The increase, which the City Council passed in a 14-to-1 vote, comes as workers across the country are rallying for higher wages and several large companies, including Facebook and Walmart, have moved to raise their lowest wages. Several other cities, including San Francisco, Chicago, Seattle and Oakland, Calif., have already approved increases, and dozens more are considering doing the same. In 2014, a number of Republican-leaning states like Alaska and South Dakota also raised their state-level minimum wages by ballot initiative.

The effect is likely to be particularly strong in Los Angeles, where, according to some estimates, almost 50 percent of the city’s work force earns less than $15 an hour. Under the plan approved Tuesday, the minimum wage will rise over five years.

Mayor Eric Garcetti of Los Angeles, right, on Monday. He said in an interview on Tuesday that “we’re leading the country.” Credit Nick Ut/Associated Press
“The effects here will be the biggest by far,” said Michael Reich, an economist at the University of California, Berkeley, who was commissioned by city leaders to conduct several studies on the potential effects of a minimum-wage increase.

“The proposal will bring wages up in a way we haven’t seen since the 1960s. There’s a sense spreading that this is the new norm, especially in areas that have high costs of housing.

Eoin Treacy's view

One might argue that California’s low tax on property, at 1% of value, has done more to inflate the cost of housing than any other single factor. However that is not up for conversation since real estate is one of the primary avenues for family wealth accumulation. It is more politically expedient to push for higher wages and not just a little higher. $15 is among the highest minimums in the world.

Restaurants have been experimenting with drones for delivery, iPads for ordering and slimming down the number of waiting staff. A doubling of the wage base over the next five years will act as a major incentive to reduce headcount and to maximise productivity per worker. We can expect to see a lot more robots in the customer service sector not least in the food preparation sector. 

Los Angeles’ garment district employs a lot of lower paid workers. The number of factories which have re-shored their finishing to the Los Angeles metro area has increased over the last few years as the product cycle has shortened and costs have increased elsewhere. The case for offshoring or at least moving is going to receive a boost by this decision.  This would be especially important if the case for raising the Federal Minimum wage becomes a point of contention in the 2016 Presidential election. Elizabeth Warren has said she is not running but there is still time for her to change her mind and that could turn this into a national issue. 

The Federal Reserve has removed energy and food from inflation measures but labour costs continue to represent a significant weighting. The below chart of US Average Hourly Earnings All Employee YoY has been ranging since 2010 and shares a similar pattern to the Fed Funds rate. One might reasonably ask how long interest rates will stay as low as they are if the trend of wage growth breaks out to the upside.