Michael Reich, Ph.D. Pasadena City Council February 11, 2019 Pasadena's Minimum Wage Policy Effects on Workers, Businesses and the Local Economy Michael Reich, Ph.D. Pasadena City Council February 11, 2019

Introduction and preview of findings Pasadena an affluent city with many low-wage jobs; competes with LA for low-skilled workers Caution: Patterns in Pasadena likely affected by LA’s MW increase Main findings Pasadena economy continued to grow Pay increases in Pasadena restaurants, with no negative effects on overall numbers of businesses or jobs

Minimum wage Pasadena, LA and California Los Angeles California July 1, 2014 $9 July 1, 2015 9 July 1, 2016 10.50 10 July 1, 2017 12 10.5 July 1, 2018 13.25 11 July 1, 2019 14.25 July 1, 2020 15 13 July 1, 2021 CPI 14 July 1, 2022 California increases take effect January 1 of each year. CPI refers to indexing by the regional Consumer Price Index. Schedule shows higher rate for businesses with > 25 employees. Pasadena’s increases from 10.50 to 13.25 in two years constitutes about a 30 percent increase, or 15 percent over two years. CA’s increase was 10 percent. The scheduled future increases total 13 percent over two years. Increases in Pasadena are in line with increases in Los Angeles and Santa Monica, smaller than in San Francisco and greater than in California.

Unemployment rate, Pasadena and other areas

Sales tax revenue, low-wage industries

Low-wage industries in Pasadena, 2016q1 Employment Average weekly wage ($) Retail 8,868 660 Full-service restaurants 4,889 472 Services for youth, elderly, disabled--nonresidential 3,703 344 Limited-service restaurants 2,907 350 Home health care aides 1,101 603 Nonalcoholic beverages 642 327 Largest low-wage industries ranked by size of employment: food services (restaurants, bars and cafeterias), retail trade, individual and family and home health care services, child care, janitorial and car washes. Pay in retail ($660 per week = about $20 per hour, so not very affected by MW. Key sector: food services Other industries have a small number of employees, so data is very noisy. Rest of presentation : full-service and limited-service restaurants

Numbers of restaurants, Pasadena Gray vertical line: CA MW increases Red vertical line: Pasadena MW increases

Restaurant jobs, Pasadena

Restaurant jobs, LA

Restaurant jobs after Pasadena/LA MW increases Pasadena: full-service jumps, limited-service stable LA: full-service stable, limited-service increases slightly These patterns contradict each other; they should be similar Effects of MW? OR of consumers moving up-market from limited service to full service restaurants? OR some other cause? Evidence is too weak to make causal arguments

Drill further down in data: Use standard treatment/ control method 1. Change before and after MW, relative to Pasadena overall MW does not affect Pasadena overall 2. Change before and after MW, relative to restaurants in other areas Use areas not affected by local MWs Not OK to choose areas too close to Pasadena 3. Combine no. 1 and no. 2

Comparison 1, Pasadena restaurants, relative to private sector Black : private sector Red: full-service Blue: limited-service Y-o-y growth, not levels. Line above zero: positive growth Pay and employment growth for restaurants during MW increases. Pay growth is slightly higher during than before or after. Employment growth in full-service restaurants increases during and after MW increase. Employment growth in limited-service restaurants was positive but slowing down since 2014 through 2017.

Comparison 2, Full-service, Pasadena versus other areas Pay growth in full service restaurants very close to that in comparison counties. Employment growth is some what higher.

Comparison 2, Limited-service, Pasadena versus other areas Pay growth in limited-service restaurants close to that in other areas. Employment growth has been slowing from a very high level and slightly negative in recent years

Combine comparisons 1 and 2, full-service D in D compares pay and employment trends to private sector in Pasadena and to differences in other areas. This is the most careful comparison Pay and employment both increase in full-service restaurants faster than in comparison areas

Combine comparisons 1 and 2, limited-service D in D for limited-service: Pay growth increases sharply when MW is increased Employment growth generally higher too, except for past year.

Summary: After MW increases Pasadena's local economy continued to grow Earnings of restaurants workers increased Employment rose in full-service restaurants, remained stable in limited-service restaurants Additional comparisons confirm the same patterns

Pausing Pasadena’s MW increases Would not improve Pasadena’s economy Would mean lower pay in low-wage jobs, relative to pay in LA Pasadena businesses likely to lose their best low-wage workers to LA