Op-ed: Berkeley Labor Commission’s $19 nightmare

By Michael Saltsman

Michael Saltsman is research director at the Employment Policies Institute, which receives support from businesses, foundations, and individuals.

When President Obama proposed in 2013 to raise the federal minimum wage to $9 an hour, one retort designed to call attention to his flawed economic logic went like this: “If $9 is so great, why not $19?”

Less than three years later, the Labor Commission in Berkeley has taken this rhetorical device to heart and proposed making it a reality by 2020.

Such is the state of the minimum wage debate in 2015, where starting wage levels that can equate to nearly $40,000 per year are offered up with a straight face for serious consideration. The Bay Area has been a “leader” in this policy experiment, with cities such as San Francisco and Oakland already pushing their wage floors to unprecedented territory above $12 an hour.

The early evidence from these cities is concerning. In San Francisco, for instance, restaurants, including Abbot’s Cellar, Luna Park, and Source have closed this year, citing the minimum-wage increase as a factor. Across the bay in Oakland, ten restaurants and grocery stores in the city’s Chinatown took the same drastic step. Childcare providers were also hurt: at Sterling’s Family Childcare, one staff member was let go and hours for the remaining employees were cut.

Berkeley is peering over this same abyss, with the city’s minimum wage set to rise in two steps by 25% between this October and next October. For the Labor Commission, though, this significant hike in labor costs isn’t nearly enough; in their words, it’s not “a long-term solution to the fundamental problem of working-people living in poverty due to stagnant wages.” In the Commission’s estimation, a $19 wage floor by the year 2020 ought to do the trick.

The Commission’s report lacks any research footnotes to support its conclusion, although it dismisses the potential for negative consequences from a nearly-$40,000 minimum wage with this sentence: “The body of sound empirical evidence clearly shows that the overall effect of raising the minimum wage on the local economy is overwhelmingly positive.” Considering that no research exists on the efficacy of a $19 minimum wage, or a $15 minimum wage for that matter, it’s unclear what “body of sound empirical evidence” the Commission is referencing.

In fact, even the well-known team of liberal researchers at the state university that shares Berkeley’s name can’t offer their support. Led by Michael Reich and former living wage activist Ken Jacobs, the Berkeley team has operated as a de facto research arm of campaigns to raise the minimum wage across the state, and in the Bay Area in particular. While most journal-published empirical research on the minimum wage points to job loss following even modest increases, Reich and company have offered an alternate take in support of these mandates.

Reich has pointed to a minimum wage of 50 to 60% of the median wage as a sweet spot that maximizes the benefits of the policy while minimizing the costs. In the metro area that includes Berkeley, the Bureau of Labor Statistics reports that the median hourly wage is $22.44; 50% of that figure is $11.22, and 60% of that figure is $13.46. In other words, even the very questionable methodology used by a team of researchers who want the minimum wage to increase produces recommended wage floors that are roughly $5 to $8 below the Labor Commission’s $19 figure. (Projecting annual increases in the median wage out to 2020 still puts $19 way out of range.)

Berkeley’s business community is understandably concerned, as would any business faced with the prospect of a $19 minimum wage and the ripple effects that can’t be passed along in huge price increases. Their less experienced employees stand to lose their jobs, while more experienced employees — who might have spent years working their way to earn almost $20 an hour — will see their hard work devalued. The city’s Labor Commission has picked a number that might scratch an ideological itch, but it has zero basis in economic reality.

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