subject: Letter in Support of a $15 Minimum Wage Ordinance From: Zahyra Garcia Sent: Tuesday, April 2, 2019 9:06 AM To: -- City Clerk <CitvClerk@citVofpetaluma.org> Subject: Letter in Support of a $15 Minimum Wage Ordinance Good morning city council and mayor, We, Indivisible Petaluma have outlined reasons why we feel Petaluma can step up and lead on the raise the wage movement. We support North Bay Jobs with Justice and look forward for the opportunity in having this important conversation. Want to add that I appreciate our new city manager for voicing out that our city needs to have more resources for our Latinx community in Spanish. Whether it be content translated in Spanish during meetings, policies & social media. Perhaps ASL too. These are steps in ensuring that Petaluma can be a welcoming and inclusive city. Which is why I've submitting a letter in Spanish for public record as well. Appreciate your time.. Warm regards, Zahyra Garcia Pronouns: SVIE/HlEft Co-chair for Indivisible Petaluma Co-chair for North Bay Orgainzing Project Petaluma Founding Member of North Bay LGB T QI+ Families Phone # 67€3 687 3449 1 Petaluma City Council 11 English Street Petaluma, CA 94952 April 11, 2019 Dear Petaluma City Council, Indivisible Petaluma supports a $15 minimum wage ordinance in Petaluma. A report from The. State of Working Sonoma Fall 2018: A Profile of Income & Racial Inequality, Poverty & Low — Wage Employment (http•//northbaviobswithiustice or_a/State%20ofl/o20WorkintZ%20Soil oma%202018 Final %20Report.pdf ) highlighted the following: One in four Sonoma County residents live in families receiving annual incomes of less than 200 percent of the federal poverty line or about $50,200 for a family of four; One in five county residents live in working poor families earning less than 200 percent of the federal poverty line with at least one member reporting income from work; Women, Latinos and other people of color experience the highest rates of poverty and disproportionately comprise the working poor; A living or self-sufficiency wage for Sonoma County is $23 an hour but about three-quarters of the new jobs created between 2014-2024 will pay less than a livable wage. Nearly one in two Sonoma County renter households are rent burdened and pay more than 30 percent of their gross monthly income. for rent; one quarter are severely rent burdened and pay more than 50 percent for rent. Between 2000 and 2016 median rents increased by 25 percent in the county while median renter incomes rose by only 9 percent; Families in Sonoma County are struggling to make ends meet. Petaluma has the opportunity to lead. You, as elected officials, can move the pendulum faster and adopt this new rate now, because your constituents need fair wages today, not tomorrow! Indivisible Petaluma Co -Chair Zahyra Garcia Director Paul Guerrero Petaluma City Council 11 English Street Petaluma, CA 94952 April 1", 2019 Indivisible Petaluma apoya una ordenanza de salario minimo de $ 15 en Petaluma. Por que subir el salario minimo ahora? En el periodo 1979-2016, los sueldos del 10% de los trabajadores que mas ganan obtuvieron un aumento 26% ajustado por la inflaci6n, pero estos se mantuvieron sin cambios para el 60% de los trabajadores con menos ingresos y se redujeron en un 11% para el 20% de los trabajadores con menos ingresos. Se estima queen 2017 una familia del Condado de Sonoma compuesta de dos adultos y dos ninos necesitaba ganar $23/hora en empleos a tiempo completo (ambos trabajadores) para ganar un salario de vida digno o para ser considerado autosuficiente verdaderamente. Sin embargo, mas de la mitad de los nuevos empleos creados en el condado entre 2014 y 2024 pagaran menos de un salario digno. Entre los anos 2000 y 2016, los alquileres medios de viviendas en el condado de Sonoma aumentaron un 25%, mientras que los ingresos anuales medios de los inquilinos aumentaron s610 un 9%. La edad media de los trabajadores que recibiran un aumento salarial es de 33 anos y, en promedio, los trabajadores afectados contribuyen con mas de la mitad de los ingresos de sus familias. El 50% de todas las trabajadoras, el 27 por ciento de los trabajadores blancos, el 51 por ciento de los trabajadores latinos y el 46 por ciento de los trabajadores inmigrantes recibiran aumentos salariales. Familias en el condado de Sonoma estdn luchando para mantener sus familias. Petaluma tiene la oportunidad de liderar. lUstedes, como lideres pueden mover el pendulo mds rdpido y adoptar esta nueva tasa ahora, porque la comunidad necesitan salarios justos hoy, no manana! Indivisible Petaluma Copresidente Zahyra Garcia Director Paul Guerrero Pascoe, Samantha From: Beverly Schor <beverlyschor@gmail.com> Sent: Tuesday, March 26, 2019 1:31 PM To: econdev Subject: Escalating Minimum Wage ---Warning: Use caution before clicking any attachments. THIS EMAIL IS FROM OUTSIDE OUR EMAIL SYSTEM. --- To Whom It May Concern: I am not able to attend the April 8 meeting regarding the proposed minimum wage increase in Petaluma. As a former small business owner, now retired, I know that it's people, not widgets make a company great. $15 per hour represents only $30k per year. Please escalate the minimum wage in Petaluma to $15 right away so that we can be competitive in the job market and have great people working in and for our town. Thank you, Beverly Schor