1) Macro and micro economies do not perform on demand. The setting of artificial price points for products, services or labor is the surest way to render markets inefficient, while simultaneously creating unintended negative consequences both to the providers and the consumers. Since providers cannot print their own money, they must take into account their fixed and flexible costs, one of the largest of which is usually the cost of labor and the associated taxes and benefits. Raising the minimum wage by 50% in 2 to 3 years will have a highly destabilizing effect on small businesses and on the working poor.
a. I have spoken with several small business owners and they have all provided me with the same information: A higher minimum wage increases not only their labor costs but also their costs for the associated taxes and benefits that they are required to pay by law. They have also stated that the most likely solutions will be to close their businesses, lay-off workers and/or increase their prices.
b. When prices of products or services increase, they eventually reach a point at which people no longer are willing to pay for them, or they find less expensive alternatives which then results in decreased sales and lower profit margins. When the price becomes too high, the provider is then driven out of the marketplace and the product becomes too expensive for those with limited or low incomes.
2) Price increases almost always affect poor and fixed income people first. Unless the product or service is one that is primarily utilized by people of means (such as buying a private airplane or a yacht), low income people are the ones that are affected first and negatively impacted the most. We have already seen proof of this with the skyrocketing rents that are a direct result of the high wages being paid by the high tech companies here in Mountain View.
a. A 50% increase in the minimum wage over a short period of time will mean that prices for most of the goods and services that low income people rely on (including food) will rise at least that much. It is certain that many small businesses will fail and as a result there will be less competition which will lead to even higher prices since demand will be high and supply will be low.
b. As businesses fail, people will lose their minimum wage jobs and be forced to leave the area. The predictable result is that as the minimum wage jobs are eliminated, existing or new high tech companies will come in to replace them putting even more upward pressure on the costs of goods and services, while simultaneously reducing the opportunities for low and unskilled workers as well as for those without advanced degrees.
3) There must be a level playing field for all employers and workers. According to my understanding of an article in the August 15-16 edition of the Palo Alto Daily Post titled “City to give unions a break”, Mountain View already has an agreement that exempts unions from the new minimum wage. I have attended Council meetings where union representatives were the ones calling most strongly for the increased minimum wage and saying that there was a need for a “living wage”.
a. To exempt unions creates an unfair competitive advantage since it allows union workers to be paid sub minimum wage salaries. The lower paid union workers would receive a double hit because they are also required to pay dues to the unions. If the goal is truly to have a “living wage” then how is this accomplished with below minimum wage pay?
b. The city also already has a policy in place that requires non-union employers to pay the higher union wage (also called “prevailing wage”) for any work where a city contract or agreement is involved. This has the net effect of giving unions an unfair advantage on both ends.
c. These policies will also have the effect of forcing some people to accept lower paying union jobs, join a union if they want to work, or to seek work outside of Mountain View and other cities that adopt these unfair policies.
d. According to the aforementioned edition of the Palo Alto Daily Post, the text of the policy reads: “4.62.050. Waiver through collective bargaining. To the extent required by federal law, all or any portion of the applicable requirements may be waived in a bona fide collective bargaining agreement, provided that such waiver is explicitly set forth in such agreement in clear and unambiguous terms.”
i. In my reading of that text, it is not a requirement that unions be exempted, but cities have the option to do so. However, I believe that doing so when it obviously creates an unfair advantage is not in the best interests of the city, nor its residents.
4) The minimum wage was never intended to be a “living wage”. The minimum wage historically has been a vehicle for low and unskilled workers to gain skills and experience at the beginning of their careers as well as for those who wish to supplement their incomes but are not in need of higher wage jobs. As people gain more experience and/or education, they are then able to obtain higher paying jobs.
a. The federal poverty guideline is currently $24,250 for a family of 4 ( Web Link )
i. Based on this, the proposed minimum wage of $15/hr. or about $30,000/yr. would allow those fortunate enough to keep their jobs at about 125% of the federal poverty level. However, since that poverty guideline covers all 50 states and the cost of living in California is significantly higher than most other states, I submit that the family of 4 would still be below the poverty level here.
b. If the city of Mountain View truly wants to provide a “living wage” then I would suggest one of two methods:
i. Use the median household income of $97,338 or about $49/HR ( Web Link )
ii. Base the wage on the median cost ($2770) of a 2BR rental unit in Mountain View ( Web Link ). Based on that rental price and using the baseline of paying no more than 30% of the family income for rent, the wage would need to be $110,000/yr. or $55/hr.
c. Even a non-economist would recognize that elevating the minimum wage to a “living wage” would have disastrous results.
d. If the City insists on adopting this ill-advised policy, I recommend that the City track the following annually in order to study its effects:
i. The total number of small businesses in the City
ii. The total number of minimum wage workers in the city
iii. The total number of minimum wage jobs in the city
iv. The number of small business failures
v. The total number of business failures
vi. The number of homeless people in the city
vii. The number of resident evictions for non-payment of rent
5) Seattle and San Francisco are already in the process of trying this experiment and while the results will not be complete for a few years, the repercussions are already being felt:
Conclusion:
I think that to artificially impose a radical change in the minimum wage to $15/hr. by 2018 is irresponsible and short-sighted because:
• It will create a crushing burden on small businesses and will have significant impacts on even most of the medium and large businesses.
• It will result in higher unemployment for low wage workers
• It will result in higher rates of homelessness and displacement
• It will lead to a net reduction in the total number of minimum wage jobs
I hope that the Council will reject the pressure from the special interests to jump on the higher minimum wage bandwagon. Other cities have done so and the negative effects are just starting to be seen and measured. Acting precipitously will very likely result in near and long term irreversible harm to those to whom these changes are intended to benefit.
