Los Angeles, CA, October 24, 2024 — A new in-depth report and accompanying policy brief were released today by the nonpartisan California Policy Lab (CPL), examining the impacts on earnings and employment from the City of Los Angeles’ minimum wage ordinance. The ordinance was enacted in 2015, and gradually increased the minimum wage from $9 to $15 per hour. The new research is focused on food service workers in Los Angeles, which is the largest low-wage labor market in California.

“Our research shows the City of Los Angeles’ minimum wage ordinance was successful at increasing the earnings of workers in the food services industry,” explains co-author Till von Wachter, a UCLA economics professor and the faculty director of the California Policy Lab’s UCLA site. “In contrast, we found no evidence that employment levels were impacted by the ordinance. Our report is another piece of evidence demonstrating that minimum wage policies are effective at providing modest increases in earnings for some of the lowest paid workers in California without decreasing employment levels.”

The researchers found that when the City of LA’s minimum wage increased from $10.50 to $12.00 in July 2017, and then to $13.25 in July 2018, average weekly wages of food service workers in the City increased by 4.1% and 6.0% respectively. Limited-service restaurant workers in the City (who typically do not receive additional compensation via tips) experienced the highest average weekly wage increases as a result of the annual increases to the minimum wage.

A common way to assess the effect of raising the minimum wage across different periods and differently sized increases is to measure the effect of a percent increase in the minimum wage. The researchers found that, across the City of LA’s stepwise increases, a 10% minimum wage increase leads to a 2.1–3.2% increase in earnings for food service workers (which is in line with previous estimates). For limited-service restaurant workers, a 10% minimum wage increase leads to a 4.3–5.2% increase in earnings, due to the fact that a larger share of these workers earn the minimum wage.

The research team used two approaches to measure the impact, briefly described below:

Event study approach: The researchers compared earnings and employment for workers in the City of Los Angeles with workers in similar, neighboring areas, before and after the ordinance took effect. This allowed the team to isolate the causal impact of the ordinance. They found that, relative to the comparison group subject to the State’s lower minimum wage, the average weekly wages of food service workers in the City increased by 4.1% during the second half of 2017 when the gap was $1.50, and then by another 1.8% during the first half of 2018 when the gap was $1.00. In the second half of 2018 when the gap was $2.25, average weekly wages increased by 6% relative to the comparison group. For limited-food service workers, average weekly wages increased 5.7%, 3.7%, and then 8.1% over those same half year periods. While the changes in wages were statistically significant, the researchers found no statistically significant impacts (positive or negative) on employment levels.

Synthetic control: The researchers also compared how earnings and employment for food service workers changed compared to workers who were subject to the federal minimum wage ($7.25) in similar urban areas, outside of California. (California is excluded because the state increased its minimum wage in January 2017). This method works by creating a “synthetic” city composed of a weighted average of the earnings and employment measures of a selected group of counties outside of the City before the minimum wage increase, optimized to match the trends seen in Los Angeles. This synthetic City is then able to serve as a counterfactual for what would have occurred in the absence of the minimum wage increases. The researchers found positive impacts on earnings that were statistically significant during most periods after the annual minimum wage increases. In contrast, there were no negative effects on the employment levels and the employment levels stayed close to identical between the City of LA and the synthetical control area, even after the ordinance was passed.

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The California Policy Lab generates research insights for government impact. Through hands-on partnerships with government agencies, CPL performs rigorous research across issue silos and builds the data infrastructure necessary to improve programs and policies that millions of Californians rely on every day.