Increasing the Minimum Wage in San Jose: Benefits and Costs

I provide here an independent economic analysis of the likely effects of Measure D in San Jose.

The benefits of Measure D: 18.9 percent of San Jose’s workers will obtain pay increases as a result of Measure D. The increased spending power of minimum wage workers will stimulate the region’s economy by about $190 million.

The costs of Measure D: Rigorous and prestigious academic studies of minimum wage effects across local boundaries indicate that Measure D will not have any disemployment effects. This research has invalidated previous studies that claim to find disemployment effects.

Measure D will increase operating costs of the average business by less than 0.25 percent. These costs will be partly offset by cost savings to employers, such as more workers applying for jobs, lower employee turnover costs and higher worker productivity. Prices in low-wage industries such as restaurants will increase by less than 0.71 percent, which translates into less than twenty-five cents on a $30 meal. Price increases of this magnitude do not measurably hurt sales.

The recently released report by Beacon Economics finds much smaller benefits (only 6.5 percent of workers would receive pay increases) and much larger costs. However, this report uses poor data (inadequate sample size) and incorrect assumptions about Measure D (omitting that workers now paid between $8 and $10 will be affected). Its assumptions about job loss effects are not consistent with research on the effects of minimum wages in local areas and it misreads by a factor of ten the study that it used to estimate the effects of minimum wage increases on prices. Without their incorrect price effect, the negative economic effects in the study mainly disappear. Beacon thus underestimates the benefits of Measure D by a factor of three and their estimates of the costs of Measure D have no credible scientific basis.

Conclusion: Measure D is affordable and on net it will be beneficial to the San Jose economy.