Following in the footsteps of Seattle and San Francisco, the city of Los Angeles recently voted to raise its minimum wage to $15 an hour by the year 2020 and then indexed to inflation thereafter. To put the increase in perspective, an average minimum-wage full-time worker will now receive an extra $3,000 per year.
The first increase will be to $10.50 an hour starting July 1, 2016. Then increased each year until July 2020, when the minimum wage will be $15 an hour. Two years later, increases will be pegged to the Consumer Price Index. Businesses with less than 25 employees get an additional year before having their minimum wage hiked.
Like most laws, this will have winners and losers. This is seemingly great news for minimum-wage workers, but consider the affect the increase will have on small businesses or entrepreneurs. In order to avoid a loss of profits, some businesses will be forced to move their companies to a neighboring city, raise prices, decrease their total number of employees, reduce the quality of their services, or close all together. The question is how many businesses.
This will likely hit the restaurant industry the hardest. Restaurants fought hard to get the City Council to include tips in this new minimum wage calculation, but failed. According to Forbes.com, after the city of Seattle raised its minimum wage to $15 an hour, they saw an increase of restaurant closures. Some people are saying up to 25% of all restaurants in the City of LA may close or move to neighboring cities. Restaurants may also get creative by eliminating tipping and instead raising menu prices significantly and adding a service charge.
While supporters of the minimum-wage increase believe this will lift the families of full-time workers out of poverty, the critics are not so sure. Instead, they believe the wage increase will have an inflationary affect, driving rents and other prices up.
Do you think a large jump in the minimum wage for an individual city is a good idea? Consider the affect these increases have on things such as small business profits, unemployment, exodus of employers to neighboring cities. How easy would it be for most small business to move to neighboring cities like Santa Monica, Culver City, West Hollywood, Beverly Hills etc.?
*image by Flickr
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