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A Battle for Profits

The debate in Oakland over how much to raise the minimum wage and when to do it could impact the pay of low-wage workers by a half-billion dollars in the next five years.



Last month, California's legislators almost passed a bill that would have increased the state's minimum wage by a dollar next year, and another dollar in 2016, bringing the minimum wage to $13 in 2017, and then pegging it to inflation thereafter. But the pay increase was shot down by business-friendly Democrats who said they support higher wages at the bottom, but that it was too much, too fast. So, for now, the battle to raise the minimum wage will be fought city by city in grueling matches pitting the financial power and influence of businesses against grassroots coalitions of low-wage workers, unions, and progressive activists.

That's the story here in the East Bay where Richmond and Berkeley have already passed their own minimum wage ordinances, and in Oakland, where a proposal to raise the minimum wage has already qualified for the November ballot. If passed, the measure would hike the minimum wage to $12.25 an hour in March 2015, with cost-of-living increases thereafter.

In Richmond and Berkeley, the initial push for a minimum wage increase began with calls for $15 an hour, applied to all workers. The business lobby, however, successfully pressured both city councils to shrink the actual wage increase, and to add loopholes that will leave many workers behind. Business owners realized that they couldn't outright stop the minimum wage from rising, because of the growing popularity of such proposals, but they ensured, nonetheless, that it would be a minimal increase in both cities, and they successfully delayed implementation.

In Oakland, a coalition of labor and community organizations calling itself Lift Up Oakland has eschewed City Hall (which has never chosen to take up the minimum wage on its own) and is bringing an ambitious proposal directly to the voters. If voters affirm Lift Up Oakland's proposition, the city's new $12.25 minimum wage will be the highest in the Bay Area, excepting only the $15 an hour that San Francisco is considering. Lift Up Oakland's ballot initiative also includes five to nine paid sick days annually for workers (depending on the size of the business), and includes rules to prevent wage theft, making the measure a unique package of laws that would benefit low-income workers and the entire city economy. And it would arrive smack in the middle of a crisis of affordability for Oakland's working-class residents as the price of housing skyrockets, and even longtime Oaklanders are being pushed out.

Needless to say, many Oakland business owners aren't happy about the possibility of having to pay more for the hard labor that makes the economy go 'round. But they can also feel which way the political wind is blowing, and it feels like it will sweep away anyone who outright opposes a higher minimum wage. The Oakland Metropolitan Chamber of Commerce is therefore leading an effort for a second minimum wage proposal, dubbed "The Oakland Sustainable & Fair Compensation Act of 2014."

The chamber's plan, which is also being called "13-in-3," would effectively delay implementation of a minimum wage increase for most workers for two years because it calls for a two-tiered system in which businesses with fewer than twenty employees wouldn't have to raise pay until 2017. In fact, the majority of minimum wage workers in Oakland work for businesses with fewer than twenty employees. Under the chamber's plan, most workers would see their wages rise by only a dollar a year beginning in 2017 and max out at $13 in 2019. The proposal also carves out particular categories of workers, allowing employers to pay them less than the minimum, according to a draft of measure obtained by the Express. It would exclude younger workers in summer training and internships, and exclude workers employed by companies whose funding comes from federal and state reimbursements. Finally, the chamber's plan calls for the use of tip credits or some other mechanism to allow restaurant owners to pay their tipped employees less than the minimum wage.

Opponents of Lift Up Oakland's faster and higher minimum wage increase say that it will stress the budgets of small businesses and nonprofits, which could lead them to lay off employees, thereby harming low-wage workers. Business leaders also believe a higher municipal minimum wage will put Oakland at a competitive disadvantage, and cause some employers to relocate outside the city where labor is cheaper.

But arguments like these don't have much support in the academic research on the minimum wage. Starting with groundbreaking studies by UC Berkeley and Princeton economists David Card and Alan Krueger in the early 1990s, economists have shown in numerous real world examples that when a city, county, or state's minimum wage goes up, unemployment doesn't spike, nor do businesses flee to neighboring areas with cheaper labor. In fact, the opposite often occurs. Card and Krueger studied the effects of a 20-percent minimum wage increase in New Jersey in 1992 by comparing employment at New Jersey fast food restaurants with other fast food restaurants just across the state line in Pennsylvania, where the minimum wage remained 80 cents lower. "Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent," wrote Card and Krueger.

In the Bay Area, UC Berkeley economists, including Michael Reich and Ken Jacobs, used San Francisco's minimum wage increase in 2004 and its paid sick days requirement in 2007 to examine how strong mandates like these impact the local economy. The Cal team found that San Francisco's minimum wage and other legislated benefits for low-income workers had little to no observable negative impact on employment levels, nor the location choices of businesses. What they did observe was $1.2 billion in additional wages paid to about 78,000 low-income workers over the past decade, and 59,000 workers gaining paid sick days. The benefits to San Francisco were clear enough that the Berkeley researchers titled their recent book on the subject When Mandates Work.