Raising the Minimum Wage

LA Minimum Wage

The author of this report has been asked to assess the Los Angeles minimum wage case study. Indeed, it would seem that Los Angeles is trying to raise their minimum wage to a shade above fifteen dollars an hour. They are basically trying to follow in the footsteps of Seattle, who just started doing precisely the same thing. However, Los Angeles is very different from Seattle in terms of its geography and its neighbors. As such, Los Angeles businesses have options that Seattle ones do not. While Los Angeles may think they are doing the economically sound thing, they should really rethink what they are doing, and for more than one reason.

If there is one term in the Mankiw text that leaps out at the author of this report, it would be the term equilibrium (Mankiw, 2004). This term takes on several varied and differing forms when analyzing the case (Mankiw, 2004). First of all, there is most certainly an equilibrium minimum wage in the Los Angeles area (Mankiw, 2004). It could very well be too low right now but there is a very good chance that raising the minimum wage up to more than fifteen dollars an hour would cause a lack of equilibrium. Again, this would manifest in a number of ways (Mankiw, 2004). First of all, it would shift the supply/demand curve balance in the Los Angeles area (Mankiw, 2004). The supply of people willing to pay the wages would be sky-high but the amount of positions that would be available that pay that wage would be, at best, as much as it is now (Mankiw, 2004). In all likelihood, the number of positions would go down as businesses would hire less, more some or all of their business out of Los Angeles (e.g. To Irvine or Englewood) or both (Mankiw, 2004).

Further, even if the shift in the minimum wage is actually perfect for the Los Angeles area, the fact that the other cities in close or direct proximity to Los Angeles will not be doing the same or similar things is going to nip Los Angeles in the proverbial bud. Indeed, many businesses will just shift a few blocks so that they can be in the same general area but they are not subject to the same laws that the Los Angeles businesses are. Things would be much different if the minimum wage went up state-wide (Mankiw, 2004). However, that is not currently on the horizon, at least not to the degree that Los Angeles is doing it (California, 2015). In looking figure one on page 197 of the Mankiw text, it is clear that a shift in the minimum wage would cause a shift to the right. The demand for labor would then go down and the supply of willing labor would go up. The only question is where the current graph would or should show. If the current minimum wage is too low, than the current plot point on the graph would be to the left of the equilibrium point. Regardless, a rise in the minimum wage would shift the graph to the right (Mankiw, 2004).