The first City Council reading for Councilor Joe Baldacci’s Bangor minimum wage proposal is scheduled for 7:30 p.m. Monday, July 13, and the first public hearing is set for July 15.
City minimum wages have become an increasingly prevalent trend in the U.S. economy. Since the U.S. Congress has refused to raise the minimum wage, and in Maine, Gov. Paul LePage has vetoed minimum wage increases, the unfortunate reality is that municipalities have no choice but to take on the responsibility themselves. The federal minimum wage is lower today than it was 50 years ago when adjusted for inflation.
Whenever the federal government, a state government or even a municipality attempts to increase the minimum wage, there is, invariably, outcry from the business community that jobs will be lost, prices will go up and businesses will be forced to close; images of fire and brimstone are not far off when listening to the critics of a minimum wage increase. I know this firsthand, as I was the lead minimum wage researcher for Portland Mayor Michael Brennan’s Minimum Wage Advisory Committee last summer. It makes sense that a business would be scared of a minimum wage increase; however, the evidence shows that the fear is misplaced, and the economic theory used to stoke that fear simply isn’t correct.
Because economists can go back and forth for days on which economic theory is better, it’s best that Bangor residents consider this minimum wage ordinance based on fact: real, observable, evidence. Instead of engaging in some theoretical discussion on the supply and demand for labor, we should look to other states and cities and observe how their economies reacted to a minimum wage increase. Cities and states that have increased their minimum wages in the past offer a real life experiment for economists to research and observe.
In Santa Fe and San Francisco, which both established minimum wages in the early 2000s, a number of economic statistical experiments have been conducted, and the results have been encouraging. San Francisco, which increased its local minimum wage by 31 percent over a two-year period, experienced immense economic benefits from the increase. From 2002-12, wages increased for low income workers, despite wages falling in surrounding counties, while unemployment trends remained similar to the surrounding counties. Additionally, business closures did not increase. Similar results occurred in Santa Fe, which increased its minimum wage by 81 percent in just one year.
Overall, statistical analyses from the Institute for Research on Labor and Employment on these cities have concluded that “no statistically significant negative effects on employment or hours” have occurred while “ minimum wage mandates raise the incomes of low-wage workers.” Prolific minimum wage researchers from the Institute for Research on Labor and Employment have expanded these analyses to states, comparing neighboring counties across state borders where minimum wage levels have increased at different times. The results of the neighboring counties experiments also concluded that there were no effects on jobs but positive effects on wages for low-income workers. Additionally, according to Institute for Research on Labor and Employment researchers, price effects are “largely negligible.” The majority of economic research supports these conclusions.
The explanation for why a minimum wage increase has such positive effects on the economy comes from both the cost side of equation and the revenue side. Businesses are faced with a direct wage-cost increase when confronted by a minimum wage hike; however, they experience significant cost savings in the form of lower turnover. The Institute for Research on Labor and Employment found that “for a [10] percent minimum wage increase, the turnover rates decline by about 2.0 percent for teens and 2.1 percent for restaurant workers.” Although 2 percent may seem insignificant, a number of analyses show that the replacement cost for low-wage workers is often over $ 1,500 per employee. And on the revenue side, low-wage workers spend the vast majority of additional income they earn, so a pay raise provides additional spending to the broader economy.
It’s crucial that Bangor residents attend both the first reading on July 13 and the public hearing on July 15 at Bangor City Hall. Bangor residents need, and deserve, a living wage. Support will be needed.
Michael Havlin is a Hampden native and 2014 graduate of the University of Southern Maine with bachelor’s degrees in economics and business. He is a graduate student at the University of Massachusetts Amherst. He served as the lead minimum wage researcher last summer for Portland Mayor Michael Brennan’s Minimum Wage Advisory Committee, and he has worked as an aide to Bangor Councilor Joe Baldacci, organizing minimum wage forums.