Baltimore isn’t as economically healthy as Seattle or San Francisco. That can be an argument both for and against its new legislation.
Following in the footsteps of Seattle, San Francisco, and D.C., last night Baltimore, Maryland, passed legislation to increase its minimum wage to $15. But there’s one big difference between Charm City and those other three: It’s far less economically healthy. Baltimore would be the poorest city to join the “Fight for $15,” the national movement to mandate a $15 minimum wage. And that fact has been used as ammunition in arguments by both opponents and supporters of the legislation.
The minimum wage in Maryland is currently $8.75 per hour, scheduled to be raised to $10.10 in 2018. On Monday evening, Baltimore’s City Council voted 11 to 3 to approve a legislation that requires businesses to phase in a $15 per hour wage by 2022 (indexed to inflation). A similar bill had failed to get the requisite votes in August 2016, but this one had some added exceptions that satisfied council members who had earlier expressed concerns. For one, businesses with fewer than 50 employees would have until 2026 to adjust to the new threshold. Also, workers under the age of 21 can be paid less.
A green light from recently installed Mayor Catherine Pugh, who in recent days has expressed concern over potential negative economic impacts, would turn it into law. According to a statement her spokesman gave the Baltimore Sun, “Mayor Pugh will make her decision based on what she believes is in the best interests of Baltimore residents.”
Baltimore’s finance department has estimated that the legislation may deal a $115 million dollar blow to the city’s bottom line, and cost hundreds of jobs. And opponents in the business community have been forceful in their derision of the bill. A recent Sun editorial also cautioned against it, arguing that enacting it will turn the city into “an island of higher wage costs in the middle of more prosperous and lower-cost suburbs.” Baltimore, despite some encouraging economic signs, is no Seattle or San Francisco, the paper argues—it’s got almost half the median income and double the poverty.
And it fares worse on those and other metrics than many of the surrounding areas in Maryland. In another op-ed, economist Stephen Walters at Loyola University called passing the bill a “foolhardy Robin Hood move.” Job growth has been slow and new construction has been tax subsidized, so the city’s bottom line isn’t seeing great returns; this minimum wage legislation will only make it worse:
The real lesson of Robin Hood is that when you rob every rich sucker who comes through Sherwood Forest, eventually they catch wise and steer clear; before you know it, there's not much wealth to “share.” We in Baltimore are about to see how that works—and not for the first time.
In an email to CityLab, Walters adds that the economic damage from enacting the legislation could be worse than predicted. “Baltimore City is in a unique competitive position, and I fear that the normal ‘elasticities’ we use to estimate short- and long-term job losses from minimum wage hikes greatly understate the risks here,” he says.
But for supporters, it’s precisely because the city is struggling economically that it needs this wage boost. The cost of living in the city, as with others, is higher than in many surrounding areas. “Folks in Baltimore, because they are low income, need higher wages probably more than anyone,” says David Cooper, an economist at the progressive Economic Policy Institute. Supporters of the law estimate that the wage increase would directly benefit some 80,000 workers, but the enhanced economic activity would be more wide ranging, because lower-income households have what economists call a higher marginal propensity to consume: They are more likely to go out and spend every additional dollar they receive. “In a place like Baltimore, where there isn't a lot of extra disposable income among the populace, injecting more income could be beneficial to the city at large,” says Cooper, who testified in favor of the legislation. “It could lead to more retail, more businesses, more supermarkets wanting to open in neighborhoods where they wouldn't have had a consumer base before.”
Cooper adds that not only are businesses competing against each other for lower operating costs, they’re also competing for labor. So, if Baltimore City restaurants start to pay employees a competitive wage of $15, it’s more likely they will attract workers from out of the city and raise wages in surrounding areas. That’s one spillover that many detractors don’t consider, he says.
Another analysis comes from Ben Smith, Baltimore-based public policy consultant who testified in favor of the law. Smith outlines some flaws with the way the city has estimated that $115 million price tag for raising the wage:
The $115 million framing is misleading from the start, because it refers to a 4-year implementation period of escalating hourly wages, before the $15/hr. wage rate is reached. Once the $15/hr. wage is reached, the estimated annual cost to the City will be $44.8 million...One of the most glaring problems with Finance’s estimate of $44.8 million in annual cost, however, is that it only assesses impact on the basis of increased wage cost for City Government, and increased income taxes from higher wages Citywide. A bit of math shows how inadequate such a barebones assessment is.
For his own calculations, Smith doesn’t buy the assumption that the legislation will lead to job loss, citing rigorous studies that show that hasn’t been the case. Conversely, a higher minimum wage can help ensure lower employee turnover and higher productivity, helping businesses compensate for higher labor costs. More broadly, wage gains to low-income workers could help them break cycles of homelessness, have fewer interactions with the police, and perhaps even become homeowners themselves. That would eventually allow the city to save on health care, safety net expenditures, and law enforcement costs, and bring in additional property and sales tax revenue. Accounting for some of these (speculative) positive economic effects, Smith estimates the budget impact of the legislation would be a mere $2.8 million. And even if there are, in fact, higher costs, there are ways to mitigate them, he writes:
In a larger sense, even if we assume Finance’s alternative facts are correct, $44.8 million in annual shortfall could easily be accounted for if City Government simply curbed budget costs created by mismanagement. Baltimore is on pace to spend $43 million in police overtime this year, and has averaged roughly $25 million in cost overruns for infrastructure projects since 2012. If we spent the next 5 years fixing mismanagement costs instead of fighting against a living wage, even mediocre success for these two areas alone could cover Finance’s projected shortfall of $44.8 million.
Still, the elephant in the room remains: Research on the impacts of minimum wage hikes has focused on states or cities that have very different economic profiles than Baltimore’s, and often less drastic hikes. And it’s certainly true that different urban economies have different capacities to offset the costs of such a program. Is there a closer analogue of a city where such a hike has worked?
The case of Santa Fe, New Mexico, although imperfect, may be instructive. Through the early 2000s, it had high poverty, particularly for children and female-headed households. In 2004, the city enacted a law that increased the prevailing minimum wage in the city by 65 percent in the first year, and then by an additional ten percent annually for the next two years. It also had a small business exemption, the way Baltimore does. A study conducted two years later found no effect on employment. Another in 2011, compared the city to surrounding ones, and also came to the same conclusion. “If anything, the Santa Fe minimum wage raised employment in the city,” the second study’s authors wrote.
That said, it wasn’t an economic cure-all. In 2014, the city’s mayor told The Washington Post:
“One of the lessons learned is that the sky didn’t fall,” Mayor Javier Gonzales says. “The doom and gloom that was predicted never came to be. . . . But the living wage is not a silver bullet, either. It’s not a quick fix and it alone won’t save the economy.”
Just like any city, Baltimore’s economic health is the sum total of the health of all its workers. Elevating the pay of its lowest rung so that it starts matching productivity has implicit value, even if it comes at a cost. (If it had caught up to productivity, minimum wage would have reached $21.72 per hour in 2012, per one analysis.) Still, easing inequality and steering the economy of a city upwards are complex goals, and will ultimately require a varied arsenal of solutions.