Minimum wage increases are being enacted in cities across the country, from SeaTac, Washington, to Washington, D.C. Wherever a hike is proposed, free market conservatives offer the same dire warnings: Raising the minimum wage will increase unemployment, depress growth and hurt workers.
The latest example is Seattle, where Mayor Ed Murray finds himself under pressure from the city’s businesses after supporting the widely popular campaign for a $15 per hour minimum wage, which he signed after the city council approved it June 2. Writing about the $15 proposal in Forbes, Jeffrey Dorfman warned that “Seattle’s economy will be hurt by this policy, and so will some low skill workers who will lose their jobs thanks to the people claiming to be helping them.” In The Seattle Times, Maxford Nelson wrote that raising the minimum wage would lead to “reduced business spending, higher prices and decreased employment.” Chiming in at the national level, House Speaker John Boehner said, “When you raise the price of employment, guess what happens? You get less of it.”
Are these contentions really true? Do these policies carry economic risk? If members of the business community in cities like Seattle are concerned with the consequences of raising the minimum wage, they need look no further than America’s original high-tech capital, Silicon Valley.
From 1994 to 2003, I was the president of the South Bay Labor Council, the federation of labor unions in Silicon Valley. In 1998 we led a push for the San Jose City Council to pass a measure to establish for projects receiving public funds what was then the highest minimum wage in the country. At the time, a living wage was a new idea, an innovative way for localities to help low-income workers after the labor setbacks of the Ronald Reagan and George H.W. Bush years.
The high-tech economy gives the false impression that it consists entirely of high-wage engineering jobs, dot-com millionaires and venture capitalists. As we pushed for a living wage measure, we conducted research on the local economy. What we found was that, in reality, the wage gains in the growing technology industry were leaving behind large sectors of the regional economy, including people working in food service, retail and construction. Moreover, the large tech firms were increasingly outsourcing previously in-house jobs such as custodial work and component manufacturing, creating a new underclass of low-wage employees.
While in the 1990s a narrow portion of the workforce was seeing its wages soar to averages of $60,000 a year or higher — hiking the cost of living in the area — 1 in 5 Silicon Valley jobs (PDF) was not paying enough for a single adult to live alone without assistance, and 2 in 5 paid too little to sustain a single parent and child above the poverty level.
Rather than wilt, business continued growing at a breakneck pace for the three years after wages were raised.
We argued that the region’s growth would be just and sustainable only if prosperity was widely shared, and we promoted a measure that would help make this a reality. After a significant push by union members, the San Jose City Council passed the living wage ordinance, raising the minimum hourly wage on projects that received public support to $9.50 with benefits and $10.75 without, at a time when the federal minimum wage was only $5.15 an hour.
After the measure passed, what did we see? Rather than wilt, business over the next three years continued growing at a breakneck pace. Employment has surpassed prerecession levels, with more than 46,000 jobs added to the regional economy in 2013. Unemployment for the region at the beginning of this year was 5.8 percent, lower than in most of the rest of the country.
Of course, Silicon Valley has a long way to go to make sure its prosperity is shared equitably among all its citizens. African-Americans in the region still struggle with a 10 percent unemployment rate, and just a few months ago, the online tech-industry magazine PandoDaily reported that Apple, Google and other tech companies engaged in a wage-fixing scheme along with a number of other tech firms, artificially holding down the salaries of nearly a million employees. (The parties agreed to a $324.5 million settlement in May.)
The bursting of the dot-com bubble in March 2000 was a major setback for a region heavily reliant on a single industry. But far from feeling that the living wage ordinance had a negative effect on working people, both voters and elected officials in the area saw expanding the drive for living wages as an important part of the recovery. In 2012, San Jose extended its support for low-wage workers to all private-sector businesses. Under my successor, Cindy Chavez, the South Bay Labor Council backed a student-led ballot initiative to establish a citywide minimum wage of $10 an hour, with yearly increases pegged to inflation. The voters approved it, and in January the minimum wage was raised to $10.15 an hour.
Since voters approved this municipal minimum wage in 2012, San Jose has had one of the highest employment growth rates in California. The unemployment that the business community prophesied hasn’t materialized; instead, the sorts of problems that are emerging in the region — such as high rents and traffic jams — are the result of rapid growth. Because of this, the idea of expanding the living wage remains popular. This year the labor council is supporting a push in Santa Clara County to extend the living wage ordinance to cover all county employees and contractors. While the details of the plan are still being negotiated, earlier versions of the plan have mandated a minimum wage of $14.79 per hour with benefits or $16.13 per hour without and will include mandates for health care, job security and a voice in the workplace.
Beyond the valley
Academic research has backed the idea that Silicon Valley’s experience with minimum wage and living wage measures can be applied broadly. As the University of California at Davis’ Chris Benner and the University of Southern California’s Manuel Pastor report in two of their books — “This Could Be the Start of Something Big” and “Just Growth” — there is a robust body of regional economic studies showing a strong correlation between shared prosperity and strong private sector growth. In a 2013 paper for the MacArthur Foundation, Benner and Pastor summarized this research, arguing that lower levels of income inequality are the most reliable predictors for longer periods of growth and greater overall employment levels.
Other research demonstrates that raising the minimum wage provides a net economic boon for communities. Economists David Cooper of the Economic Policy Institute and John Schmidt (PDF) of the Center for Economic Policy Research explain that raising the minimum wage not only increases consumer demand but also leads to increased business efficiency and productivity by reducing employee turnover and its associated training costs. Likewise, economists Arindrajit Dube, T. William Lester and Michael Reich at the University of California at Berkeley, in summarizing (PDF) the academic literature on the effects of raising the minimum wage, found “no detectable employment losses from the kind of minimum wage increases we have seen in the United States.”
High tech will no doubt be critical to the future of our economy. But even places such as Seattle and Silicon Valley rely on a much wider base of service employees to support the work of programmers and engineers. Of the 30 occupations projected to add the most jobs across the country in the next eight years, 20 typically require just a high school diploma or less. If America’s prosperity is to be shared and sustainable, living wages for these employees must be a central part of our economic vision.