The Daily Record: Wrong place and time for $15 minimum wage

Editor’s note: The following commentary ran on on June 16, 2016.

Imagine for a minute that you own a business with locations in Baltimore City and Baltimore County.

You employ workers with low- or entry-level skills and pay minimum wage, currently $8.25 (rising to $8.75 on July 1). Some employees work in the city and some in the county. Your business is in a competitive sector and you have little margin to increase the cost of your product or service.

This scenario presents some of the burdens and challenges presented by a proposal pending in the Baltimore City Council to raise the minimum wage to $15 an hour by 2020 – 80 percent above the current minimum wage rate.

How is the business owner with operations inside and outside the city supposed to solve the increased cost of doing business, not to mention the difficult personnel quandaries, which the $15-an-hour minimum wage proposal presents?

Move the city operation to the county? Cut back on the number of employees, work hours or benefits at one or both locations? Add automation to replace low-wage workers?

This isn’t a rhetorical exercise. These are real business world options to the vexing personnel, financial and strategic questions facing business operators should the proposal be adopted by the city council.

Supporters contend the proposal would provide low-wage workers employed in the city with a living wage and address what is called the “economic divide” in Baltimore.

No one is arguing that businesses shouldn’t provide a fair wage for a hard day’s work. The business community wants to see Baltimore residents advance at their employment and receive higher wages as they meet established performance measurements and increase job skills. This would help to fuel the economy.

But it’s important to keep in mind that the original intent of minimum wage was to provide a wage floor for entry-level, seasonal and low-skilled workers. It was not intended to ensure a family-sustaining income.

Unfortunately, some of this historical perspective has been lost in discussions surrounding the legislation being considered.

While well-intended, the minimum wage proposal is not sound public policy. It has the potential to do more harm than good on many levels.

At a packed public hearing before the Baltimore City Council’s Labor and Employment Committee a wide range of business owners, industry representatives, and others argued that the proposal would create a plethora of burdens and challenges.

The Restaurant Association of Maryland presented a study and findings conducted by two economics professors. The study concluded that a $15 minimum wage would result in 3,546 job losses in Baltimore City, largely in the retail, leisure, hospitality and health care industry sectors. Women would also be impacted heavily, the study concluded.

With some parts of Baltimore still experiencing high-levels of unemployment – more than 20 percent in some depressed neighborhoods — Baltimore certainly doesn’t need to adopt a policy that makes it more difficult to grow businesses and create jobs.

A minimum wage of $15 an hour is not the right fit for Baltimore for the following reasons:

The Island Effect: If passed, the $15 minimum wage would make Baltimore City an island surrounded by neighboring counties in the greater Baltimore region with a much lower minimum wage.

These jurisdictions already enjoy lower costs of doing business and lower taxes. Passage of this bill will only exacerbate this competitive disadvantage. Why would a business choose to locate or stay in Baltimore when labor costs are lower just a few miles over the county line?

Does anyone think that workers earning minimum wage loading boxes or flipping burgers in Howard County or Harford County won’t compete for these same job at a Baltimore City company required to pay the much higher minimum wage? In this scenario, not only will a city resident lose a potential job opportunity but the city will also lose the “piggy back” income tax to the worker’s home county.

To overcome this island effect in cities where a higher minimum wage rate has been adopted many have coordinated their efforts with neighboring jurisdictions. This is what Washington, Montgomery County and Prince George’s County did when they raised the minimum wage in 2013.

But county executives and elected officials in surrounding jurisdictions in the Baltimore region have expressed no appetite to raise the minimum wage above the current level. Recognizing this dynamic, if the legislation moves forward, Baltimore would become an island within the region.

The Law of Unintended Consequences: Boosting the minimum wage is intended to improve the financial plight of low-income and low-skilled workers. But research suggests otherwise. According to the Foundation for Economic Education, young, low-skilled workers are the most likely to be hurt by minimum wage increases because they are replaced by more experienced workers. In a survey by the University of New Hampshire’s Survey Center, 80 percent of economists polled believe that a $15-per-hour minimum wage would result in employers hiring people with greater skills for entry level positions.

Profit and Loss: Faced with increased labor costs, a well-run company will look to offset those costs by increased prices on their product or service, workforce reductions, benefit cuts, or through a combination of price hikes and cost cuts.

A growing trend is that low-skilled workers are being replaced by automation, something the fast food industry is experimenting with as it seeks to replace counter clerks with touch screen order kiosks. Might an  increased minimum wage fuel this trend in Baltimore City? It is another likely outcome.

Meanwhile, businesses that are unable to cover costs associated with a hike in the increased minimum wage may have little choice but to shut down, resulting in a loss of jobs and tax revenue to the city and the state.

Public Policy: All of these factors make the case that the proposal isn’t sound public policy.

Granted, in recent years some cities, such as Seattle and New York, have approved raising the minimum wage on their own. But Baltimore is not Seattle or New York.

Baltimore doesn’t enjoy the same ecosystem, workforce, or cost of living. Further, businesses in the city are still recovering from last year’s unrest, the economy needs to stabilize and businesses can’t absorb additional business costs.

Regardless of what other cities have done, the prudent policy approach for Baltimore is to wait until the state’s increased minimum wage rate plan to take effect (fully phased in to $10.10 wage by July 2018), allow businesses to adjust to the increased rate and evaluate how it has affected economic growth and job creation.

A minimum wage of $15 an hour in Baltimore would undermine business certainty, establish the city as a non-competitive economic island, resulting in business and job losses at a time when Baltimore absolutely needs more of both.

Simply put, this is not the time or place for a $15 minimum wage in Baltimore.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a frequent contributor to The Daily Record.

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