The Results Are In: A Minimum Wage in San Jose and Lessons for Singapore

The result of introducing a minimum wage in San Jose are in (and they are good). First, what is San Jose and is what's happening there relevant to Singapore. San Jose is the third-largest city in California, the tenth-largest in the United States. It is the largest city within Silicon Valley, which is a major component of the greater Bay Area. 

http://en.wikipedia.org/wiki/San_Jose,_California

One might say that it is comparable to Singapore. The San Jose experience is, thus relevant to Singapore. So let's have a look at what happened.

http://www.policymic.com/articles/88711/one-year-later-here-s-what-san-jose-looks-like-after-raising-the-minimum-wage

Let's begin with the projections before the fact. Institutional critics said a minimum wage would:

1. Cost at least $600,000 in costs just to enforce the law and cover the increased bureaucracy. 
2. Force businesses to slash working hours.
3. Force 30% of employers and 43% of those in charge of hiring minimum-wage workers to lay off employees.
4. Prevent new businesses from opening.
5. Lead to aggressive government overreach, claiming that the city would "investigate financial records of private businesses and individuals" and allow "'private enforcement' lawsuits."
6. Kill jobs left and right and cause hiring freezes.

When the new minimum wage went into effect on March 11, 2013. None of the above happened. Not even close:

1. The $600,000 annual enforcement cost evaporated; so far, the city has racked up just $5,000. No new bureaucrats were added, with the compliance department merely shuffling staff to handle the small amount of extra work.
2. Workers have averaged the same number of hours as they did before.
3. San Jose businesses grew by 3%, as reported by the San Jose Downtown Association.
4. Just a dozen or so noncompliance complaints were investigated through mid-2013 in the 10th largest city in the United States, with a metro population of 1.975 million people and 84,000 businesses.
5. Unemployment in 2013 fell from 7.6% in February to 5.8% in December during the holiday season, and has since evened out at 6.3%. 

Here is some of the economic basis for each of the eventualities. It is easy to see that these are not "after the fact", but readily generalizable (especially to Singapore).

1. [Enforcement Cost] With good documentation of payrolls, it is cheap and easy to convict errant employers. Payslips and other forms of documentation are crucial. Given this, employers will not be willing to violate the law and enforcement costs will be low.
2. ["Cutting Working Hours"] When an employer is making $20 per hour of work of an employee, and this is reduced to $17 per hour, because the number is still positive, the employer will not fire. The will hire. More broadly, businesses that are so unproductive as to not be able to afford basic business costs like rentals in a locale, should not be operating in that locale. In fact, they probably won't be able to. By and large, businesses in a locale will be able to afford to pay a "above subsistence wage", which is a quantity that scales with the cost of business. (You won't have a high cost of living in a low productivity city.)
3. [Attracting Business] This varies with broader economic conditions. It is hard to be comprehensive, but here are opposing arguments. Businesses may not want to set up in a city with a minimum wage. On the other hand, businesses would want to set up in a city with a high baseline level of education. Then there are economic cycles and other things. There are too many issues.
4. [Privacy Invasion] See (1). Workers are suitably incentivised to provide the information needed for enforcement. This makes intrusive and pro-active policing unnecessary.
5. ["Job Destruction"] See (3).

We need to have a "grounded" discussion on the minimum wage. ( http://jeremy-chen.org/blog/201402/minimum-wage-lets-have-grounded-discussion ) Real examples need to be offered along with proper economic arguments. Critics of a minimum wage have been making nothing but pronouncements and claims backed by neither theory nor empirical data.Sure, there are ideological elements on each side: "Everyone should have a living wage" versus "People should be paid only as much as they can get". But each position advances a set of proposals and we should debate the relative merits of the proposals in a grounded fashion. We need data. We need economic arguments tailored to specific settings. We don't need naive (or even dishonest) pronouncements. We need to have a grounded discussion.

Jeremy Chen

*Article first appeared on https://www.facebook.com/notes/jeremy-chen/the-results-are-in-a-minimum-...