Sen. Leno’s “Income Inequality” Lost Cause

California’s minimum wage is set to rise to $10 an hour on January 1st of next year. But for Senator Mark Leno (D-San

CA Senator Mark Leno, D-San Francisco

CA State Senator Mark Leno, D-San Francisco

Francisco), this already-dramatic wage hike isn’t nearly dramatic enough.

Citing an “income inequality crisis,” Sen. Leno has called for a minimum wage increase to $11 an hour in 2016, followed by another jump to $13 an hour in 2017. Unfortunately for the senator, the evidence suggests a hike in the base wage will do very little to solve this crisis — and might even make it worse.

San Francisco, which Sen. Leno represents, has one of the highest minimum wages in the country — and one of the country’s most dramatic gaps between the rich and the poor. (One analysis last year compared the city’s inequality level to that in a developing nation.) City voters in November resolved to fix this problem by approving a proposal to raise the city’s minimum wage even higher, to $15 an hour, by 2018.

Thus far, the looming $15 minimum wage only seems to be worsening the city’s inequality crisis. Several small business owners have been forced to close their doors as a consequence of the coming cost hike, hindering their own entrepreneurial dreams and those of the people they employed. This trade-off isn’t unique to San Francisco. If you’re an employee working at a business with small profit margins, your employer will be faced with one of two difficult choices when the minimum wage goes up: Either raise prices, or cut labor costs by reducing staffing levels or employees’ hours.

If the wage goes up and the terms of your employment don’t change, you may be better off; if you lose job and your co-workers do, too, then you’re most certainly worse off. That means Sen. Leno’s plan for a statewide $13 minimum wage will create winners and losers in the entry-level workforce. Unfortunately, a team of economists writing in the Journal of Human Resources discovered that the “losers” from a wage hike — employees who are pulled below the poverty line, or at least closer to it, as a consequence — outnumber the “winners.”

Put differently: Instead of redistributing income from the top 1 percent, Sen. Leno may unintentionally redistribute it among the bottom.

The Senator’s office has pointed skeptics to comforting studies from a team of ideological researchers at the University of California-Berkeley, suggesting that the negative impact of a higher minimum wage in California—both on the city level, and statewide–would be minimal or nonexistent. But the Berkeley team’s estimates are looking less and less credible in the face of real-world evidence.

In San Francisco, for instance, one bookstore reported that the $15 minimum wage would cause a fatal 18 percent increase in operating costs—90 times greater than what UC Berkeley projected for city retailers. And in Oakland, where the minimum wage is rising to $12.25, restaurants are reporting price hikes of up to 20 percent—far greater than the 2.5 percent that the Berkeley team predicted.

These real-world examples are no doubt unsatisfying to the most dedicated ideologues, and it’s unsurprising that one of the Berkeley researchers insinuated employers might not be telling the truth. But spin like this only goes so far, especially in the face of real flesh-and-blood employees who no longer have jobs.

If Sen. Leno is serious about reducing income inequality and increasing opportunity, he owes it to the California residents who need those opportunities to examine the best way to help them. That starts by acknowledging that we should judge public policy by its outcomes rather than its intentions.

Michael Saltsman is research director at the Employment Policies Institute

Taking On The Minimum-Wage Debate in L.A.

The national debate over minimum-wage increases will take center stage in Los Angeles because two efforts to raise the minimum wage face staunch opposition from the business community.

The Los Angeles Business Federation, known as BizFed, went on the offensive last week, coming out strongly against both minimum-wage proposals and the way the City Council is going about reviewing the consequences of a minimum-wage increase.

Mayor Eric Garcetti wants to see the minimum wage increased to $13.25 an hour; while advocates and some council members say that’s not enough, the minimum wage should go up to $15.25 per hour.

BizFed doesn’t think the discussion should be a competition on which higher minimum wage proposal takes effect, but whether there should be an increase at all at a time the state is raising the minimum wage — to $9 an hour in 2014 from $8; and to $10 in 2016.

BizFed made its argument against the minimum-wage increase as a way to deal with the tide of poverty that is washing over Los Angeles. Said MC Townsend, president and CEO of the Regional Black Chamber of Commerce of San Fernando Valley and chair of BizFed, “We share Mayor Garcetti’s strong commitment to reducing poverty, and that is best achieved by creating good paying middle class jobs that can actually lift individuals and families out of poverty.”

Jobs lost

BizFed leaders said minimum wage increases could cost jobs; something the city cannot afford.

