More on the minimum wage-related job losses on the West Coast, and why they might be worse than reported

From Mark Perry.

"Over the last year, three West Coast cities – Los Angeles, San Francisco and Seattle – have passed $15 an hour minimum wage laws that will be in full effect by 2018 in San Francisco and Seattle and by 2020 in Los Angeles. On the way to the full $15 an hour, Seattle increased its minimum wage to $11 on April 1 and San Francisco increased its minimum wage to $12.25 on May 1. In addition, the Los Angeles city council last fall passed a targeted minimum wage of $15.37 an hour for hotel workers that just went into effect on July 1.

What effects are these minimum wage increases having? As I (and other economists) have reported here, here and here there is already preliminary evidence that the minimum wage hikes in all three cities have had negative employment effects: a loss of 1,300 restaurant jobs in the Seattle area between January and June, a loss of 2,500 restaurant jobs in the San Francisco metro area over the last year, and a loss of 2,200 hotel jobs in the Los Angeles area over the last year.

One technical issue with those documented job losses is that they are reported for the entire metro areas of Los Angeles, Seattle and San Francisco, and not just for the core cities, where the minimum wage increases went into effect. The challenge is that the Bureau of Labor Statistics only reports employment by industry for entire Metropolitan Statistical Areas (MSAs) or Metropolitan Divisions (MDs), and not for the main individual cities that those MSAs and MDs are based on. Ideally, it would be best to isolate the employment effects of minimum wage increases by looking at only the geographical area where those increases were implemented, but that analysis is not possible and we are left with a second-best option of analyzing the employment effects of entire MSAs or MDs like Los Angeles, Seattle and San Francisco. The second-best option has been criticized here and elsewhere.

However, I think a case can be made that the restaurant job losses documented for the San Francisco and Seattle MSAs and the hotel jobs losses for the Los Angeles MSA might significantly underestimate the actual number of job losses that took place in those three cities. As Stephen Bronars explained in his Forbes article yesterday (“Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs”):

The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.

The reason those job losses might be conservative is that they are based on the entire MSA or MD, when in fact most (or all) of the job losses were likely concentrated within the cities where the minimum wage was actually increased. In each of the three cases discussed above, the jobs in the state outside the MSA areas increased over the period examined: restaurant jobs outside the Seattle MSA increased in Washington state, restaurant jobs outside the San Francisco MSA increased in California, and hotel jobs outside the Los Angeles MSA increased throughout the state of California.

Therefore, common sense would dictate that the restaurant jobs in the suburban areas of San Francisco and Seattle, where there was no minimum wage hike, would more likely follow the pattern of employment gains that took place throughout the rest of those two states than they would follow the pattern of job losses in the core city where the minimum wage increased. Likewise, it would make sense that hotel jobs in the suburban areas of LA, where there was no minimum wage hike, would have increased along with the gain in hotel jobs throughout the rest of the state outside of the LA metro area. In that case, those job gains in the suburban areas of Seattle, San Francisco and LA might have actually offset some of the job losses within the cities, making the job losses in the city look better than what gets reported for the entire MSA.

For example, suppose there were actually a loss of 2,000 restaurant jobs in the city of Seattle between January and June due to the first minimum wage hike, accompanied by a gain of 700 restaurant jobs in the rest of the Seattle MSA where there was no change in the minimum wage. The net loss of 1,300 restaurant jobs that gets reported by the BLS (and Federal Reserve) for the Seattle MSA would actually then understate the true job loss of 2,000 for the city of Seattle by itself.

Bottom Line: Economic logic and common sense suggest that employment patterns in the outlying suburban areas of Los Angeles, Seattle and San Francisco, where there was no change in the minimum wage, would more likely track the pattern of jobs in the rest of the states of California (where hotel and restaurant jobs increased) and Washington (where restaurant jobs increased), that those areas would follow the pattern of job losses within the nearby city limits where the minimum wage increased significantly. In that case, the reported hotel jobs lost in LA, and the reported restaurant jobs lost in San Francisco and Seattle, would actually underestimate the true number of jobs lost within the cities of LA, Seattle and San Francisco due to the minimum wage hikes this year."