The Economics of Citywide Minimum Wages

The San Francisco Model

In November 2003, San Francisco voters passed a ballot proposition to enact a citywide minimum wage by a 60 to 40 margin. This proposition arose in response to the large numbers of low wage workers in San Francisco, where living costs are among the highest in the nation.

A minimum wage of $8.50 took effect in February 2004, making San Francisco the first major city to implement a citywide minimum wage, other than the District of Columbia. Since that time, Santa Fe, NM and Milwaukee, WI have passed municipal minimum wage laws, and a number of other cities are considering similar policies.

San Francisco’s minimum wage is the highest in the United States and is 28 percent higher than California’s minimum wage of $6.75. The minimum wage is also adjusted annually for cost of living increases. On January 1, 2005, the minimum wage rose from $8.50 to $8.62 in line with this mandated adjustment.

Citywide minimum wage policies cover all employers in the city and differ from living wage policies, which typically apply only to employers with city service contracts. The San Francisco ordinance includes a two year phase in period, during which nonprofits and businesses with less than 10 employees are not subject to the mandate. By January 2006, all San Francisco businesses must pay the citywide minimum wage.

Researchers at the Institute of Industrial Relations (IIR) studied the economic impact of the San Francisco minimum wage ordinance on earnings, employment, prices, job tenure, and other workplace-related characteristics. A prospective study by Reich and Laitinen had surveyed private sector employers in all industries. The new impact study focuses on the restaurant industry, which employs the greatest proportion of low-wage workers and is particularly affected by minimum wage policies. This industry focus represents a standard approach in minimum wage studies. The survey included affected restaurants in San Francisco before and after the policy change. The researchers also surveyed unaffected restaurants in San Francisco and the East Bay as control groups.