While Los Angeles gained 1 million new residents over the last three decades, it lost about 165,000 jobs.

In an effort to convince the City Council to understand the effects of a minimum wage increase on the job market, BizFed has raised issues dealing with the proposals’ enforcement mechanisms, teenage workers looking for entry jobs, and that neighboring cities maintaining a lower minimum wage will draw jobs from L.A.

Convincing the mayor and council to stop a race to establish a higher and even higher minimum wage will not be an easy task. The Los Angeles City Council already approved a $15.37 minimum wage plan for hotel workers.

As I’ve written before, the council ignored a review to its hotel wage proposal – even when it asked for it:

When the Los Angeles City Council passed the minimum wage for hotel workers, economist Christopher Thornberg opined in the Los Angeles Times, after studying the matter for the council, that the results of his study ‘strongly suggest that such a steep increase in the minimum wage could result in a sharp decline in the number of jobs in the hotel industry.’

“More troubling was Thornberg’s assertion that the council didn’t bother to look at his findings. Thornberg wrote, ‘But the City Council never seemed interested in really examining the potential economic consequences of the ordinance. We got our instructions about what questions to address just two weeks before the vote, and we were surprised to learn that the council intended to vote on the day after we turned in our final analysis, which suggests none of the members spent time looking at our findings.’” 

There seem to be similar goings-on with the new debate over raising the minimum wage.

Questionable study

Mayor Garcetti used the University of California, Berkeley’s Institute for Research on Labor and Employment to study and then speak up for his minimum-wage proposal. Now, city officials wants to hire the same group to study its proposal instead of reaching out for new, independent researchers.

Apparently, city bureaucrats and some council members are not interested in second opinions, especially ones they might not agree with, as was the case with the analysis of the hotel minimum-wage proposal.

The business community has objected to this arrangement. BizFed president Tracy Rafter said the organization was “calling for a truly independent analysis of these proposals that will give policymakers credible, unbiased information to make decisions moving forward. It’s absurd for the city of Los Angeles to spend taxpayer dollars contracting U.C. Berkeley’s Institute for Research on Labor and Employment to tell them what they’ve already told them previously, especially when that organization has been helping advocate for the mayor’s proposal.”

With a unified effort from the business community, perhaps this time the City Council will at least listen to business concerns.

Originally published on Calwatchdog.com

Berkeley Minimum Wage Hike Study Ignores Key Factor

Los Angeles Mayor Eric Garcetti’s proposal for a $13.25 citywide minimum wage hit a speed bump last week when two city councilmen — Mitch O’Farrell and Felipe Fuentes — insisted on an independent analysis of his plan.

They specifically objected to the group of researchers originally chosen to conduct that analysis, from a labor union-aligned research outfit at the University of California-Berkeley, due to concerns that their final product wouldn’t be sufficiently independent.

Are these concerns justified? Berkeley professor Michael Reich, who has accompanied the mayor on pitch meetings for the proposed wage hike, doesn’t think so.

Reich and his co-authors have been busy writing various reports on California minimum wage increases. In 2014, for instance, they released four separate reports on proposed city minimum wage increases in the state — in San Francisco, San Diego, Los Angeles and Oakland — and another report on a proposed statewide wage increase.

The geographies and populations studied varied dramatically, as did the minimum wage policies proposed: From $11.50 an hour in San Diego up to $15 an hour in San Francisco. And in every instance, the conclusion that Reich and his team produced was the same: Substantial loss of entry-level jobs is unlikely to occur following a minimum wage increase. (This consequence was apparently so remote in San Diego that it wasn’t even worth mentioning in the report.)

This kind of unanimity on the question of job loss and the minimum wage is highly unusual, to say the least: The issue has been studied exhaustively over the past two decades, and according to a summary of all these studies by economists at the University of California-Irvine and the Federal Reserve Board, a majority of the research points to job losses following a wage hike.

Policymakers curious how Reich and his team consistently reach a conclusion at odds with this economic consensus should read the fine print. In a seven-page document released last year explaining how they estimated the impact of citywide minimum wage increases, they offered this disclaimer: “We do not make any adjustments for potential positive or negative changes in employment due to the minimum wage increase.”

Got that? The reason why this team from UC-Berkeley consistently finds no impact on employment from a higher minimum wage is that they assume at the outset it doesn’t exist.

