Minimal Theories

Despite the rhetoric, evidence on the minimum wage initiative isn't conclusive either way

A candid and engaging speaker, Smith says he was chosen to do the study because of his extensive knowledge of the local economy. But, he allows with a chuckle, "Most of my expertise with regards to Houston was not really relevant here."

Nevertheless, Smith stands by his results, placing himself as an objective observer in the middle of a partisan tussle -- unlike Bernstein and the Economic Policy Institute, which Smith says are staked out firmly on the left and are predisposed to support higher wages.

"They've got a particular agenda," Smith says, "just like the other side's got a particular agenda."

While Bernstein agrees with Smith's assessment of his employer, he disputes Smith's assertion of neutrality. The conclusion Smith reaches, Bernstein says, requires leaps of logic not supported by research, including the assumption that 100 percent of the minimum wage jobs within a four-mile radius of the city limits will be lost if the measure passes.

"It's not a 'conservative' estimate," says Bernstein. "It's an estimate by a conservative."

Name-calling aside, the evidence is hardly conclusive either way. Studies of the impact of federal minimum wage hikes show mixed results, though it's hard to find any that quantify the disastrous effects business groups always forecast in advance. Those studies aren't entirely relevant to the Houston case, however, because the federal minimum is imposed across the board. A handful of states have implemented higher minimums than the federal standard, but the results of that legislation have not been studied in enough depth to draw absolute conclusions.

To back its contention that a higher minimum wage in Houston will have more benefits than drawbacks, the Living Wage proponents cite the example of New Jersey, which in 1992 hiked its wage 80 cents above the federal minimum. At the time, opponents predicted that business would flee the state, with a resulting loss of jobs and tax revenues wreaking general economic havoc. In particular, the doomsayers predicted, employers near the Pennsylvania border would simply cross the state line and set up shop there.

But a 1994 study of fast-food restaurants in the border region indicated that employment in New Jersey actually increased, while that in Pennsylvania shrank. Smith and others argue that the methods used in the study were flawed, but Smith agrees that the findings throw a "monkey wrench" into what had previously been accepted economic theory.

And while it seems logical to assume that if labor costs rise, either prices will go up or businesses will find other ways to maintain profits, such as layoffs, that doesn't always hold true in practice. The San Antonio-based H-E-B grocery chain has already established a $6.50 minimum for its workers, in an industry that routinely pays employees the federal minimum. (Kroger, Fiesta and Randalls, among H-E-B's competitors in Houston, have combined to contribute more than $100,000 to defeat the city initiative.)

The unilateral move has improved employee recruitment and productivity at H-E-B, which has 845 workers at its Houston stores, and turnover is down, says spokeswoman Kelli Stevens. Prices have not increased either. "We are a low-price format, so it's critical for us that we keep our prices low," Stevens says.

On the other hand, some small businesses no doubt would be hurt by a hike as dramatic as the one proposed on Saturday's ballot.

Robert Taylor, president of Bio Energy Landscape and Maintenance, says he operates on such a small margin that he would be forced to fold his business or move out of town if the ordinance is approved. Taylor says he has several long-term contracts negotiated under the old minimum and would take a huge loss if he had to increase his labor cost by more than 30 percent.

"That'd be like signing my death warrant," he says.
Proponents of the wage increase acknowledge that labor-intensive businesses such as landscapers and daycare centers may suffer under the burden of increased expenses. But many of those employees need a living wage as well, they note, and they contend the reality of widespread poverty demands some kind of action.

"We're still gonna be left with a major problem in this city" if the wage increase is voted down, says the Harris County AFL-CIO secretary-treasurer Richard Shaw. "Someone's gonna have to cough up some dough here to reach these children."

Oddly, Smith and Bernstein agree that raising the minimum wage may not be the best way to address the problem of the working poor.

"It's not a perfect policy," Bernstein admits. That's because a large number of those who earn the minimum are high schoolers or others who don't need a higher wage to support their families.

Smith believes a possible better approach would be creation of a "negative income tax" to supplement the incomes of poor families, as part of a larger welfare reform strategy.

But no such change is on the political horizon, and in its absence, the minimum wage hike is the best way to go, the Living Wage campaigners argue.

"The vehicle we've got is the minimum wage," says Shaw.
That vehicle probably won't arrive. As of ten days before the election, the Save Jobs for Houston Committee had spent more than $840,000, and the total will likely exceed $1 million by Saturday, while the Living Wage Campaign had raised a paltry $40,000.

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