Economist: Most Concerns about Baltimore’s $15 Wage Hike are Unfounded
EPI Senior Analyst David Cooper says raising minimum wage hike has historically not led to job losses, but higher local demand and decreased turnover
KIM BROWN, TRNN: Welcome to the Real News Network. I’m Kim Brown.
The efforts to raise the minimum wage in Baltimore City remains alive after a city council vote on Monday. Now, the measure only failed to pass by one vote. However, it will live to fight another day, specifically next Monday, August 15. That’s when the council is scheduled to vote again.
Now, what’s at stake here is $15 an hour for the city’s lowest-paid workers. And should this measure pass, that rate would not kick in until the year 2022. Proponents argue that raising the minimum wage would help to lift some out of poverty, while those who oppose it say that it could adversely affect small businesses and puts an unfair burden on Baltimore to raise wages that the rest of the state of Maryland does not have to meet.
We’re joined today via Skype with David Cooper. He is the senior economic analyst at the economic policy institute in Washington. David, thanks for being here.
DAVID COOPER: Thanks for having me.
BROWN: David, you actually testified to the labor committee here in Baltimore about this issue, and I wanted to play for you some of the responses from some of the city councilmembers who either voted no, or abstained from the vote on Monday.
JAISAL NOOR, TRNN: Talk about how you voted for the measure to raise the $15 minimum wage. What was your position on it?
WARREN BRANCH: I voted no.
NOOR: Why’d you vote no?
WARREN BRANCH: Because I have a district that represents 65 percent impoverished people. They’re already standing on the corner watching developers. They can’t even keep jobs for $10 an hour, so if we raise it to $15 an hour and you’re not doing it with the surrounding counties, then those employers have the opportunity to hire the best possible ones that they’re going to hire, and they’re going to–I don’t think they’re going to hire city people.
NOOR: So we were talking to an economist earlier, and he said in the 35 years that minimum wages had been increased on a local and state level across the country, whatever local jurisdiction has been increased, that has never happened. Right? Job losses have never happened before.
WARREN BRANCH: Let me share this: he needs to come over there and live in the 13th District for maybe one or two years, and see how those folk are watching, and those lights and tags come in and out of the city as they’re erecting East Baltimore, and the people from East Baltimore is not getting the jobs.
BROWN: That was Real News correspondent Jaisal Noor speaking with Baltimore City Councilman Branch. David, if we could get a response from you about that, what do you say to the councilman who says raising the minimum wage may not impact people who already don’t have jobs?
COOPER: Yeah. So that’s an interesting point. You know, the fact is that their concern is rooted in this idea that if you raise the minimum wage that it’s going to encourage workers from outside the city to seek jobs in the city, and then that’s going to push out the local workforce from being able to find a job.
The truth is there’s not a lot of evidence of this happening in previous incidences where cities raised their minimum wages. And part of the reason for that is because, while it is true that workers from outside the city may try and find a job inside the city, if that happens, employers outside of the city are going to have to start raising their own wages just to hold on to the staff that they have, and to attract workers in their jurisdictions. And when that happens, whatever divide there was in terms of the wages being paid inside the city and outside the city is going to start to moderate. It’s going to start to go away.
And so you’re really going to get to a point where there isn’t really a huge wage difference between inside the city and outside the city. And some of these concerns that the councilmember is voicing are really never going to materialize.
Beyond that, there’s also evidence that when you raise the minimum wage you’re transferring income to folks that are very likely to go out and spend that income right away. And so when that happens, for these disadvantaged communities in Baltimore, if a number of workers in that community start to have a little more money to spend they’re going to spend it locally, they’re going to put more money circulating in the local economy. That can actually create jobs in the long run, as employers have to meet up with that increased demand in consumer spending.
BROWN: And that’s a point that I actually wanted us to come back to a little later in the conversation about what $15 an hour is going to look like to the average worker, to the average single parent in the year 2022.
But I wanted to touch on Councilman Eric Costello’s comments about why he voted against the $15/hr minimum wage measure.
ERIC COSTELLO: This proposed bill would increase minimum wage and personnel expenses for small businesses in the city by as much as 50 percent. When I first committed to fighting for this increased minimum wage, I had envisioned this being a statewide effort, or at minimum, at very minimum, a regional effort. And it’s for those reasons that I’m introducing a form that would essentially delay the implementation of the provisions in this bill from going into effect until both Baltimore County and Anne Arundel County increase their minimum wage to $15.