You could have all sorts of fun evaluating public policies following this approach. For starters, you might study the increased revenue from a new 50 percent tax on all new car purchases in Los Angeles — and assume at the outset that higher taxes won’t affect consumers’ purchasing decisions. Or perhaps you could study the ramifications of a $20 per-car toll on the Golden Gate Bridge — and assume from the start that higher tolls won’t impact driving habits. In both cases, you’re guaranteed to succeed!

Of course, if the assumptions are unjustified — if higher taxes on cars really would reduce purchases, for instance, and if a higher minimum wage really could hurt job growth — then this approach starts to run in to trouble.

It’s even more problematic in the case of Reich’s team at UC-Berkeley because the backgrounds of these researchers suggest they have more than the data in mind. Ken Jacobs, for instance, who was a co-author on all four of the city minimum wage studies, was formerly employed as co-director of the San Francisco Living Wage Coalition. Today, he oversees the Center for Labor Research and Education, which is supported by many of the same unions pushing for a higher minimum wage. Another co-author of these papers, Annette Bernhardt, made the leap to Berkeley from the National Employment Law Project , which boasts of “coordinating the campaign to lift the federal minimum wage to more than $10 per hour.”

The least that the City Council can do is commission a report whose independence is not in doubt. With an average 30 percent of Los Angeles’ job-seeking youth failing at finding a job, it’s crucial that any additional barriers to employment associated with a higher minimum wage be seriously examined rather than ignored as if they didn’t exist.

Report: Unions Avoid The Minimum Wage

Unions love raising the minimum wage, so long as they are exempt.

A new report, “Labor’s Minimum Wage Exemption,” by the U.S. Chamber of Commerce found many labor unions are exempt from the various local minimum wage laws they support for everyone else.

“Not all minimum wage increases come in the same form,” the report notes. “Some local ordinances in particular include an exemption for employers that enter into a collective bargaining agreement with a union.”

The report explains that these sort of “escape clauses” are often designed to encourage unionization because they make membership a low cost alternative for employers. This, explains the report, raises questions about who these minimum wage laws are actually meant to help.

The report cites the experience of one union after the city of Los Angeles included an exemption for unions when they raised the minimum wage for the hotel industry.

“Local 11’s membership increased from 13,626 in 2007 to 20,896 in 2013,10 while its revenue increased from approximately $7.5 million per year to nearly $12.7 million,” the report details.

The same thing happened for UNITE-HERE Local 2 when San Francisco passed a minimum wage ordinance with a union exemption in late 2003.

Another notable example is when the city of SeaTac, Washington passed a living wage ballot initiative in 2013, known as Proposition 1. At the time the initiative established the highest minimum wage rate in the country of $15 per hour with an annual adjustment for inflation.

Proposition 1 also included an exemption for unions. The report explained, “Supporters of Proposition 1 spent more than $1.7 million, with union spending accounting for 98.4% of that amount.”

San Francisco’s move to raise its minimum wage to $10.55 per hour, which gained national attention, also included an exemption for unions.

According to the report, minimum wage laws passed in Oakland, San Jose, Long Beach, Milwaukee County and Chicago all included an exemption for unions.

“Many advocates for a higher minimum wage portray it as a means of improving the lives of workers, putting more money into the economy, and increasing growth,” the report concluded. “So, it is surprising that some minimum wage ordinances include an exemption that potentially undermines all three goals.”

This article was originally published by the Daily Caller News Foundation

Hyperliberal UC Berkeley Won’t Pay Higher Minimum Wage

Famous nationwide as a bastion of liberalism, the University of California-Berkeley has chosen to ignore a local ordinance raising the minimum wage, claiming an exemption as a state agency.

California’s minimum wage is $9 an hour for all workers, but on October 1 the city Berkeley implemented a local ordinance raising it to $10, seeking to improve conditions for low-skill workers in a city with a high cost of living. However, the city cannot compel state government entities to pay the higher wage, and so UC-Berkeley, the city’s largest employer, has exploited its state affiliation to keep paying 25 percent of its student employees less than the city minimum, according to a report by Inside Higher Ed.

The school isn’t alone. Several other cities in California, including San Francisco, Oakland and San Jose have approved local statues increasing their minimum wage above the state minimum. In San Francisco, where the minimum is $10.74, San Francisco State University has used its exemption to keep 44 percent of student employees paid less than that.

Not all colleges are avoiding the minimum wage hikes, however. Both San Jose State University and the City College of San Francisco have complied with heightened minimum wages.

