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Berkeley, CA and the $15 – oops – $19 living wage

Berkeley, CA’s labor commission – in what should be an unsurprising move at this point in Berkeley’s history – has proposed raising the city’s minimum wage to an astounding $19 per hour by 2020! The labor commission’s argument in a nutshell is that Berkeley is an expensive place to live so worker’s need more money. And while Berkeley may be an expensive place to live, mandating that employers pay a certain wage doesn’t necessarily mean that the workers will get that money. As one Berkeley restaurant owner noted:

“We can raise our prices. But you can’t charge $25 for a sandwich,” said Dorothee Mitrani, who owns La Note. “A lot of mom-and-pop delis and cafes may disappear.”

The article states that Ms. Mitrani’s

…. full-service restaurant now subsidizes her take-out shop, which she said is running in the red as a result of the increases already in place. If the minimum rose to $19, she expects she would have to shut it down.

Of course, there are some politicians – and unfortunately some economists – who insist that raising the minimum wage doesn’t have adverse effects on employment, despite sound theoretical reasoning and empirical evidence to the contrary. My Mercatus center colleague Don Boudreaux has compiled an extensive collection of blog posts at Café Hayek debunking and refuting every pro-minimum wage argument out there, and I encourage interested readers to check them out.

The minimum wage most adversely effects low-skill, inexperienced workers, such as those without a high school degree, below the poverty level, between the ages of 16 – 19, and with some type of disability. So how do the people who fit into those categories currently fare in Berkeley’s labor market?

The table below shows the labor force rate and percentage employed for people 16 and over in each of those categories in the city of Berkeley in 2013 and 2014. The data is from the ACS 1-year survey. (American FactFinder table S2301)

berkely min wage employment 2013-14

As the table shows the labor force rate and the employment rate for each of those categories is already low compared to the overall labor force rate in Berkeley of 67% and employment rate of 62%. From 2013 to 2014 both the labor force rate and the employment rate declined for people without a high school degree, while the employment rate increased in the other categories. Nothing in this table leads me to believe that it would be a good idea to make the workers in these categories more expensive to hire, as it seems it is already difficult for them to find employment and it’s getting more difficult for some.

The table below compares Berkeley to the surrounding San Francisco MSA using only 2014 data.

berkeley min wage emp vs SF MSA

This table reveals that compared to the surrounding area, workers in these categories fare worse in Berkeley. The percentage of people with less than a high school degree who are employed was 11 percentage points lower in Berkeley, while the percentage with a disability was 0.8 points lower and the percentage below the poverty level was 1.5 points lower. Out of the four categories only 16 – 19 year olds had a better chance of being employed in Berkeley than in the surrounding MSA.

Hopefully Berkeley’s city council reviews the labor market reality in their city and thinks about actual consequences vs. intentions before deciding to increase the price that low-skill workers are allowed to charge for their labor. It’s already difficult for low-skill, inexperienced workers to find a job in Berkeley and making it harder won’t help them.