Los Angeles has recently announced a $15 minimum wage increase that would be implemented over the next 5 years. While many workers are excited about the upcoming raise, I am skeptical about the consequences of this popular decision.
After calculating the geometric mean of the inflation rate over the last 10 years as 2.04% per year and comparing that to the much larger percentage proposed to raise the minimum wage - it's easy to see a problem here. The continued raise will lead to an increase in supply of workers. The oversupply will lead to prices increasing higher than they are already are. Housing will be one of the costs that will increase dramatically. This will lead to many of the young workers that are earning minimum wage to live a lower standard of living than they were previously or move back in with their parents. I'm hoping that other high cost cities will not follow along with LA's bad decision. It would be much more beneficial to put that money towards coaching programs to make sure high school students don't end up in minimum wage paying jobs after graduating or scholarships to make college more affordable.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.