Here's What Happened When Pasadena Raised Its Minimum Wage

(401kcalculator.org/Flickr)

California is on track to reach a $15 minimum wage in coming years, and some cities are getting there faster than others.

That means we could have early answers to a slew of familiar questions: Can raising wages too quickly hurt a city's economy? Will workers actually earn more? Or could they lose their jobs when employers either go out of business or flee to places with lower minimum wages?

Two new reports looking at recent minimum wage hikes in Pasadena shed some light on these debates. Their findings suggest that workers there are making more money, employment hasn't gone down and businesses aren't going away.

"I think there are indications of concern," said UCLA economist Ed Leamer, who led one of the reports. "But I wouldn't, at this point, say the minimum wage has turned out to be an inappropriate public policy."

Leamer and UC Berkeley economist Michael Reich, who led the other report, will present their findings at a Pasadena city council meeting on Monday. Council members will then decide whether the city should stay on course to reach a $15 minimum wage 18 months before the state as a whole — or if they should pump the brakes on future wage increases.

Here's what the two economic reports on Pasadena's minimum wage found and what that could mean for other cities pursuing higher minimum wages.

FIRST, THE BASICS: WHAT IS THE MINIMUM WAGE TODAY?

Statewide, it's $12 an hour for employers with more than 25 workers. In Pasadena, it's $13.25 — the same as the cities of Los Angeles and Santa Monica, along with some other parts of Southern California.

Four years ago, California's minimum wage was $9 an hour. If Pasadena continues to follow L.A.'s lead, workers will start making $14.25 an hour this July and $15 one year later. Workers in other parts of the state won't get to $15 until 2022.

(KPCC)

WHY DO THESE REPORTS FOCUS ON PASADENA?

Because Pasadena structured its minimum wage ordinance differently than other cities.

Back when the city council first approved it, they required a kind of midway check-in. By early 2019, they planned to assess how wage hikes had affected the local economy so far, and then decide whether to keep going or revert to the lower, statewide minimum wage.

That's why Pasadena commissioned the reports from these two independent economists. Leamer said the city's approach to monitoring its minimum wage is "unique, historically speaking."

SO... ARE WORKERS MAKING MORE MONEY?

Yes. Both studies find that on average, workers in low-wage industries like restaurants are now taking home higher pay in Pasadena.

Leamer said these are only industry averages. So it's possible that some cooks, busboys or waiters are making less than they did before — for instance, if their bosses severely reduced their hours. But Leamer said the overall trend is clear.

"There's no question that workers as a group are taking home more pay as a consequence of this minimum wage," he said.

A server carries drinks to diners at Green Street Restaurant in Pasadena, Feb. 7 2019. (David Wagner/KPCC)

ARE WORKERS LOSING THEIR JOBS?

Broadly speaking, no. Looking again at restaurants — one of the city's largest low-wage sectors — employment levels have not gone down in Pasadena.

"I just don't see any declines here due to the Pasadena policy," said Reich. "If anything, full service restaurants are doing a little bit better than before. But these are very small differences."

Leamer also finds no sign of a decline in overall restaurant employment due to wage hikes, but his report does suggest job growth in some restaurants may have flattened as a result.

"You see that the number of employees in these limited service restaurants came to a halt," Leamer said. "There's no more growth in Pasadena."

But Reich said it's not clear that this slowdown was caused by the minimum wage.

IS PASADENA LOSING BUSINESSES?

No, not overall. Reich finds there are actually more restaurants in Pasadena now than before the minimum wage increases kicked in.

That doesn't mean it's been smooth sailing for business owners. Michael Hawkins, co-owner of the family-run Green Street Restaurant in Pasadena, said he's had to raise prices, reduce his staff and cut hours.

"There's less people working here, and the people who are working are working less hours," Hawkins said. "I have never, ever wanted to raise prices. I just hate it. But I think it's going to have to happen again."

One Pasadena restaurant worker said she has also lost hours. Sylvia said she used to work full-time in a Pasadena diner, but now she's down to about 30 hours a week.

"I guess the minimum wages is going to help us, but they also cut hours," said Sylvia (we're not using her last name because she doesn't want to risk her job). "You don't work 40 hours now. You're working part time."

Sylvia said she has started looking for a second job.

WHAT'S AT STAKE MOVING FORWARD?

This is where the two economists start to disagree.

Leamer's report estimates that continuing with higher minimum wage increases would put about 1,000 restaurant jobs at risk in Pasadena. Employment levels may not have gone down yet, but he said they could in the near future.

"Where is that tipping point? Which minimum wage is too high? That's the issue," Leamer said. "The only way to prevent that from happening is to monitor as that minimum wage gets higher and higher and make sure the communities that we want to help are not being harmed."

Reich was skeptical about projected job loss.

"If that many restaurant jobs are at risk, we would have already seen a big decline in the number of restaurant jobs all over California," Reich said.

He said evidence from other cities suggests minimum wage increases in this range lead to better pay without reduction in employment.

"If Pasadena stays the course," Reich said, "all the indications so far suggest the city's economy will keep growing, workers will have higher pay and employment will be very minimally affected, if at all."

If Pasadena goes back to the statewide minimum wage, Reich said, employers could have a hard time retaining their best workers. Jobs just a few miles away would pay a dollar more per hour starting in July, giving workers an incentive to leave.