SUNDAY EDITION | Experts offer range of predictions about Louisv - WDRB 41 Louisville News

SUNDAY EDITION | Experts offer range of predictions about Louisville minimum wage

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LOUISVILLE, Ky. (WDRB) -- If the minimum wage in Louisville is raised to $10.10 an hour, some people will lose their jobs. Teenagers will find it harder to find their first job or summer work. Some businesses might move – or bypass Jefferson County in favor of Bullitt, Oldham, Clark or Floyd counties.

But struggling low-wage workers will earn more money in a time of stagnant wages, growing poverty and a widening wealth gap. They'll spend that money right away, boosting the local economy.

Then again, those low-wage workers might also find that their fatter paychecks don't stretch as far because convenience stores and restaurants might raise their prices.

Or maybe there will be even more self-checkout machines at grocery stores, instead of cashiers. Or maybe business owners will have no choice but to accept lower profits. They might even benefit because workers would stay in their jobs longer and become more productive.

Confused yet?

This is a rough summary of the muddled, sometimes conflicting scenarios from economists and public policy experts as the Democrat-controlled Metro Council considers gradually raising the minimum wage in Jefferson County to $10.10 by mid-2017, from the current nationwide floor of $7.25 an hour.

Eight of the council's 17 Democrats have signed on the proposed ordinance, with another six needed for it to pass, assuming no Republican support. If Mayor Greg Fischer – who has expressed reservations about the proposal – were to veto it, another four supporters (18 of the council's 26 members) would be needed to override his decision.

The council will hear from more experts and interest groups in the coming weeks, with votes on the proposal likely coming later this month and in November, said Tony Hyatt, Democratic caucus spokesman.

Louisville is among a handful of cities and counties that have, or are considering, establishing their own minimum wage amid dim prospects for Congress raising the national wage – and as  the current $7.25 threshold continues to be eroded by inflation.

To retired University of Louisville economist Paul Coomes, there should be no debate that a higher minimum wage will lead to fewer jobs; that businesses will be tempted to move – or set up shop – over the county line where they can pay lower wages; and that restaurants and other employers will look to pass on the costs to consumers or figure out ways to replace employees with technology.

“This is in every economics textbook. … When government interferes and tries to set a wage rate, in this case, higher than the market rate, these predictable things happen,” Coomes told the Metro Council's labor committee on Thursday.

He acknowledged that “some workers who keep their jobs will make more money” with a higher minimum wage, “… but that's not the end of the story” because employers will raise prices, cut employee benefits or try to replace more workers with machines.

Other experts don't dispute the economic theory behind Coomes' warnings, but some doubt the magnitude of employers' reaction to the policy, while highlighting the benefits of low-wage workers earning more.

(In fact, Coomes was visibly agitated at Thursday's hearing while listening to a former student of his, Thomas Lambert, assistant professor of public administration at Northern Kentucky University, bemoan “the complexities” involved with predicting the proposal's effect.)

Another longtime U of L economics professor, John Nelson, told the council's Democratic caucus last month that a higher minimum wage would be “a slight positive overall” -- at least, for the first 2 to 4 years of the policy.

“The increase in the revenue (for low-wage workers) offsets the negative with respect to people losing their jobs,” Nelson told WDRB.com. “In the short run, there is more positives than negatives. You are going to end up with a higher wage (and) there is more spending; there is going to be multiplier effects that stimulate business.”

The most forceful defense of the proposed ordinance thus far has come from Jason Bailey, director of the Kentucky Center for Economic Policy in Berea.

In a brief about the Louisville proposal, Bailey said “an extensive body of research” suggests that raising the minimum wage by a “modest” amount would cause “little to no harm” on jobs while providing “relief from stagnant or declining wages for many workers on the bottom.”

Bailey, who has a master's degree in public administration, estimates that 87,300 workers – more than 1 in 5 in Jefferson County -- would get a raise under a $10.10 minimum wage. That includes 62,500 who would otherwise make less than $10.10 an hour, and another 24,800 in the $10.10 to $11.50 range who would benefit from the “ripple effect” of rising wages.

Coomes said Bailey's analysis is “lacking any economics” by ignoring the fact that many of those people who make at or near the minimum wage will lose their jobs or see reduced benefits.

Coomes estimates that only about 12,000 workers in Jefferson County make the minimum $7.25 hourly wage, and 1,400 of them “would lose their jobs” if a $10.10 minimum wage becomes reality.

“Is that ‘policy-irrelevant'? I don't think so,” he wrote in an email to WDRB.com.

Jefferson County would be higher than border counties

Another layer of uncertainty is how Jefferson County would be affected by the fact that bordering counties like Bullitt, Shelby, Oldham, Clark and Floyd would likely maintain the $7.25 wage floor.

As Bailey acknowledges in his brief, the research is “somewhat limited” on what happens when cities and counties raise minimum wages above neighboring places.

Janet Kelly, a professor of urban and public affairs and director of U of L's Urban Studies Institute, said the research on local-level minimum wage laws is “not conclusive,” and therefore the Metro Council should be cautious.

“We know that it will create some disruption in the local economy, but we do not know what or the magnitude. …If we proceed, we will never know what business might have started up or expanded but for the minimum wage,” she said.

That's why Kelly agrees with Coomes and Lambert that it would be preferable to increase the minimum wage nationally, so Louisville would not risk losing out to some other city or county.

Coomes warned the council: “You're going to hang yourself out there as a high (cost) labor place, and you're going to lose business and jobs.”

But Bailey noted that low-wage workers are concentrated in “service jobs that are location specific,” such as hospitals, restaurants and hotels – businesses that are located near customers.

“There are going to be so many McDonald's restaurants in Louisville, and they're not going to all move to Indiana just because Louisville has a higher minimum wage,” he told the council on Sept. 23. “There are other considerations they have that are not going to trump a small increase as we're talking about here.”

In cities like San Francisco, Calif. and Santa Fe, N.M., “none of the dire predictions of employment loss (from local minimum wages) have come to pass,” University of California-Berkeley economist Michael Reich wrote in an op-ed for The New York Times last year.

(Later this month, the Metro Council will hear from Aaron Yelowitz, a University of Kentucky economist who says Santa Fe's wage increase in the mid-2000s increased the city's unemployment rate.)

Reich, who has not been part of the debate in Louisville, argues that employers' reaction to wage mandates isn't as predictable as economic theory suggests.

The extra money employers have to spend on wages, for example, is partially offset by the fact that workers don't quit as often, so employers save money on vacancies and training, he said.

In an email to WDRB, Reich said his research shows the only practical downside to wage increases is that restaurant prices might go up by 2 or 3 percent.

“You can think of it this way: A minimum wage mandate provides a large benefit to restaurant workers in exchange for a small cost to restaurant goers, without having much effect on the economy as a whole,” he said.

Coomes, for his part, warns that places like San Francisco have a much different economic makeup, and more natural advantages, than Louisville – so it's foolish to conclude that a local minimum wage would have the same effect here:

“They have something called the Pacific Ocean and beautiful weather; it's a people magnet... This offsets a lot of bad policy.”

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