Minimum wage dissent: San Jose’s law resulted in lost jobs

Original Article:

  • Author: Michael Saltsman

  • Publication Date: December 2014

  • Newspaper: San Jose Mercury News

Is the city of San Jose living proof that a higher minimum wage doesn’t harm jobs?

This year, proponents and reporters have pointed to the city’s falling unemployment rate and overall job growth as proof that the $10 wage floor caused no harm. Scott Myers-Lipton, the San Jose State professor whose sociology class spearheaded the law’s passage, boasted in the Mercury News that “the number of businesses grew” after the wage hike was approved. One CBS affiliate ran a story with this headline: “Data Shows Unemployment Down, Growth Robust after San Jose Adopts $10 Minimum Wage.”

It’s a pleasant-sounding conclusion that other Bay Area cities have used as justification to boost their own wage floors.

But San Jose’s economy is not a minimum wage economy. In fact, it’s classified as one of the country’s wealthiest metro areas, due in no small part to the high-skilled opportunities available in the tech industry. Looking for the impact of a higher minimum wage by studying overall employment including people earning six-figure salaries is a fools’ errand at best and, at worst, a campaign to mislead observers.

Common sense and economic precedent tell us that less-skilled employees more likely to earn the minimum wage, such as 16- to 24-year-olds with a high school degree or less, would see the greatest impact of a wage hike. And a topline analysis of employment trends for this group in the San Jose metro area suggests the city’s wage hike was less than benign.

San Jose’s new minimum wage took effect on March 13, 2013, although employers had the previous three months to prepare for the increase. That year, the unemployment rate for young adults in the San Jose metro area jumped sharply by six percentage points — from 14 percent in 2012 to 20 percent in 2013 — according to data from the Census Bureau’s Current Population Survey. Meanwhile, the overall unemployment rate in the same area fell by nearly two percentage points, suggesting that young adults suffered while others did quite well.

Of course, a more careful analysis is required before drawing final conclusions. But broad declarations that the policy change had no consequence are plainly premature, particularly in light of an EPI survey of 163 restaurants in San Jose, 45 percent of which cut employee hours and 42 percent of which reduced staffing in response to the hike.

These are not tech giants like Google but rather local restaurants like the Brittania Arms Pub, whose owner is Thomas Caughe.

“I am struggling mightily. I’ve had to cut staff,” Caughe said. “I’ve personally had to work my own kitchen and my own bar a lot more than I need to, instead of spending the time … to promote my business and pay my bills and do paperwork.”

The city’s oldest restaurant, Original Joe’s, also has cut back on staff and employee hours. Co-owner Matt Rocca told USA Today that the hike cost his restaurant $90,000 a year, forcing him to lay off five of his 67 employees and shift closing time up to 11 p.m.

It doesn’t take a labor economist to understand that the effect of a minimum wage hike shouldn’t be judged by equating employment of tech experts at Google with busboys at Original Joe’s.

Perhaps it’s time for a new conventional wisdom: San Jose’s economy is a great model for other cities in the nation to follow; its minimum wage, not so much.