Facing a minimum-wage conundrum in Annapolis

Don current color

Debate over the issue of raising Maryland’s minimum wage is taking center stage in the General Assembly now that Governor O’Malley’s administration bills have been introduced and testimony has been heard in both Senate and House committees.

With the governor and top legislative leaders on record as supporting a minimum wage increase, it seems certain that some form of minimum wage legislation will pass this session.

Key questions remain to be answered as lawmakers ponder what specific details to potentially enact. First, how much of an increase will they settle on and over what time frame will the increase occur? Second, what specifics will lawmakers eventually pass relating to key elements of the bill such as provisions for tipped employees and whether to enact future automatic cost-of-living increases. Third, what impact does an increase in the minimum wage have on current and future employment?

The administration legislation – SB331 and HB 295 – proposes to incrementally increase Maryland’s minimum wage from $7.25 per hour to $8.20, $9.15, and $10.10 on July 1 of 2014, 2015 and 2016 respectively. It would also increase tipped wages from 50 percent to 70 percent of the minimum wage and would automatically tie future increases to the Consumer Price Index.

For state lawmakers – almost all of whom are not economists – their decision-making process on minimum-wage legislation will occur amid a milieu of conflicting impact projections from economic experts.

For example, the Economic Policy Institute – a Washington, D.C. think tank dedicated to focusing on the plight of low- and middle-income Americans – estimates that boosting the minimum wage to $10.10 per hour by July 2016 would ultimately raise the wages of 455,000 workers in Maryland. It would generate $721 million in additional wages to those workers and $456 million in economic activity that would create 1,600 new jobs in the state, according to EPI projections.

A diametrically contrasting projection comes from George Mason University economist Stephen Fuller, who is director of the university’s Center for Regional Analysis. He forecasts that raising Maryland’s minimum wage to $10 per hour would result in the loss of 11,502 jobs and precipitate slower economic growth that would cost the state at least $686 million in lost gross state product.

Maryland’s hospitality sector, particularly food services, appears to be the most vulnerable to the loss of competitive advantage due to higher labor costs, Fuller projects.

Meanwhile the Maryland Department of Legislative Services, a non-partisan agency that General Assembly members rely on for fiscal analysis to guide them in making policy decisions, plays the minimum wage issue down the middle.

The department’s fiscal note for the O’Malley administration’s bill offers lawmakers the Economic Policy Institute’s generally positive impact projections. But, like George Mason’s Fuller, it also warns that “payroll costs for small businesses, such as businesses in the hospitality industry, increase significantly due to the bill.”

The combination of an increase in the minimum wage and in the percentage of the minimum wage that employers would be required to pay tipped workers “would be substantial,” according to the fiscal note.

Nationally, the effect of a minimum-wage increase to $10.10 an hour would lift about 900,000 people out of poverty, but could reduce employment in the nation by 500,000 jobs as employers lay off or reduce hiring of low-wage workers, estimated a Congressional Budget Office report issued this week.

A more modest increase of the national minimum wage from its existing $7.25 per hour to $9.00 would reduce the potential resulting job loss to 100,000 while lifting 300,000 people out of poverty, the CBO report estimates.

The wide range of these projections is mind boggling. However, it is not uncommon to see these dueling economic forecasts when legislatures seek to significantly adjust a key component of the private-sector market. Perhaps no segment of a business’ balance sheet is more impacted by a significant change in the cost of doing business than the salary and benefit category. The dueling economic reports are evidence that there is no certainty of how the private sector may react.

Policy issues like this are not inherently simple. As one can see by the conflicting impact reports, there is no clear answer to the outcome, only a multitude of speculative opinions. Lawmakers’ decisions are further complicated by public opinion polls that show constituents strongly favoring increasing the minimum wage.

This leaves state legislators, who want to do the right thing, facing a genuine conundrum under the State House dome.

What are competing states doing?

Last week Virginia’s Senate passed a minimum wage that would ultimately increase to $9.25 per hour in 2015. However, it is unlikely the measure will pass the House.

In January, Delaware’s governor signed into law an increase to $8.25 in 2015.

In Pennsylvania, numerous bills are being considered, one of which would increase the minimum wage to $10.10. The Governor and legislative leaders have not warmed to the passage of any minimum wage increase.

In West Virginia, its House last week passed an increase to $8.75 in 2015.

Of these states, only West Virginia’s legislation includes an automatic future increase tied to the CPI.

As a business advocate, it seems to me that resolution of the minimum wage proposals before Maryland’s General Assembly dictates caution, rather than haste. With so much conflicting labor market forecasting, isn’t the prudent step to tread lightly while we are still recovering from the recession and the labor market is unstable?

Without advocating one side or the other, the one thing that is clear is that, should lawmakers feel compelled to increase Maryland’s minimum wage, a cautious approach rather than implementing drastic changes to the rate or manner in which future increases are decided is a much preferred action.

Whatever Maryland lawmakers decide, it’s important that they recognize and fully appreciate that resolving the minimum wage issue will require a delicate balance between politics and real-world economics. And it will be real-world economics that ultimately define Maryland’s capacity for growth and job creation.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Comments are closed.