Minimal Theories

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

Over lunch at the pricey Grotto restaurant in Highland Village, Bill Miller is defending the tactics of the Save Jobs for Houston Committee, the PAC formed to defeat the so-called "Living Wage" initiative on the January 18 ballot.

Miller is an Austin-based consultant and lobbyist who's become a ubiquitous figure in Houston politics over the past half-decade, and his latest assignment is orchestrating the campaign against the proposed ordinance requiring employers in the city to pay their workers at least $6.50 an hour -- $1.75 higher than the current federal minimum.

"We're not saying total ruin," Miller says, spearing a leaf of romaine from his Caesar salad. "We're saying bad deal."

Total ruin may not be the intended message, but it's hard to imagine a more dire scenario than the one described in the barrage of ads and mailings from the Save Jobs for Houston Committee: Cops and firefighters yanked off the streets. Higher taxes. Thousands of jobs lost. Soaring prices for such essentials as food and prescription drugs. The wholesale destruction of small businesses. Streets riddled with potholes. Swollen welfare rolls.

In other words, in the highly unlikely event voters approve the ordinance, Houston will become a deserted island in a sea of progress.

The interests opposing the initiative -- which include the Greater Houston Partnership, the Houston Hispanic Chamber of Commerce and the Greater Houston Hotel and Motel Association, among other civic and business groups -- uniformly cite the same consequences if the city's minimum wage were set at $6.50, making it the highest in the nation. They argue that businesses will be left at a competitive disadvantage and will flee the city to avoid paying the new minimum, and others will drop plans to relocate in Houston, resulting in the loss of 52,000 jobs and $35 million in tax revenues.

"Call it the Fort Bend County job relocation act," jokes City Councilman Joe Roach, who opposes the initiative.

The effort to increase the minimum wage is designed, its supporters say, to raise the income of the working poor and their families above the poverty line. That's the primary thrust of the Living Wage Campaign, a collection of labor and liberal groups led by Richard Shaw of the Harris County AFL-CIO and Orell Fitzsimmons of the Service Employees International Union.

Though the two sides disagree on the exact number of workers in Houston who make less than $6.50 an hour, no one argues that the number is small: It is generally agreed that the number totals at least 200,000. Of the at least 33,000 workers earning the current federal minimum of $4.75 an hour, roughly 40 percent are the primary wage earners in their households, according to calculations based on census data. Meanwhile, the number of children in Houston living under the federal poverty threshold of a $15,600 income for a family of four exceeds 150,000.

But opponents argue that a higher minimum will instead "hurt most those it is supposed to help," as the Chronicle intoned in one of several editorials urging rejection of the initiative. Higher prices will hit the poor hardest, they say, and the jobs that will be lost will be primarily low-skilled and entry-level positions, which are disproportionately held by women and minority workers.

Despite the assertion in a mailing from Save Jobs for Houston that "economists" came up with the numerical projections for the overall prophesy of doom, the figures all emanate from a single study produced by a single economist -- Barton Smith of the University of Houston.

"That was the study we looked at," says Jacob Monty, president of Comerciantes Latinos Unidos de Houston, a group of Hispanic businessmen who oppose the minimum wage initiative. "[The other side] didn't have a study."

Smith's study -- for which he was paid $16,000 by Save Jobs for Houston -- draws from research on the effects of minimum wage increases across the country, though it offers few actual sources to back its claims. The specific negative impacts, as Smith stated in a footnote, are based on economic assumptions "purposefully taken to be conservative."

Not surprisingly, the architects of the Living Wage Campaign are relying on a more ideologically sympathetic economist to debunk Smith's conclusions -- although, given the campaign's lack of funding, it's unlikely voters will hear much about his arguments before Saturday's election.

In a written critique requested by the Living Wage Campaign, Jared Bernstein, a labor economist with the Economic Policy Institute, a left-leaning D.C.-based research group, dismissed Smith's study as worthless.

Bernstein assailed Smith's lack of sources and what he considers misrepresentations of other studies, concluding that the UH economist's estimates "offer no useful information by which to estimate the impact of the proposed legislation and should be disregarded."

In short, says Bernstein, Smith's study is "really quite badly done."
Smith himself acknowledges that his expertise lies outside the field of labor economics, though he likes to keep tabs on the latest research. But when the pro-increase side asked him to debate Bernstein on the issue, Smith recruited Finis Welch of Texas A&M to better represent the opposition arguments.

"He's a labor economist," explains Smith. "He knows the empirical literature much better than I."

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.

"We're being massively outspent," says Richard Shaw. "We may be facing an overwhelming fight."

Bill Miller, the consultant for Save Jobs for Houston, acknowledges that both sides have waged a superficial campaign based more on emotion than a detailed discussion of the issue. But given the short post-holiday campaign, that's the political reality.

"I've got two weeks to sell a pretty simple message: 'It's a bad deal,' " Miller says.

Beyond the numerical projections, how you respond to that message probably depends on which side of the counter you're on. Take the unidentified Grotto waiter we queried when Miller was briefly away from the table. Asked whether he thought a boost in the minimum wage would help him, the worker glanced around furtively before replying.

"I think so, yes," he whispered with a grin. "I think it would be good.

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