When Mandates Work: Raising Labor Standards at the Local Level

Chapter 2. Labor Market Impacts of San Francisco’s Minimum Wage

47 1 . i n t r o d u c t i o n In November 2003 San Francisco voters passed a ballot proposition to enact a minimum wage covering all employers in the city. The new standard set a minimum wage at $8.50 per hour—over 26 percent above the then-current California minimum wage of $6.75—and an annual adjustment for cost of living increases (reaching $10.55 in 2013). This standard, which first became effective in late February 2004, constituted the T W O Labor Market Impacts of San Francisco’s Minimum Wage Arindrajit Dube, Suresh Naidu, and Michael Reich *Portions of this chapter are based on or appeared in Arindrajit Dube, Suresh Naidu, and Michael Reich, “The Economic Effects of a Citywide Minimum Wage,” Industrial and Labor Relations Review 60, 4 (2007): 522–43. http://digitalcommons.ilr.cornell.edu/cgi /viewcontent.cgi?article=1293&context=ilrreview. 48 t h e pay m a n d a t e s highest minimum wage in the United States and the first implemented universal municipal minimum wage in a major city. In a prospective study of this policy, Reich and Laitinen (2003) estimated that about 54,000 workers, amounting to 10.6 percent of the city’s workforce, would receive wage increases, either directly or indirectly, if such a policy were adopted and that the increased wage costs on average would amount to about 1 percent of business operating costs. Simple trends from county-level administrative data comparing San Francisco with nearby Alameda County suggest that the policy did increase pay and moreover did so without affecting employment. Figures 2.1 and 2.2, below, present these comparisons for restaurants, the industry with the greatest proportion and absolute number of minimum wage workers. In the years prior to the enactment of the San Francisco policy, restaurant pay and employment in these two geographic areas exhibited quite similar trends. After the policy was implemented, restaurant pay increased in San Francisco relative to Alameda County while relative employment trends did not change. Of course, these simple comparisons are only suggestive, as they could be affected by other changes, such as changes in the size or type of restaurant in the two areas. In this chapter, we estimate the effects of the San Francisco minimum wage ordinance, drawing on data from a commissioned panel survey of restaurants. The survey’s first wave was fielded just prior to the implementation of the new policy, with reinterviews of the same restaurants nine to ten months later. The sample includes small restaurants that were exempt from the policy in its first year, restaurants that did not have any workers paid below $8.50, and restaurants from the neighboring East Bay region that were not covered by the policy. We compare changes in restaurant-level outcomes between those restaurants that were affected by the minimum wage and those that were not, controlling for a variety of potential confounding factors. The principal outcomes we examine are average pay, the distribution of pay, total employment, and part-time and full-time employment. Other outcomes we examine are menu prices, employee tenure, health insurance coverage, proportion of workers who receive tips, and employer compliance with the law. i m pa c t s o f s a n f r a n c i s c o ’ s m i n i m u m wa g e 49 In addition to presenting the findings, this chapter builds on the existing understanding of minimum wage effects. First, by providing the first study of how a citywide minimum wage policy operates, we can shed light on whether employment effects of city policies differ from those of state minimum wage laws. Second, some features of the policy—notably its delayed application to very small employers—and the geography of the San Francisco Bay Area allow us to have better controls for identifying minimum wage effects than are typical in the literature. Third, we collected data on a greater range of outcomes than previous studies have examined, permitting us to investigate the impacts of the policy on work hours, wage compression, employee tenure, and health insurance coverage . Fourth, we are able to examine whether the experiences of fast-food restaurants differed from those of table-service restaurants. Fifth, we examine other factors that may affect employment response, such as differing patterns of demand (restaurants that are located in tourist...