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The Dissipation of Minimum Wage Gains for Workers through Labor-Labor Substitution: Evidence from the Los Angeles Living Wage Ordinance

Author

Listed:
  • David Fairris

    () (Department of Economics, University of California, Riverside, CA 92521, USA)

  • Leon Fernandez Bujanda

    () (Oficina de Investigaciones Econo´ micas, Banco Central de Venezuela, Av. Urdaneta, Esq. Carmelitas, Edf. Sede, Piso 2, Caracas, DC, Venezuela)

Abstract

This paper utilizes worker-firm matched data on city contract establishments affected by the Los Angeles Living Wage Ordinance to explore the extent of labor-labor substitution following establishment of a minimum wage. We are able to test for substitution on observable and unobservable skill and demographic features and to measure the extent to which such substitution dissipates the benefits of a wage minimum for workers in affected firms. The results suggest substitution toward male, Latino, and black workers and workers possessing prior formal training. All are characteristics that generate a wage premium in this segment of the lowwage labor market in Los Angeles. Evidence for substitution based on unobservables is presented as well. The latter is revealed by the finding that the ‘‘before’’ wages of workers who are new to city contract work following the ordinance are significantly higher, conditional on observable characteristics, than the ‘‘before’’ wages of city contract workers who were hired preceding the ordinance. We estimate that the initial wage gain for workers is dissipated by roughly 27% through labor-labor substitution.

Suggested Citation

  • David Fairris & Leon Fernandez Bujanda, 2008. "The Dissipation of Minimum Wage Gains for Workers through Labor-Labor Substitution: Evidence from the Los Angeles Living Wage Ordinance," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 473-496, October.
  • Handle: RePEc:sej:ancoec:v:75:2:y:2008:p:473-496
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    Citations

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    Cited by:

    1. Jeannette Wicks-Lim & Jeffrey Thompson, 2010. "Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers," Published Studies peri_mw_eitc_oct2010, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Bodo Aretz & Melanie Arntz & Terry Gregory, 2013. "The Minimum Wage Affects Them All: Evidence on Employment Spillovers in the Roofing Sector," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 282-315, August.
    3. David Neumark & J.M. Ian Salas & William Wascher, 2013. "Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?," NBER Working Papers 18681, National Bureau of Economic Research, Inc.
    4. David Neumark & Matthew Thompson & Leslie Koyle, 2012. "The effects of living wage laws on low-wage workers and low-income families: What do we know now?," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-34, December.
    5. David Neumark & Matthew Thompson & Francesco Brindisi & Leslie Koyle & Clayton Reck, 2012. "Estimating the Economic Impacts of Living Wage Mandates Using Ex Ante Simulations, Longitudinal Estimates, and New Public and Administrative Data: Evidence for New York City," NBER Working Papers 18055, National Bureau of Economic Research, Inc.
    6. Laura Giuliano, 2007. "Minimum wage effects on employment, substitution, and the quality of the teenage labor supply: Evidence from personal data," Working Papers 0723, University of Miami, Department of Economics.
    7. John Horton, 2017. "Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment," CESifo Working Paper Series 6548, CESifo Group Munich.
    8. David Neumark, 2017. "The Employment Effects of Minimum Wages: Some Questions We Need to Answer," NBER Working Papers 23584, National Bureau of Economic Research, Inc.
    9. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2018. "The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator," CEP Discussion Papers dp1531, Centre for Economic Performance, LSE.

    More about this item

    JEL classification:

    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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