GBC testifies against proposed $15 per hour minimum wage legislation

Greater Baltimore Committee President and CEO Donald C. Fry testified before the Baltimore City Council’s Labor and Employment Committee on June 15, 2016 at a hearing about the $15 per hour minimum wage legislation which was introduced earlier this spring by Baltimore City Councilwoman Mary Pat Clarke and other members of the City Council.

What follows is Don Fry’s testimony:

Chairman Curran and members of the committee, I appreciate the opportunity to speak with you today about the pending legislation to increase the minimum wage to $15 an hour in Baltimore City. I stand before you as President and CEO of the Greater Baltimore Committee, the region’s premier business advocacy organization, and on behalf of hundreds of small, medium, and large business members located in Baltimore City.

Since its inception, the Greater Baltimore Committee and its membership have been keenly focused on issues relating to economic growth and job creation. Over the past 60 years, we have advocated for policies such as creating an effective and reliable transportation system, increasing the quality of our school system, encouraging business growth and entrepreneurship, and expanding access to workforce training and job opportunities. Like you, our goal has always been to make Baltimore a great place to live, work, and grow a business. The legislation before you today, though well-intended, is counter-productive to our shared goals and priorities for Baltimore City.

The Greater Baltimore Committee opposes the legislation introduced that would increase the minimum wage in Baltimore City to $15 an hour. The GBC believes that changes in the minimum wage are more appropriately addressed at the national level. In recent years, with the federal government stymied in partisan bickering many states have begun to address issues, such as minimum wage, that have seen little or no action at the national level. In fact, in 2014 the state of Maryland enacted an increase in the minimum wage from $7.25 per hour to $10.10, with the full increase not phasing in until July 1, 2018. (1) As this increase has not been fully realized and businesses have not adjusted to this increase, it is premature for Baltimore City to move beyond the state’s minimum wage level for the reasons outlined below.

Minimum Wage: “Good” Economic Policy?

At first blush, increasing the minimum wage may sound like good economic and social policy. In theory, low income workers will make more money, be better able to provide for their families, have more income to spend in shops and restaurants, and the economy will grow as a result. However, increased wages also mean an increased cost for businesses in Baltimore City, many of whom are running on thin profit margins and have not fully recovered from the unrest of last spring. For businesses to adapt those increased costs will have to be offset, either by reducing the size of the workforce, automation, cutting benefits, increasing costs on goods and services, or all of the above. An official from the Federal Reserve Bank of Cleveland observed in an interview last year that lower skilled workers performing routine tasks are increasingly being replaced with machines and software. (2) It is fair to assume that an increased minimum wage would only fuel that trend.

Businesses that are unable to overcome the costs associated with the increased minimum wage will have little choice but to close their doors. Businesses that do survive will not have the ability to grow and create jobs as they would otherwise. This is not a threat, just an economic reality that deserves very serious consideration.

Facing the Unintended Consequences

Aside from the financial impact this policy could have on businesses, there are additional consequences that must be considered. Though intended to mostly benefit low-income, low-skilled workers, research suggests this is the group most negatively affected by increasing the minimum wage.

According to the Foundation for Economic Education, young, low-skilled workers are the most likely to be hurt by minimum wage hikes because they are the least likely to have skills that employers consider valuable. (3) Businesses may currently hire a low-skilled worker at the low end of the salary scale and train them but as mandatory wages increase, businesses will likely seek out more experienced individuals for those entry level positions. In a survey of 166 economists by the University of New Hampshire’s Survey Center, 80 percent believe that a $15 per hour minimum wage would result in employers hiring people with greater skills for entry level positions. (4)

In Washington, D.C. where similar legislation was recently approved by the city council, the district’s Chief Financial Officer raised this as a point of concern, noting that, “Job losses [as a result of increasing the minimum wage] mostly affect low-paid, low-skilled workers who are disproportionally District residents.” (5)

Additionally, in a recent study University of California-San Diego economics professor Jeffrey Clemens found that federal minimum wage hikes from 2006 to 2009 accounted for 43 percent of the decline in employment among this group of workers during the Great Recession. (6)

The “Island Effect”
Increasing the minimum wage only in Baltimore City creates additional competitive burdens. If passed, Baltimore City would be island among neighboring jurisdictions in the greater Baltimore region. The businesses that operate in those jurisdictions already enjoy lower costs of doing business, lower taxes, and lower crime rates. Despite all of its positive attributes – world-class institutions of higher learning, research and medical institutions, a bustling downtown business district and more – for a business looking to locate or expand in the region Baltimore City would no longer be a natural choice. Why locate in Baltimore City when the labor costs and additional cost of doing business is so much lower just a few miles over the county line?

