Raising Low Pay in a High Income Economy

The Economics of a San Francisco Minimum Wage

This report was commissioned by the San Francisco Board of Supervisors to determine how a local minimum wage would affect workers and businesses in San Francisco.

What is the problem?

Even taking into account the recent economic downturn, San Francisco has experienced tremendous economic growth over the past decade. Economic growth, however, has generated more, not less, inequality among San Francisco residents and workers. With increased overall affluence has come an increased demand for traditionally low-paying service and restaurant jobs. Given the especially high costs of living in San Francisco, it is increasingly difficult for low-wage workers to meet their basic needs at statewide minimum wage levels.

How many low-wage workers are there?

According to our employer-based survey, 5.4 percent of those who work in the private sector in San Francisco are paid less than $9 per hour. This percentage, when translated into absolute numbers, amounts to nearly 27,000 low-paid workers. Among part-time workers only, 15.2 percent are paid less than $9. While these percentages are lower than in household surveys, the differences are explained by the proportion of workers who commute into San Francisco and who are not counted in those surveys.

Who are the low-wage workers?

According to household surveys, minority workers are disproportionately represented among San Francisco’s low-wage workers. Among full-time workers, Hispanics and African-Americans are twice as numerous among workers earning less than $9 per hour than they are in the workforce, while Asian-Americans are over-represented by one-fifth. Among part-time workers, while Asian American workers account for 36 percent of the workforce in San Francisco, they make up nearly half of the low-paid part-timers.

State and local policies have been enacted to raise low pay

Although the national minimum wage was originally intended to provide a livable wage floor, it no longer does so. During the 1980s the real value of the minimum wage declined by 30 percent. To buffer these declines, California and other states have enacted higher state minimum wages. Yet these floors have also declined in value. For example, if California had indexed the 1968 minimum wage to inflation, its level today would be $8.92 instead of $6.75. Many localities, including San Francisco, have also enacted “living wage” legislation to redress inadequacies in state and federal labor market policies. These policies have higher wage and benefit floors, but they do not cover most of the low-wage workers.

Although it was once believed that minimum wages translated into job losses, recent research has challenged that assumption. Employers can adjust to minimum wage increases by improving efficiency, by raising prices and by changing their nonlabor costs, and not just by reducing their workforces. Recent living wage and minimum wage policies in San Francisco and California have not led to employment losses.

Wage Levels Used

The report presents simulations for three different wage levels— $8.50, $9.00 and $10.00—to provide voters, businesses, and city officials a better understanding of the implications of choices they might make. These wage levels fall in the range of a) percentage increases of the minimum wages that have been recently absorbed in California; b) the inflation-adjusted 1968 minimum wage level ($8.92); and c) the current floor of $10 plus benefits for the city’s service contractors.

The cost of living in San Francisco is 84 percent above the average for metropolitan areas in the U.S. An adjustment to the national minimum wage to reflect local living costs would imply a municipal minimum wage of $9.48.