More troubling signs of minimum wage damage on the West Coast

From Mark Perry.

"Just like there are some early indications that Seattle’s minimum wage law (currently at $11 an hour as it gets phased in over the next 16 months to $15 by January 1, 2017 for many businesses) is having an adverse effect on the area’s restaurant employment (see CD post here), there are also some “Troubling Signs of Minimum Wage Damage in Los Angeles” according to a new economic report from Moody’s Analytics.

The top chart above shows the recent significant divergence for California hotel jobs outside of the LA area (dark blue line) and accommodation employment within the LA area (light blue line). Over the last 12 months through June, hotel jobs in the LA area have fallen by 2,200 (and by 5%), while hotel jobs in the rest of the state have increased by 2,400 (and by 1.4%). Reason? A year ago, the Los Angeles City Council legislated a $15.37 an  hour minimum wage for hotel workers that went into effect on July 1 for hotels with 300 or more rooms, and will go into effect next July for smaller hotels. Moody’s economist Adam Ozimek explains:

The recent spate of local minimum wage hikes around the country is generating a lot of new data for economists to study, but so far I’ve been hesitant to focus on case studies. However, as I’ve been watching the data, one case is becoming too stark to ignore: Los Angeles. BLS data on the accommodations industry (NAICS 721) for Los Angeles county is starting to look like serious impacts [from the $15.37 an hour minimum wage] are occurring already.

The decline in year-to-year growth rates [for LA area hotel employment] starts to show up in October 2014, when growth falls below 2% for the first time in more than two years (see bottom chart above). Then in January 2015, [LA hotel] employment starts to actually shrink, and by June it is down 4.8% year over year. Zooming out [over a longer period going back to 1991], it’s clear that job losses of this magnitude in Los Angeles are not seen outside of recessions. Accommodation jobs have fallen by around 1,000 jobs so far this year.

Adam then adds some cautionary concerns:

[One] reason to be cautious is that the employment effects are showing up after the hike passed but before it takes effect. Businesses are forward looking so this is not impossible, but the magnitude of the declines before the wage hike takes effect are somewhat surprising especially for the service sector. Further, the hotel minimum wage hike only affects the city of Los Angeles, and these data are for the larger county of Los Angeles.

Overall, the caveats here are significant, and despite the stark and significant decline in employment, the data should be considered just very suggestive at this point. However, it does represent one more reason to be concerned about the forthcoming minimum wage hike that will be affecting all Los Angeles County workers in all industries.
While what we are seeing in Los Angeles so far is nowhere near conclusive, it should worry those who have been less concerned about big minimum wage hikes.

MP: Along with Adam, I’ll add my reservations about the restaurant job losses in the Seattle area that have been well documented (see chart above) – they are preliminary, and based on the loss of 1,300 restaurant jobs for the greater Seattle area between January and June of this year (even though only the city’s minimum wage increased to $11 an hour in April, which logically would suggest that the job losses in the Seattle area were more likely to be concentrated in the city rather than in the suburbs). And I’ll also echo Adam’s conclusion that just as economic theory would predict, there are early indications that certainly suggest some very troubling signs of minimum wage damage on the West Coast (Seattle and LA), with more trouble ahead – giving minimum wage proponents good reason to be worried."