We at Economic Growth DC are strong supporters of higher wages for workers in the District of Columbia. We are constantly at work trying to foster government policy that facilitates faster economic growth and higher wages. A dramatic increase in the government mandated minimum wage is an artificial, not to mention poor, way of achieving these goals. On October 11th, Ed Lazere and Elissa Silverman of the DC Fiscal Policy Institute made the case for a minimum wage increase. While we like and respect the DCFPI, and support their goals of higher wages for DC families, their case for how to go about it is fundamentally flawed. For those who haven’t seen the column, we have reprinted it below in its entirety. Our comments are in bold:
Time to give D.C. workers a raise
By Ed Lazere and Elissa Silverman, October 11, 2013
Published by the Washington Post
We’re not sure if the authors came up with the title for their piece, but on the surface, who could argue with giving DC workers a raise? It seems everyone should get a raise on a regular basis. In times of normal economic growth (3%-3.5%), wages normally rise. The title appeals to our sense of morality and social justice. The question is not whether DC workers deserve a raise, but whether it is in the best interests of workers to have that raise come through government fiat, or by providing workers with opportunities to improve their skills and increase their productivity. Large increases in the minimum wage are artificial in nature and end up harming the group of people they purport to help.
A $12.50-an-hour wage for large retailers was controversial among D.C. elected officials. But even some of the most vocal critics of that legislation agreed with supporters on one key point: The District’s minimum wage needs to be raised. We fundamentally disagree with the premise that the minimum wage needs to be raised. Increasing the minimum wage makes the community and certain policymakers feel like they are helping to improve the lives of low skill workers. In reality, they will marginally increase wages for a portion of low skill workers, and destroy the jobs of many others. The increases proposed will make no real material difference in the lives of those who receive the increase, but will devastate the lives of the workers whose jobs are eliminated as a result. The D.C. Council is now considering several bills to boost the city’s minimum wage, and last week, Council Chairman Phil Mendelson (D) joined forces with officials from Montgomery and Prince George’s Counties pushing to raise the minimum wage in those jurisdictions. Notice that Virginia is conspicuously absent from these proposed wage increases. Don’t be surprised when the owners of narrow margin businesses in DC and Maryland vote with their feet. Mayor Vincent Gray has said this is a priority for him as well. Mayor Gray has proposed a study of the minimum wage to obtain a clearer understanding of the effects of raising the minimum wage in the District. For a decision with substantial implications for District workers and businesses, this is prudent course.Now is the time for D.C. residents to make sure our elected leaders do not backslide, as the public debate shifts from the Large Retailer Accountability Act to what might be called a Keep Your Word on Raising the Minimum Wage Accountability Act.
There are breadwinners in the vast majority of the District’s low-income households, many of them working full time. But too many of these residents cannot afford to live in the city on their current pay. At $8.25 an hour — the minimum wage in the city — someone with two children who works full time earns $17,160 a year, well below the federal poverty line. If you look at this without emotion, you realize that a head of household in a single-parent family working 2,000 hours per year at $12.50 per hour, grosses $25,000 per year. This is nowhere near the real cost of living in the District of Columbia. This worker will still be dependent on various federal and local public assistance programs. At the same time, a significant number of other minimum wage workers will see their jobs eliminated altogether. One of Mr. Lazere’s and Ms. Silverman’s central claims below is that minimum wage increases do not cause job losses. This is simply untrue. The latest research, summarized here — Minimum Wage Employment Effect — indicates that jobs are destroyed by minimum wage increases, and the number of jobs lost increases with the size of the increase in the minimum wage. That is the central fact that folks should consider: there is a trade off made when increasing the minimum wage — marginally higher wages for a potentially much smaller group of workers. Others work part time because they have jobs in retail or other industries where that is the norm. With skyrocketing housing costs and flat incomes for many people, raising wages is critical to helping many residents continue to call the District home. An artificial increase in in the minimum wage that results in an annual income of $25,000 or less will not change the circumstances of a single resident who is on the verge of losing their ability to afford to live in the District. The cost of living here is too high and rising. What these residents need are job training programs that impart the skills that permit graduates of these programs to command what is truly a living wage. That is government’s true duty to its residents: provide a job training and workforce development system that consistently imparts the skills necessary to perform higher-skill work at a market wage.The bills under consideration would increase the minimum wage to a range of $10.25 to $12.50 an hour, in time increments of two to four years. Two of the bills also call for automatic inflation adjustments so that pay doesn’t remain stagnant while the cost of living rises. One bill would raise the $2.77 minimum wage for tipped workers, which has not been adjusted for years. The only material difference between an increase in the minimum wage to $12.50 per hour versus $10.25 is the number of jobs lost. Michael Saltsman of the Employment Policies Institute does an excellent job in a recent Post op-ed of explaining the damage that would be done to tipped and other restaurant workers, most whom already earn in excess of $13.00 per hour — Effects on Tipped Workers.
