Do Businesses Flee Citywide Minimum Wages?

Evidence from San Francisco and Santa Fe

By Arindrajit Dube, Ethan Kaplan, Michael Reich and Felix Su

In 2003, the cities of San Francisco, California, and Santa Fe, New Mexico, each passed citywide minimum wage laws, with broad coverage and wage levels set significantly above the federal level of $5.15 an hour.

In the search for policy tools to raise living standards for working families, other cities have also considered such policies. Indeed, local policy makers across the country have looked to these two cities for lessons learned.

Policy makers generally are most concerned about the impact of citywide minimum wage laws on overall employment in their city and on whether their large retailers -- who generate considerable sales tax revenue for the city -- will respond by moving outside the city or not locate new stores inside the city. In this report, we provide a brief

overview of what is known about the impact of the San Francisco and Santa Fe laws on employment and on large retail businesses.

During the debates preceding the votes on both cities' laws, businesses threatened to leave if a minimum wage were enacted. In this brief we have reviewed the economic impact studies conducted for San Francisco and Santa Fe, the two cities with citywide minimum wages. These studies, which both use sophisticated statistical techniques, found no significant impact on employment or business closures. We have also presented suggestive data on the major retail stores in the two cities and found both a significant

continuing presence of such stores and evidence of increases in the number of such stores. Finally, we examined published county-level government data for the retail sector in San Francisco and found trends that mirror economic activity overall, rather than the introduction of a city minimum wage. We conclude that each of these types of evidence point toward the same result, namely that citywide minimum wage laws have had no significant impact on employment or retail store closures.

(IR Policy Brief, September 2006; Institute for Research on Labor and Employment, University of California Berkeley)