A proposal to raise the minimum wage in Baltimore City to $15 per hour will result in a number of serious unintended consequences and should be defeated by the Baltimore City Council when it meets Monday to take a final vote on this well-intended but poorly thought out measure.
Passage of this proposal would be fiscally irresponsible of the council.
Studies generally conclude that youth workers between the ages of 16 to 24 and low-wage workers — the very people council members want to help with the bill — end up being hurt through job cuts or reductions from this type of legislation.
A fiscal analysis of the bill by the city's Bureau of the Budget and Management Research (BBMR) states that a $15-per-hour-minimum wage would trigger "draconian job losses" and increase the unemployment rate. "This would return the city to the unemployment levels of the Great Recession and virtually all of the jobs lost would be youth, young adults and unskilled jobs," the analysis warns.
A $15-per-hour minimum wage in Baltimore will also create significant financial challenges for businesses and place the city at a serious competitive disadvantage.
Baltimore would find itself an island surrounded by neighboring counties that have no plans to raise the minimum wage beyond that set by existing state law. (The state mandated minimum wage is set to rise incrementally to $10.10 per hour by July 2018.) Baltimore already suffers from higher property taxes and a high cost of doing business. Increasing the minimum wage would make adjoining jurisdictions even more attractive for employers.
Companies facing higher payroll costs may choose to leave the city for another jurisdiction where labor costs are cheaper. Some are already exploring that option: Russ Causey, president of CMD Outsourcing Solutions, which provides call-center services to higher education and employs more than 150 in downtown Baltimore, says that he has instructed his real estate agent to begin looking for space outside of the city should the council enact the minimum wage bill. The company pays an average of $13.50 per hour now, but a $15-per-hour minimum wage would add $400,000 annually to CMD's payroll costs, Mr. Causey said, so CMD would flee the city to remain viable.
Other employers who choose to remain will offset higher labor costs by reducing the size of the workforce, automation, cutting benefits, increasing costs on goods and services, or a combination of these actions.
An increase in the minimum wage causes a ripple effect on the wage structure of an entire business. As the lower end of the wage scale is increased, salaries for all other hourly workers must be increased as well to ensure that all employees are paid a salary commensurate with their position. This dynamic impacts employers' operating budgets and profit margins.
Businesses unable to adjust to the burden of the higher minimum wage may elect to shut down. Unfortunately, that is the plan for Danko Arlington, Inc. which makes aircraft parts under government contracts, according to President John Danko. The 96-year-old company employs ex-offenders and low-skilled workers, trains them and provides steady work and wage increases. The company will shut down because it will be unable to compete for government contracts against companies with lower payroll costs, Mr. Danko said.
The proposed minimum wage increase also poses dire consequences for city government. A recent fiscal analysis by BBMR determined that a $15-per-hour minimum wage would cost the city $145 million in additional employee wages for the period 2018 to 2022. Just weeks ago, City Council leaders threatened to shut down government over a $4 million dispute. Imagine the fiscal stalemate that is likely to erupt as the mayor and City Council are confronted with the prospect of finding $55.8 million per year — the impact of the increased minimum wage on city government when fully implemented.
A mayor and eight new members of the council will be sworn into office in December. It hardly seems the fair and right thing to do at any time — especially when the public is clamoring for more accountability and fiscal responsibility from elected officials — to leave such an expensive "parting gift" to the incoming mayor and City Council.
Donald C. Fry is president and CEO of the Greater Baltimore Committee. His email is donaldf@gbc.org.