The vast majority of D.C. residents support efforts to boost low wages. A recent Hart Research poll found that seven of 10 residents supported the Large Retailer Accountability Act, and six of 10 would like to have seen a minimum-wage increase plus the more targeted living wage. Clearly, most residents will back a stand-alone minimum-wage hike. With a fuller understanding of the trade offs involved in large minimum wage increases, it is probable that support would be considerably lower.An increase will add vitality to the D.C. economy by putting money in the pockets of people who are most likely to spend it. When no wealth is created, but money is simply transferred, there is no increase in economic activity. A $10.10 wage — the rate proposed for the entire country by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) — would help 36,000 D.C. workers, according to the Economic Policy Institute. What the Economic Policy Institute doesn’t say is how many low skill jobs will be eliminated because of the increase, so we’re back to the trade off involved. If you believe the higher minimum outweighs the damage caused by having a smaller number of entry level jobs, you should favor the increase. We believe the trade off is not worth the cost in terms of the number of people who will lose the opportunity to enter the workforce and get the training that comes with an entry level job. The estimated $58 million in increased wages would be spent at markets, clothing shops and hardware stores, aiding D.C. businesses large and small. Absent significant revenue increases at the businesses required to pay the higher wage, it is a given that an equal amount of money will be removed from the economy. There is no net beneficial economic effect. The direct and indirect effects would help thousands of children. Here is a play to the reader’s heartstrings. Who could resist helping thousands of children? If you are one of the children whose mother loses her low wage job as a result of the increase, you will see no benefit. And arguments that minimum-wage earners are dominated by teenagers don’t hold up to scrutiny. Almost all affected workers — 95 percent — would be age 20 or older. Economists have studied the impact of minimum wage increases for decades. And the vast weight of the research finds that they raise workers’ take home pay without leading to notable job cuts. See above. Simply not true. The vast majority of minimum wage jobs are entry level jobs designed to get a new worker integrated into the workforce. They are designed to teach entry level workers basic skills about the responsibilities of having a job. Take Wal-Mart for example. They had over 10,000 people apply for the initial 900 entry level jobs that will be coming online at their first three stores, many of them unemployed residents of the District. These workers will gain valuable skills and training that will allow them to leverage their Wal-Mart experience into a training program that can help them acquire the skills needed for higher-wage work. A higher minimum wage shuts people off from this opportunity.Now is not a time to be distracted. There are many things our city can do to help low-wage workers and their households, including improving educational resources for their kids, providing good job training in growing sectors of our economy, and making housing affordable. We agree with this statement completely and wholeheartedly. We think this is the key to improving the chances of the District’s workforce. A higher minimum wage will interfere with the social mobility of District residents. Having a job is the ultimate in social justice. A higher minimum wage makes that possible for a smaller group of people.
But having a city of workers who earn above the poverty level can make all these investments pay off even more. Even the high side ($12.50) of what has been proposed does not truly move a District family out of poverty. Only faster growth that creates more jobs at all skill levels and an improved job training system can allow District workers to move up to jobs with a true living wage.
The writers are, respectively, the executive director and communications director and workforce policy analyst at the DC Fiscal Policy Institute.
Dave Oberting is the Executive Director of Economic Growth DC. Email him at email@example.com and follow him on Twitter @GrowthDC.