Tuesday, August 16, 2016

Would $15 minimum wage be good for Baltimore?

The question is pesky, economic in nature and not easy to answer for laypeople absent more data. Both sides have good arguments. It seems plausible to say that Baltimore of all places shouldn't be a leader in high wages, lacking jobs in the first place. It also sounds plausible that minimum wage issues should be resolved on a broader base to avoid an easy escape across the border where the wage applies. Certainly Baltimore isn't Seattle or San Francisco and also not DC or Montgomery County, all places that have enacted very similar bills to the one that was before the City Council.
Movements to increase the minimum wage to $15 over the next six years
are afoot  in many States and jurisdictions

Councilman Stokes' additional argument that the exemption of small businesses under 25 employees would eliminate the benefit for most city workers is also convincing. If it is supposed to help local employees the majority of them shouldn't be excluded.

City Council President “Jack” Young is a strong opponent of a $15 minimum wage. He has argued that Baltimore cannot afford it and that the city acting alone in this measure would hurt local workers and businesses more than it would help them. He has proposed $11.50 instead. The bill was introduced and is strongly supported by Councilwoman Pat Clarke. Both will remain on the council after the November election.

Calculations what the bill would cost employers are easy to make. How employers could absorb the cost is harder to determine, since they could respond in a number of ways from raising prices, working with fewer employees, increased efficiencies or by moving away. As the GBC pointed out, none of these options seem to be good for the local economy. However, effects such as better worker morale, less absenteeism and better health would be positive all around and are harder to calculate.

It is also relatively easy to see how more income helps the employees that are able to get it. Findings in the Economic Policy Report done for Baltimore show this:
  • Raising the Baltimore minimum wage to $15 per hour by mid-2020 would directly or indirectly lift wages for 98,000 workers—about 27 percent of the city’s workforce.
  • Over the course of the minimum-wage increase, affected workers would gain over $430 million in additional wages. The average affected worker would earn roughly $4,400 more in annual pay than she does today (assuming no change in the number of work hours).
  • Raising Baltimore’s minimum wage to $15 by 2020 would increase pay for a wide range of workers.
    The living wage is higher than the minimum wage
  • Just 4.3 percent of affected workers would be teenagers, while 95.7 percent would be age 20 or older. Almost four-fifths of affected workers would be age 25 or older.
  • Women would comprise 55.3 percent of affected workers. The higher minimum wage would particularly benefit working mothers—almost a quarter of working mothers and more than a third of single working mothers would receive a pay increase.
  • People of color comprise the majority of workers who would get a raise: 54.2 percent of affected workers are black or African American, 8.3 percent are Hispanic, and 5.1 percent are Asian.
  • On average, affected workers earn 54.6 percent of their family’s income. Among affected workers with families, just under one-fifth are their family’s sole provider.
  • Workers in lower-income households would disproportionately benefit from the minimum-wage increase. Nearly half of affected workers come from households making less than $50,000 a year, and an additional 17.4 percent come from households making between $50,000 and $75,000 a year. Similarly, nearly two-thirds of Baltimore workers in poverty or near poverty would get a raise under a minimum-wage increase to $15.
  • Over half (52.7 percent) of affected workers have at least some college experience, and 23.6 percent have at least a bachelor’s degree.
  • The industries with the largest shares of affected workers are hospitality and retail. Over 60 percent of Baltimore workers in these industries would benefit from the increase. 
Harder to calculate are the effects that more income would have on the self image of Baltimore or on the economy at large. The lack of spending power of a broad segment of the population is holding the economy back and has slowed recovery and growth. A large part of the high local poverty rates comes not only from having no work at all but from working for wages that cannot sustain an individual, let alone a family. Poverty holds all of Baltimore back.
from the EPI Report about Baltimore

The arguments against higher wages have been the same ever since there has been collective bargaining or any type of wage agreement. However, the experience has been that the sky rarely fell when workers achieved higher wages and had enough power to keep them up. Countries with strong unions and higher wages such as Germany are leaders in most economic indicators such as productivity, innovation and GDP. That was true in times when labor was still a significant factor in the overall cost calculation of an enterprise and should be even more true when the relative cost of labor becomes smaller due to automation and robots.

Contrary to popular lure, what killed the American auto or steel industries wasn't high labor cost as such but high legacy cost ( i.e. contributions to health care and pensions for their former workers) concurrent with a lack of productivity and innovation. The US is an attractive location for car manufacturers as the strong presence of Toyota, Mercedes, Volkswagen and BMW has shown, each with highly efficient and productive US production. GM and Ford, copying the innovation and productivity measures of their foreign competitors, are now profitable as well and not because they pay substandard wages.

On a macro economic level one could argue that the US economy is not benefiting from low wages. US wages are not only depressed by comparably weak unions but by a steady flow of unlicensed and undocumented labor that many industries depend on to maintain low wages, unhealthy work conditions and low productivity.

But can a city overcome those problems all by itself? Not likely. Even though, one has to try to actually see. Or better, conduct a comprehensive local analysis on the matter so that the council members would get a more complete picture and more data. A study about the New York State increase suggests that the negative outcomes opponents of the measure predict would not occur. 75 economists across the State agreed. One of the arguments:
“Costco has raised its starting pay to $13 nationwide,” said David Howell of the New School. “This puts in perspective the proposal to raise the New York State minimum wage to $15 by mid-2021. Working backward from consensus inflation forecasts put the value of $15 in 2021 at about $13.25 in today’s dollars, which is very close to Costco’s starting wage that applies in many low-income states. The case against the $15 minimum wage concerns employment effects, but economic research has produced no evidence that a five-year phased-in $15 wage will cause discernible job loss. (Fiscal Policy Institute article)
But then, local conditions may not be comparable.

It would certainly be better if the issue of low wages would be attacked on a larger scale. Since the State of Maryland isn't like to act beyond what is already the law, it could be the feds who step up, depending on the outcome of the federal election. Meanwhile the Baltimore bill hibernates in Committee and will likely come back once the new Council convenes after the November election.

Klaus Philipsen, FAIA

Baltimore City Council votes to send $15 minimum wage bill back to committee (BBJ)
Report of the Economic Policy Institute on the Effects of Baltimore's Wage Increase. (The Institute is aligned with the labor movement).