The Labor Market Effects of Citywide Compensation Floors: Evidence from San Francisco and other “Superstar” Cities
- Aaron Yelowitz, University of Kentucky
In this study, a careful analysis of Census Bureau data finds that compensation mandates like those in San Francisco have caused a substantial reduction in both weeks and hours worked by young adults, as well as a significant increase in unemployment for this vulnerable group.
Though touted as authoritative by advocates, the two earlier studies on San Francisco had shortcomings that cast doubt on their conclusions. For instance, both studies rely on data which only measures the total number of people employed at a business and doesn’t permit analysis of the hours and employment of directly-affected employees (e.g. teens.) Nearby suburbs of San Francisco are also used as a control group, instead of a broad range of metropolitan areas that possess employment markets more similar to San Francisco.
This new study corrects the shortcomings present in the previous research. It uses the Census Bureau’s American Community Survey, which has detailed data on the labor market experiences of teens and other workers in urban areas. The study also compares San Francisco with other “Superstar” cities—a term popularized by an earlier academic study—with which it shares important urban characteristics instead of comparing it to nearby suburbs.
The study results force younger employees are striking : Each one-dollar increase in a city’s compensation floor—via wage or benefit mandates—increases unemployment among this group by nearly 4.5 percentage points (with all else being equal). It also causes a 26-hour reduction in the number of hours worked per year, and a 2 percentage point drop in labor for participation.