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A well-intentioned nail in Baltimore's economic coffin

Mary Pat Clarke is a tireless worker for Baltimore and always has her heart in the right place. She's my councilwoman, and at age 74 still runs rings around many younger city officials. No one on the council delivers better constituent service.

Unfortunately, however, her latest policy proposal — to hike Baltimore's minimum wage to $15 per hour by 2020 — would put another nail in the city's economic coffin.

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Ms. Clarke's enlistment in the "Fight for $15" army is politically savvy. Since capitalists have been fleeing the city for six decades, most remaining Baltimoreans are proud progressives. And the narrative that has taken root on the left is that doubling the minimum wage is not just a moral imperative, but a free lunch — sure to raise living standards without much downside. Both views are myths.

The free lunch fallacy, sadly, is partly economists' fault. Until fairly recently, most everyone understood that when you make something more expensive, less of it will be demanded — whether it is, say, burgers or the labor used to flip them. In other words, raising the minimum wage will put extra money in some workers' pockets but cost others their jobs.

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In the '90s, though, a couple of economics professors (David Card and Alan Krueger, both then at Princeton) challenged this "Law of Demand." They studied fast-food franchises along the border of Pennsylvania and New Jersey; when the latter hiked its minimum wage while the former did not, they found "no indication that the rise in the minimum wage reduced employment" in New Jersey.

The Princeton study was deeply flawed — it relied on phone surveys rather than actual payroll data, for example — and fell apart on close inspection, as did follow-on attempts to rescue it. No matter. Progressives had some ammunition in their Fight for $15; henceforth, they could proclaim that "some studies show" that wage controls cost few if any jobs.

But what's most important for Baltimoreans to see is that even if one has imbibed this particular batch of Kool-Aid, it's not relevant to Ms. Clarke's immodest proposal. The scary fact is that the studies on which progressives are pinning their hopes for a free lunch are based on much smaller minimum wage hikes that applied to entire states or the country as a whole.

Even in that (corrected) Princeton study, a modest 19 percent hike reduced employment 4.6 percent at affected New Jersey establishments. Would the massive 82 percent increase Ms. Clarke has proposed have a proportionate effect, cutting entry-level employment opportunities 20 percent in the city? Or would this much larger increase in the cost of labor induce employers to pursue labor-saving technologies with even more vigor?

Far more worrisome is the effect of geography. If Ms. Clarke has her way, the city would be surrounded by jurisdictions where entry-level labor costs $4.90 per hour less (even after the state's minimum rises to $10.10 in 2018).

Talk about disparate impact: Residents of our majority-black city would find, once again, that job opportunities seem abundant in the distant suburbs and scarce where most needed. Undoubtedly, pundits would decry "structural racism" and inequality, when in fact the real culprit is simply good intentions gone awry.

As they have done before. When Baltimore hiked property taxes 19 times in 25 years through the mid-'70s — to double the rate in the surrounding county — the goal was not to wreck the city economy but simply to fund social programs and public housing for the poor. But with a 50 percent cut in one's tax bill available just a few miles away, investors fled — along with the jobs they would have created.

That's why, today, the city has to bribe capitalists to come back. Kevin Plank's plea for a $535 million tax break for his Under Armour campus is just the latest (and biggest) example: But for the requested subsidy, his development would be much more profitable in Owings Mills or Columbia.

Ms. Clarke's proposal would, therefore, put a double whammy on those seeking to invest in Baltimore. Already, the city punishes owners of capital (not just business-owners, but home-owners) at twice the rate of the nearby competition. It would be folly to punish employers in nearly the same proportion. The moral imperative here is to do no further harm to the city's economy.

Stephen J.K. Walters is the author of "Boom Towns: Restoring the Urban American Dream," and a professor of economics at Loyola University Maryland. His email is swalters@loyola.edu.

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