Who Paid Los Angeles’ Minimum Wage?

Abstract

We analyze how the incidence of minimum wage increases falls on customers by studying two minimum wages in Los Angeles County that remained unequal for more than five years. Because Los Angeles’ municipal borders are porous, the case resembles a natural experiment. Using a novel five-year price survey data set, we show that the full incidence of the higher minimum wage fell on customers in high-income neighborhoods, and none of the incidence fell on customers in low-wage neighborhoods. Additionally, exposure to competitors subject to a lower minimum wage mitigated these effects, and lower-wage restaurants exposed to higher-wage competitors received monopoly rents.