Berkeley city council member Jesse Arequin told Inside Higher Ed that while the city couldn’t compel UC-Berkeley to do anything, “We were hoping they would follow the letter and the spirit of the law.”

“$10 an hour is not enough to support yourself in Berkeley or the Bay Area,” he said.

UC-Berkeley has been famous for the liberalism of both students and faculty ever since the days of the campus’s Free Speech Movement during the 1960s. In 2012, individuals associated with the University of California (which Berkeley is the flagship campus of) were the biggest bloc of donors to President Obama’s reelection.

(RELATED: Contributors affiliated with University of California, Harvard are Obama’s No. 1, No. 4 donor groups) 

The school has defended itself, telling the local East Bay Express that “budget constraints” require that it keep student wages down. However, the UC system has recently given big pay boosts to some of its top executives, leading many to criticize its claims of a money shortage. For example, earlier this year, UC-Berkeley vice chancellor and provost Claude Steele received a pay increase of $75,000, raising his base salary from $375,000 to $450,000. That raise could have paid for a higher minimum wage for 220 student employees working 20 hours a week over a 17-week semester.

This article was originally posted on the Daily Caller News Foundation. 

Minimum Wage Truth and Consequences: Who’s Listening?

Let’s hope that voters become more engaged in the minimum wage debate than some elected officials.

Voters will be subject to counterarguments in the minimum wage debate. Raising the minimum wage will undoubtedly make things better for minimum wage workers – more to spend, raising some out of poverty. At the same time it likely will cost some minimum wage workers their jobs and raise costs for all consumers, including, of course, those minimum wage workers who get a raise.

California cities are in the forefront of the debate. San Francisco voters will consider raising the minimum wage from $10.74 an hour to $15 by 2018. Oakland voters will be asked to raise the minimum wage from $9 an hour to $12.25 by March 2015. San Diego faces a referendum in two years over a minimum wage increase passed by the city council over the mayor’s veto.

In Los Angeles, the mayor is proposing a $13.25 minimum wage with future increases tied to inflation. The L.A. City Council couldn’t wait. They already passed a $15.37 minimum wage for hotel workers and some councilmembers want to introduce a minimum wage increase to $15.25 for all city workers by 2019.

The Congressional Budget Office laid out the consequences of raising a federal minimum wage from $7.25 an hour to $10.10 an hour. Most workers would receive higher pay, some would lose their jobs, and the share of low-wage workers who are employed would fall.

There is the additional concern of setting off some inflationary movement as costs go up putting pressure to raise wages across the board.

Many businesses worry about continued government dictates to business. Small business in particular is worried how raising the minimum wage will affect their ability to hire new employees or even to stay in business.

The job loss threat should be considered real. When the Los Angeles City Council passed the minimum wage for hotel workers, economist Christopher Thornberg opined in the Los Angeles Times after studying the matter for the council that the results of his study “strongly suggest that such a steep increase in the minimum wage could result in a sharp decline in the number of jobs in the hotel industry.”

More troubling was Thornberg’s assertion that the council didn’t bother to look at his findings. Thornberg wrote, “But the City Council never seemed interested in really examining the potential economic consequences of the ordinance. We got our instructions about what questions to address just two weeks before the vote, and we were surprised to learn that the council intended to vote on the day after we turned in our final analysis, which suggests none of the members spent time looking at our findings.”

Further, Fernando Guerra, head of the Center for the Study of Los Angeles at Loyola Marymount College said of the message sent to the business community opposing the hotel minimum wage increase, “This decision seemed to say: ‘Not only are you going to lose, we’re not going to listen to you. You’re a non-factor.’”

Will those members of the business community who oppose the minimum wage increase have any better luck with the voters? History indicates that voters tend to support minimum wage increases.

Importantly, will the voters be willing to listen to arguments about the consequences of raising wages and balance that against any pluses that come with the government order?

A possible outcome of the minimum wage debate may produce a third way. Call it job wage classification: for example, increasing pay for some minimum wage jobs but keeping a lower cap on other jobs for new workers so they can enter the job market.

Job wage classification may occur because the one size fit model doesn’t satisfy all companies, especially small businesses. But be wary and concerned about such a move. Job wage classification for minimum wage is more micromanaging government interference with businesses.

This article was originally published on Fox and Hounds Daily

 

VIDEO: Jerry Brown’s false narrative of a California recovery

American Conservative Union board member Jim Lacy, author of Taxifornia, on Varney & Company discussing Governor Jerry Brown’s false narrative of a California recovery.