The District’s wrong turn on minimum wage

Original Article:

  • Author: Mark J. Perry and Michael Saltsman

  • Publication Date: January 2016

  • Newspaper: Washington Post

  • Topics: Minimum Wage

Walmart drew the wrath of the District’s elected officials last week when the retail giant announced it would abandon plans for two additional locations in the District.

Councilmembers initially pointed a finger at Walmart’s management, but subsequent reporting in The Post pointed right back at them: An $11.50 an hour minimum wage starting July 1, which may be rising even higher to $15 if a proposed ballot measure passes in November, was cited by the company as a determining factor in its decision.

The data suggest that it’s not just multinational companies such as Walmart that are sensitive to the District’s higher minimum wage: The city’s restaurant scene is taking a hit, too.

Then-Mayor Vincent C. Gray (D) signed a minimum wage increase into law in January 2014, raising the pay floor by nearly 40 percent — from $8.25 to $11.50 — between 2014 and 2016. The mayor and the D.C. Council coordinated this increase with similar wage hikes in Montgomery and Prince George’s counties to minimize the incentive for businesses to locate on the other side of Eastern, Western or Southern Avenue.

This regional approach might have minimized cross-border pressure, but it did nothing to minimize the pressure that District businesses receive from their own price-sensitive clientele.

D.C. restaurants were able to withstand the Great Recession without any major effects on food industry jobs: During a period from 2008 to 2010 when restaurants in the suburbs lost nearly 6,000 jobs, the District’s restaurants actually added more than 1,500 jobs. Today, they’re having a much harder time grappling with the $2.25-per-hour increase in labor costs that occurred in steps on July 2014 and July 2015: D.C. restaurants gained only 100 jobs last year, while suburban restaurants added 3,600 new jobs.

According to the 2015 United Van Lines Migration report, the District was a “High Inbound” area (ranked in the top 10) in 2015. In other words, it’s not as if people are leaving the city and there is dramatically-reduced demand to dine-out that would explain this slow-down in restaurant employment. A more-likely culprit — one supported by the bulk of the empirical research on this topic — is that a sizable increase in labor costs is forcing service-industry employers to scale back on hiring.

Based on this evidence, it’s irresponsible for the city to move ahead with another minimum wage jump to $11.50 in July, and it’d be downright foolish for voters to support the $15 minimum wage that labor groups want to put on the November ballot. (The initiative would also raise the base wage for tipped employees by more than 400 percent.) The stories collected from west coast cities that have pursued wage mandates approaching this level — including Seattle, San Francisco, and Oakland — show that significant price hikes, employee layoffs and business closures should be anticipated and expected.

Big corporations such as Walmart will be affected, but so will local favorites, including Juice Joint on Vermont Avenue NW. Owner Tom Holland has operated the popular restaurant for 18 years, moving into the neighborhood at a time of transition in 1998. He already adjusted some his employees’ hours downward following the District’s past two wage increases. Holland says he’s anxious about a $15 an hour minimum wage, and he predicts that the District will lose businesses if it takes that step.

Holland put it this way: “There are so many mom-and-pops in this city that depend on a minimum wage structure that fits into the financial structure of their business.” He might have also added that there are so many jobseekers in the District — including the 30 percent of young adults who want a job but can’t find one  — who depend on a minimum wage structure that doesn’t price them out of the workforce.

As it considers more minimum wage changes in 2016 and beyond, the District should ensure that it leads the region in opportunities created, not opportunities destroyed.