Tuesday, June 20, 2017

Raise the Minimum Wage



For context - Cook County passed an ordinance raising the minimum in steps to $13 an hour and then indexing it to CPI afterwards, with a sick day policy attached. The caveat was that individual municipalities can opt out of it. Brookfield Trustees are voting on this June 26th, the very last meeting before the new wage rates are to go into effect unless they opt out. Below is a text of the letter I sent to the Trustees as well as submitted to the local paper as a guest op-ed.

Another Day, Another Dollar


Raise the Minimum Wage

I think there is a lot of confusion over the minimum wage and sick day laws. The ordinance passed by the county doesn’t help clear things up much. I’ve done a lot of thinking on this subject in the big picture and more recently and specifically on the county’s laws as it effects Brookfield in particular. I don’t want to rely on any credentials I have, but instead I write this as a concerned citizen.

The Economics:
I want to speak briefly about economics. There’s argument against raising the minimum wage that goes back to the familiar supply and demand graph that shows a market at work. If you can picture in your mind the two curves crossing at some equilibrium point that shows where the market clears. This labor market has a specific amount of jobs at a specific amount of pay where anyone is happy. The Econ 101 view is that if you introduce a wage floor like the minimum wage, then two things could happen. Either the wage floor is below the equilibrium wage, so the introduction has no effect. Alternately, a wage floor above the equilibrium price means that there will be disemploymet – people who were willing to work and employers that were prepared to offer the equilibrium wage no longer have jobs. At a higher rate, more people will want to work but there will be fewer jobs on offer.
There’s a couple problems with this view. First of all, it is an oversimplification. There is no one unique “Job Market” that we can really talk about at a national level. There are a lot of different places with different needs and a lot of different workers with different levels of education and experience. Even in one place we can talk about multiple job markets. This is not to say that they operate independently of each other, but there is less homogeneity than the simple model shows.
The second problem with this view is that it just ain’t true. To look at the real world effects of economic policy, you don’t want an economist who stopped their economic education at 101 any more than you want a doctor who stopped their medical training at Biology 101. What economists do is look for “Natural experiments” where policy was put into place in one area but a close or adjoining area. Research by the economists David Card, and Alan B. Krueger in 1993 looking at an increase in New Jersey and just across the border in Pennsylvania where there was no increase. The study showed that contra-econ 101, the employment in New Jersey rose! (http://www.nber.org/papers/w4509). Now, this is a politically contentious area of research and the Card /Krueger study was just the first of many, but subsequent research shows that there is little to no negative effect on employment in raising the minimum wage (https://www.nerinstitute.net/blog/2015/04/29/fact-gathering-on-the-minimum-wage-what-do-the-met/).  The ultimate problem is that like the labor market, these look at specific markets in place and time and may not be generalizable to all places in time.

The workers:
Aside from economics, there is the real effect of the minimum wage on the people working. I worked in minimum wage employment for over ten years – first as a part time job then later in life to support myself. There are a lot of challenges to working a minimum wage job. Not only do you not get paid very much, you also have little say in the conditions of you work. The hours can be long but they can be uncertain. You may be scheduled for the 40 hours you need to make your bills at the end of the week, but there may not be enough business to justify everyone scheduled. I had a full time schedule turn into 25 hours a week more than I want to admit. The schedule at my restaurant was cut to one day a week over Christmas break because the students were out of town. There were no Christmas presents that year. I was making the minimum wage of $5.15 an hour and my rent was $400 a month. I needed to get a full time schedule to just make my rent half of my gross wages for the month. It was hard, and I didn’t have much bargaining power with my bosses. A minimum wage increase would have immediately increased my living conditions and made my life easier – and there’s the opportunity now to do that multiplied across everyone who is working near the wage floor!

The people running businesses:
I have since moved from a place where I’m working minimum wage to a place where I’m helping to run a business. From this side, the view is more complicated. If you are a business where a lot of your workers are making close to the minimum wage, a raise in the minimum can be scary and force you hand on a lot of decisions. Because not only does an increase in the minimum mean by law you have to increase the people that were making below the minimum, it raises the wage floor. The front line supervisors are now at parity with their direct reports, and that’s not going to be good for morale so their wages have to go up and so on. If you’re running a narrow-margin business, you now have to then look at what sort of efficiencies you have to make and the possibility of rising your menu prices.  I understand the push-back from the chamber of commerce – they want their costs to be a low as possible. The only problem here is that looking at labor costs as pure costs blinds you to the fact labor isn't just a cost, but people.

The village itself:
The final piece is looking at the effect of raising or not raising the minimum wage on the village itself. In one way, not raising the minimum wage can be a point of differentiation for the Village compared to the neighboring municipalities that do raise it. Our prices can be a bit lower than La Grange, but not the full difference because there are very few businesses where labor is 100% of your costs. Ultimately, I think the wage difference will result in it being harder to attract quality workers because why would a worker give a Brookfield business a 10% on their labor when they can literally cross the street and make more money?

I’m of the opinion that minimum wage laws are important and ultimately they should be legislated at higher levels, but the opportunity now exists for the Village Board to show that they are concerned about all the citizens of the Village. Please, do the right thing.