Donald Fry: New living wage proposal: wrong idea, wrong time for Baltimore

By Donald C. Fry

For elected officials who have the power to make the rules in a community, the quest for a well-meaning policy that will, by itself, accomplish a laudable social objective that would broadly benefit your constituents can be intoxicating.

The living-wage proposal now before the Baltimore City Council is the latest version of such an effort. The basic concept of the living wage is for government to legislate that employers must pay their entry-level workers an hourly rate in excess of the established federal and state minimum wage to enable a worker to live on that income alone.

In 1994, Baltimore City was the first major city in the country to pass a living wage law ensuring that workers on projects supported with public funds are paid a wage greater than required by the established minimum wage. Currently, Baltimore City is one of more than 110 jurisdictions in the country where a limited living-wage law is in place. Baltimore’s existing law requires companies that do business with the city to pay a living wage that is currently set at $10.59 per hour.

The new proposal in the City Council significantly expands that principle. It would require private-sector retailers in the city whose gross annual sales exceed $10 million to pay a living wage. This policy would apply despite the fact that no public funds are being sought or have been received by a major retailer.

The new proposal would make Baltimore one of only a handful of jurisdictions in the country to extend the living-wage mandate beyond government-funded projects and vendors. Affected retailers would include major chain stores such as Wal-Mart and Target, CVS, Rite-Aid, gas stations, grocery stores, and even large non-profit retailers such as Goodwill Industries.

This would be a very risky policy with potentially significant disincentives for Baltimore’s retail community at a time when the city is seeking to lure more major retailers to its neighborhoods.

The living wage concept spawns much passion on both sides of the issue. Well-meaning community organizers and elected advocates vigorously support the living wage as a way for government to foster better paying jobs for working families.

In Baltimore, advocates currently argue that major retailers can afford to pay living wages. They also contend that this living wage proposal will have no negative impact on the local retail community or on employment.

Business advocates, of whom I am one, remain highly skeptical of any government policy that targets a particular business segment over another and arbitrarily increases a major cost of doing business – a company’s payroll – in a highly competitive regional market environment. Well-intended proposals with negative unintended consequences, including potential job reductions and retailers choosing to go elsewhere, serve to diminish a welcoming business environment, which is a core element of any city’s economic vitality.

Over the years, an abundance of academic research has been generated attempting to measure the effects of living-wage laws. But researchers on both sides of the issue have not been able to conclusively substantiate that living-wage laws have the game-changing impact on reducing poverty that supporters envision.

At best, the research has shown impacts – both good and bad – that are “extremely modest in magnitude,” reported Georgetown University public policy expert Harry J. Holzer, who in 2008 studied the large body of existing living wage research.

Overall a loose, but general consensus among researchers is that living-wage laws have produced modest increases in wages of low-level workers, but that modest declines in employment have also occurred at covered companies and maybe more broadly as well, Holzer reported. “The possibility that living wage ordinances on their own might help build a ‘middle class’ is very remote,” he wrote.

For retail businesses in Baltimore, the stakes are not small. I don’t know of any business – large or small – that these days can easily absorb an instant 20 percent or 40 percent increase in a core cost of doing business.

It’s understandable that elected officials in a recession-weary city would seek ways to alleviate the desperation felt in their communities. But imposing a broad-based living wage law is clearly not the answer for Baltimore City, especially given the current precarious economic circumstances.

The painful budget process we recently followed in the Baltimore City Council that resulted in service cuts and increased taxes could repeat itself if the city doesn’t expand its tax base. Attracting and expanding business and retaining and increasing population in Baltimore will build a stronger tax base and lead to a more sustainable financial future for the city.

If that’s the formula for growth and financial security, then why would we do anything to potentially discourage the very retailers and jobs that we are trying to attract to our city? Additionally, surveys demonstrate that people want to live in a city that has a significant retail presence so that they are not inconvenienced by having to travel to neighboring jurisdictions to shop.

We need to encourage businesses to locate in Baltimore City, not discourage them. Baltimore was recently ranked 2nd among places most likely to experience retail growth in 2010, according to Pitney Bowes Business Insight, a business research organization. We need to build on these prospects for growth and job creation rather than put up policy roadblocks.

The recession has reminded those in the private sector and in government of the most basic economic principle: government does not create jobs, businesses do.

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