BROWN: And that was a sentiment that we heard echoed not just from Councilman Costello but from some others, as well. And the argument seems to be that the burden is going to shift to businesses, and businesses will then subsequently cut their cost by downsizing their staff, by reducing benefits, by perhaps passing these costs on to consumers. Have we seen evidence of that happen in cities that have already passed a minimum wage measure?
COOPER: Yeah. So let’s talk through this. Let’s talk through what happens when you raise the minimum wage. We have a pretty good understanding of all the various effects, because we’ve raised minimum wages literally hundreds of times over the last 35 years. What we know happens when the minimum wage goes up is that low-wage workers earn more. On the business side, turnover tends to go down. Because workers are earning a little bit more, they don’t feel like they need to go out and find another job. And that’s an, actually, a large expense for a lot of small businesses, dealing with turnover costs, because the low-wage labor market is full of churn. People moving in and out of jobs all the time.
Prices do tend to go up slightly, because businesses do have to absorb these additional labor costs. But the price increases that we’ve seen from previous increases in the minimum wage have been very small. We’re talking on the order of a few cents on the dollar. So you know, most businesses are able to absorb those additional labor costs due to the combination of savings they’re getting in recruitment, hiring, and training costs, as well as passing on some additional cost onto consumers in the form of higher prices.
In terms of the job effects, because they’re able to absorb those costs in that way, we’ve never seen any significant loss of jobs from increases in the minimum wage, and I think it’s because of those offsets that the businesses are able to achieve, as well as the fact that they might actually start to see some higher demand for their goods and services from the additional dollars that are circulating in the local economy as a result of the higher minimum wage.
BROWN: So let’s talk about should the minimum wage actually pass. So currently right now, the minimum wage in the state of Maryland just rose to $8.75 effective July 1. The [inaud.] cost to live in this area, rent cost, transportation cost, and this is not a cheap region to live even as a single person, let alone trying to raise a family, what would $15/hour look like to an individual who is earning that in the year 2022?
COOPER: Sure. So as you’re noting, the final increase won’t take effect till 2022. And so when we think of $15 in 2022, we have to think of what inflation is going to do to the value of that wage over the next five years or six years, as the increases take effect. $15 in 2022 is the equivalent of roughly $13 an hour in today’s dollars, when you account for future inflation under some assumptions of what’s going to happen to prices over the next few years.
But we did an analysis of who would be affected by increasing the Baltimore minimum wage to $15, and we did our analysis based on the assumption that the $15 would take place in 2020. Because they’ve pushed back the full implementation till 2022, our numbers have to be adjusted slightly. But we’re talking about the average affected worker seeing their pay increase by about $4,000 annually in today’s dollars. So that’s a significant increase in someone’s standard of living, particularly if they’re only making $8-10/hr today. If someone’s making $10/hr today that means that even if they’re working full-time year-round, they’re making about $20,000 a year, or $21,000 a year. So an additional $4,000 on top of that is going to go a long way for someone in that situation.
BROWN: And David, when we talk about the minimum wage versus what the living wage is for people who live in this city and people who live in this area, does what the council is proposing, or at least the lead sponsor of this bill, Mary Pat Clark, is this a wage that can compete with the living wage, with the actual cost that it is to live in this area versus what the state is mandating that employers pay employees?
COOPER: Sure. There’s a great tool on my organization’s website called the Family Budget Calculator. If you go to www.EPI.org and search for Family Budget Calculator, it’s pretty easy to find. And Family Budget Calculator actually shows what it takes to live in over 600 different areas of the country. So you can drill down to your local geography, select your family type, it has eight different family types in there. And it will tell you exactly what it takes to have a modest but adequate standard of living in those places.
And what it’ll show for Baltimore is that it takes a fair amount of money to have a decent life in Baltimore if you just, if you convert it into an hourly wage. It’s in the ballpark of $16 an hour today. So getting to $15 an hour by 2022 is still not all the way up to what it would take to actually meet that standard of a modest but adequate standard of living in Baltimore. But it certainly is a lot closer than an $8.75 or even $10.10, where the state minimum wage is heading.
BROWN: That’s right, the state of Maryland says it will raise its minimum wage to $10.10 by the year 2018. But as we’re seeing, the need to perhaps put more money in the hands of people who need it, maybe it can’t wait until 2018.
We’ve been speaking with David Cooper. He is a senior economic analyst at the Economic Policy Institute. He’s been joining us from Washington. David, the city council is going to vote again on Monday, so perhaps we’ll be checking back in with you to see what your thoughts about the outcome is going to be next week.
COOPER: Sure. Happy to chat with you, Kim.
BROWN: Sure. Thanks for joining us right here on the Real News Network.
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