There are many other potential impacts that the “island effect” would create, including the increased competition between workers in neighboring jurisdictions that does not necessarily exist today. A fast food worker in Baltimore County has no reason to flip burgers at the state’s minimum wage level of $8.75 an hour (effective July 1, 2016) when they can come to Baltimore City and do the same job for more money. In that scenario, the Baltimore City resident who was supposed to benefit from this policy will lose out on a job and the income tax revenue that should have been collected by Baltimore City through the local “piggy back” tax will go to Baltimore County. (7)

When Washington, D.C. increased its minimum wage in 2013, they did so in coordination with Prince George’s County and Montgomery County (8) – two large neighboring jurisdictions – both of which increased their minimum wage at the same time. (9) This coordination removed much of the potential competitive disadvantage that the district would have faced had Montgomery and Prince George’s County not followed suit. In discussions about the recently approved legislation to again increase the minimum wage in the district, the D.C. Chief Financial Officer predicted that in the absence of neighboring jurisdictions again increasing their minimum wage, “District businesses activity declines and businesses become less competitive.”(10)

The fact of the matter is that there is little to no chance that Baltimore City’s neighboring counties would entertain such a proposal. Neighboring jurisdictions have shown no appetite for this type of change. In the absence of regional coordination, Baltimore City will find itself at a competitive disadvantage in efforts to attract and expand businesses and opportunities for those individuals this legislation is intended to benefit.

We Are Not Seattle

Proponents for increasing the minimum wage in Baltimore City point to other jurisdictions – like Seattle, New York, or San Francisco – where increased wage laws have recently been implemented. But the economic base, workforce, and business conditions in Baltimore City are not comparable to those of Seattle, New York, or San Francisco. Our economies, challenges, and strengths are vastly different. While the Seattle metro area boasts a gross domestic product that is 7th amongst large metro areas, Baltimore ranks 37th. In Seattle, 18 percent of the population has only a high school diploma or less. In Baltimore, that number is nearly 50 percent. (11) These jurisdictions have economies that can handle this type of increase. Baltimore has many challenges to overcome, including the fragility of its businesses following last year’s unrest, before its economy is stabilized to the point where a $15 per hour minimum wage would not be threatening to businesses.

Let’s Work Together to Lift All Boats

When a press conference was held to announce this legislation, Councilwoman Mary Pat Clarke stated that she was concerned about a lot of the issues underlying the unrest that occurred last year following the death of Freddie Gray. (12) We could not agree more. But this legislation does not speak to the heart of many of the issues plaguing Baltimore City. This proposal does not increase the caliber of our school system. It does not help businesses create jobs. It does not provide access to workforce training. It does not create pathways for workers in middle-skilled employment opportunities. It does not help entrepreneurs start and build businesses. It does create more affordable housing. It does not provide a better transit system so workers can access available jobs. And it does not help connect returning citizens to employment opportunities.

Granted, it may increase wages for some, but it will also lead to job losses for many others as businesses struggle to keep pace with the rising cost of doing business in Baltimore City. It also, once again, sets Baltimore City apart from its surrounding jurisdictions in the competitive field of economic development and job creation.

The Greater Baltimore Committee and Baltimore City Council can do better by working together to address the challenges outlined above and adopt proven strategies for Baltimore City that lifts all boats while allowing businesses to do what they do best….create jobs and grow the economy.

Passage of a $15 minimum wage that would be applied strictly to Baltimore City businesses is not one of those strategies.

Thank you.

1 Maryland General Assembly. House of Delegates. Economic Matters Committee. Maryland Minimum Wage Act of 2014. 434th Regular Session.

2 Tasci, Murat. “Raises and Rises.” Forefront. Federal Reserve Bank of Cleveland. Cleveland: 30 Nov. 2015.

3 Cooper, Preston. “The Minimum Wage Hurt the Young and Low-Skilled almost as Much as the Recession.” Foundation for Economic Education. 7 Jan. 2016. Web. 7 Jun. 2016.

4 Fowler, Tracy A. and Smith, Andrew E. Survey of US Economist on a $15 Federal Minimum Wage. Durham, New Hampshire: University of New Hampshire Survey Center. 2015.

5 Dewitt, Jeffrey S. Fiscal Impact Statement – Fair Shot Minimum Wage Amendment Act of 2016. Washington, DC: Office of the Chief Financial Officer. 2016.

6 Clemens, Jeffrey. “The Minimum Wage and the Great Recession: Evidence from the Current Population Survey.” The National Bureau of Economic Research. Web 7 Jun. 2016.

7 “Local Income Tax.” Spotlight on Maryland Taxes. Comptroller of Maryland. Web 7 Jun. 2016.

8 Singleton, Margaret. Testimony before the Committee on Business, Consumer and Regulatory Affairs on May 26, 2016. Washington, D.C.: Committee on Business, Consumer and Regulatory Affairs. 2016 pg. 216.

9 Sykes, Michael. “New minimum wage takes effect in Prince George’s, Montgomery and D.C.” The Sentinel, 02 Oct. 2014. Web. 7 Jun. 2016.

10 Dewitt, Jeffrey S. Fiscal Impact Statement – Fair Shot Minimum Wage Amendment Act of 2016. Washington, DC: Office of the Chief Financial Officer. 2016.

11 U.S. Census Bureau, American Community Survey 5 year estimates, 2010-2014, population 25 and over.

12 Mirabella, Lorraine and Sherman, Natalie. “City Councilwoman Mary Pat Clarke proposes $15 minimum wage in Baltimore.” The Baltimore Sun. 17 Apr. 2016. Web. 7 Jun. 2016.

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