Baltimore’s Looming Minimum Wage Disaster
Baltimore City is barreling forward with an economically disastrous plan to hike its minimum wage independently of the rest of the State. Spearheaded by the rhetoric of the “Fight for $15,” rather than sound policy, and despite being warned by City agencies that the legislation would cost the City, already hemorrhaging money, millions per year, the Council looks all-but-certain to force the legislation through. This should not be surprising to anyone who has listened to the policies and politics of Baltimore’s City Council, whose leftward lurch last November was a point of pride for some who saw the solutions to Baltimore’s problems to be a doubling down on identity politics and promises for reform.
Despite popular approval of the legislation (who is going to turn down what is put in front of them as a now-strings-attached raise?), the reality is that there are significant, heavy consequences for Baltimore’s businesses that vapid, rhetorical nonsense is incapable of solving. Most importantly, it makes Baltimore a place where people won’t want to bring new business. So much of the discussion is focused (rightly) over whether a wage law that creates a discrepancy between Baltimore and surrounding areas. However, it does not take into account the decision-making process of large employers who, without even visiting Baltimore, will completely discount moving a business to a City where the cost of doing business is several times higher than across an arbitrary border.
Sure, it sounds nice to think that some people will get more take-home cash. That warm, fuzzy feeling will quickly be displaced by the cold reality of the business cycle. Wage pressure, especially as it relates to small businesses, can be devastating to business owners and new hiring. Raising the cost of labor without raising the value of labor does not help the owner or the laborer. Rather, artificially raising wages also increases the amount that employers will have to pay with respect to benefits and taxes. Likewise, people living in poverty, the same people the minimum wage crusaders think that they are trying to help, are the same persons who will be laid off because their skills don’t match their cost. Moreover, even keeping a position in the new labor market could kick workers off of government assistance programs and result in a greater impoverishment than what people are currently facing.
Here’s the problem with a municipality taking it on itself to artificially increase business costs: municipalities have almost no control over benefits and taxation. If the Federal Government were to raise the minimum wage to $15 (it’s wrong for macro, policy reasons in the post-industrial economy, but that’s another discussion), at least the whole government, including the IRS, Social Security, Medicare, and assistance programs could all work in tandem to change regulations to prevent negative impacts against the working poor. Even at the State-level, the significant negative effects on families by raising the wage could be offset by other policies (this would cost millions and be bad economics, but, at least there are options for the State to help the poor). A municipality, like Baltimore, raising the wage, has no power over the benefits structure of the poor and could very well wind up, through altruistic intent, denying families their much-needed safety net.
The displacement of unskilled workers also becomes a major problem when you create an arbitrary wage discrepancy on an intra-state border. Here’s the issue: if a Baltimore City business is required to pay $15 per hour and a Baltimore County business is required to pay $8.75 ($10.10 being likely in 2018), a worker with more qualifications in Baltimore County (or Anne Arundel or any of the bordering areas) will see it as a raise to apply for jobs in Baltimore City, thereby denying a Baltimore City resident, the exact people that the wage hike is trying to protect, from getting a job. The example is eminently suited to North Baltimore and the Charles Street corridor coming down from Towson. Why would a grad student working at a Towson Starbucks not travel a mile down the road to a Baltimore City Starbucks for an over 33% raise? Thus, a Baltimore City resident is displaced, Baltimore City loses out on tax revenue, and the wage is taken out of the jurisdiction.
It’s important to realize that minimum wage increases are not being pushed by individual workers, but rather by large, multi-state unions that realize their power over collective bargaining increases if their members have a higher base wage. At its core, the “Fight for $15” has all of the hallmarks of a shakedown of businesses under the guise of helping workers.
Despite the warning bells sounded by businesses, moderate Democrats, State officials, and yours-truly (I ran for office in 2016 and told folks that this $15 an hour bill was coming back– this isn’t “I told you so,” there were a lot of issues in the Campaign, and it’s a Democrat-heavy City. Rather, this is, yet again, ringing the ship’s bell as we try to navigate avoidable financial icebergs), it looks like the Council will have the votes to pass the bill in a few weeks. Even if the Mayor vetoes the legislation, there appear to be enough stalwart “progressives” on the Council to override the Mayor and make this bad economic policy the law of the City. It’s possible that Democrats in Annapolis could preempt this disaster by removing the power of the City to make its own minimum wage policy, but the fate of that proposal is less-than-clear.
The reality for Baltimore will be just the opposite. Small businesses, despite the talk about caring, will experience tighter profit margins (if at all). Some will fail entirely, some won’t be able to make new hires. Large employers, like retailers and desperately-needed grocery stores, will look at the cost of business in Baltimore and decide not to invest. The City will have to outlay millions of dollars in new, unforeseen and unprovided-for wages to its own employees and will be forced into an even tighter budgetary death-spiral than the one it is already facing. The poor, unequipped with new skills, will either be displaced from jobs or, in some cases, thrown off of entitlement programs. But, please, keep advancing slogans and rhetoric.