Unions and Their “Worker Centers” Behind a $15 an Hour Minimum Wage
Shedding jobs for unskilled workers in the name of helping the poor
Summary: It began on the fringes of union activism. In just a few years, the campaign for a $15 an hour federal minimum wage—armed with the slogan “Fight for $15!”—has gone mainstream. And should this union-driven movement succeed, the result could be a lot of frustrated job seekers and shuttered businesses.
By the end of last year, about 30 state and local jurisdictions had enacted laws phasing in a $15 an hour minimum wage either for all employees public and private, or just for those in the public sector. These jurisdictions include the states of New York and California, the cities of Los Angeles, San Francisco, Seattle, Milwaukee, Pittsburgh, Syracuse, Washington, D.C., and Greensboro, NC; smaller municipalities such as Emeryville and Mountain View, CA, Milwaukie, OR, Missoula, MT, San Marcos, TX and SeaTac, WA; and various counties, including Los Angeles County. For good measure, the University of California System and University of Pittsburgh Medical Center, among other institutions of higher education, have also decided to phase in a $15 an hour minimum wage.
Appealing to the base
Fight for $15 supporters are, if nothing else, vocal about their displeasure over the current federal minimum wage of $7.25 an hour, established in 2009.
No one is more vehement on this topic than Sen. Bernie Sanders of Vermont, who became a national figure in the 2016 presidential elections. Back in July 2015, Sen. Sanders introduced a bill, the “Pay Workers a Living Wage Act” (S.1832), that would phase in a $15 an hour minimum wage for all Americans. “It is a national disgrace that millions of full-time workers are living in poverty and millions more are forced to work two or three jobs just to pay their bills,” he bellowed in characteristic style to an audience outside the U.S. Capitol. “In the year 2015, a job must lift workers out of poverty, not keep them in it. The current federal minimum of $7.25 an hour is a starvation wage and must be raised to a living wage.” Several House members, including Keith Ellison (D-Minn.), Raul Grijalva (D-Ariz.), and Sheila Jackson Lee (D-Tex.), introduced companion legislation.
These lawmakers are in good company. Then-President Barack Obama offered this praise late last June on behalf of the Washington, D.C. local government’s passage of a $15 an hour minimum wage bill: “I commend the District of Columbia, Mayor Muriel Bowser and the Council of the District of Columbia for raising the District’s minimum wage,” he said.
Then, Obama’s second-term labor secretary, Thomas Perez, declared: “The Fight for $15 is more than a number. This is a movement for fairness and voice.” And, during the fraught presidential primary campaign, former Secretary of State Hillary Clinton, who had previously expressed support for a $12 an hour minimum, changed her tune during a New York State primary debate with her main rival, Senator Sanders: She would readily sign $15 an hour legislation, she insisted. “Of course, I would,” she said. In her convention acceptance speech in Philadelphia she explained: “If you believe the minimum wage should be a living wage—and no one working full time should have to raise their children in poverty—join us.”
Much of the general public has gotten on the Fight for $15 bandwagon. According to a 2015 survey by the National Employment Law Project, about 60 percent of respondents support a $15 an hour minimum wage. During late-February and early-March of that year, a Washington Post/ABC News poll asked how congressional candidate’s support for a higher minimum wage would affect voter support. Fully 50 percent of respondents said they would be more likely to vote for someone who supported a higher minimum wage; 19 percent said they would be less likely; and 28 percent said they would not be persuaded to change their mind.
Unions take charge
Following the statement of support by Labor Secretary Perez, Service Employees International Union (SEIU) President Mary Kay Henry rhapsodized: “The idea that the labor secretary thinks their fight is moral and just is a huge affirmation to [both movement leaders and low-wage workers].”
The drive for a $15 an hour minimum wage, first and foremost, is a project of organized labor. Unions or union surrogates—“worker center” political action organizations—have played a key role in every campaign so far.
The AFL-CIO, whose 56 member unions represent over 12.5 million workers, has been pressuring Congress to pass $15 an hour legislation—but the federation website actually considers $15 an hour on the low side, citing the heart-stopping figure of $18.67 an hour as a fair minimum wage, taking into account productivity gains in the economy since 1968.
Unions have been active at the state and local levels as well. In New Jersey, the head of the state AFL-CIO chapter testified on behalf of a bill in the state Senate Labor Committee last year that would phase in a $15 an hour minimum by 2021, roughly an 80 percent increase over the current $8.38 an hour; the General Assembly and Senate each passed this measure, but Republican Governor Chris Christie vetoed it in August. Raise Up Cleveland, an ad hoc group representing dozens of unions with roughly 100,000 workers in the Cleveland metro area, passed a resolution last June to pressure the City of Cleveland to raise the minimum wage to $15 an hour. “The fight for $15 movement is happening on the streets and on picket lines, and it is happening in Congress, statehouses and city halls,” announced Raise Up Cleveland Executive Secretary Harriet Applegate.
It is through the so-called worker centers that unions have had their greatest impact. These organizations, not officially unions, nevertheless perform the organizing and picketing functions of unions without having to comply with applicable National Labor Relations Act statutes. Not only do unions cooperate with these worker centers, they use them as fronts and often create them for that purpose. There is a mutual advantage in this. Worker centers become expert at organizing entry-level workers; unions obtain potential boosts in membership, dues and bargaining power, especially in fast food, home care, maintenance and other service industries with high concentrations of entry-level immigrant employees of limited English-speaking ability.
It’s not surprising that a New York City-based worker center, Fast Food Forward, a creation of SEIU, kicked the Fight for $15 movement into high gear. On August 29, 2013, Fast Food Forward activists in several cities led employee walkouts and rallies. Such activism makes perfect sense; the group is all but identical to New York Communities for Change, the reconstituted New York City chapter of the disbanded Association of Community Organizations for Reform Now (ACORN). Meanwhile, the “HERE” (Hotel Employees and Restaurant Employees) portion of UNITE HERE for several years has sponsored a worker center called Restaurant Opportunities Centers United. This group lobbies lawmakers in various states to raise the minimum wage to $15 an hour, and also helps federal and state agencies enforce minimum wage laws, files lawsuits against employers, and publishes an annual “ethical eating” guide. The United Food and Commercial Workers has its own worker center stalking-horse, OUR Walmart, which has been the driving force behind some highly-publicized strikes, pickets and customer disruptions at selected Walmart stores.
Repercussions and consequences
Supporters of more than doubling the national minimum wage can’t be faulted for their enthusiasm. They can, however, be faulted for their unwillingness to consider the impact of what they are supporting. For if a $15 an hour minimum becomes law throughout the land, the most likely enduring legacy will be more entry-level unemployment and closed businesses, especially small businesses. “There is no question that a $15 minimum wage would have devastating impacts on small businesses,” notes Tom Scott, head of the California affiliate of the National Federation of Independent Business.
We do not have to imagine such a future; it’s already here. Shortly after the City of Los Angeles raised its minimum wage in 2015 to $15 an hour, American Apparel eliminated 500 jobs in the city and announced plans to relocate those jobs elsewhere in the state. In June 2016, following the passage of the California law, the company began examining the possibility of moving production facilities outside the state altogether. California Composites, a commercial airplane parts manufacturer based in Santa Fe Springs (Los Angeles County), has revealed plans to move operations to Fort Worth, Texas. Company President Fred Donnelly said he sees no other way out. “This is the last thing I want to do, but I don’t see that I have a choice,” he said, citing the statewide minimum wage hike, excessive regulation, and a “dysfunctional” worker’s compensation system. Other California firms are likewise heading for the exit door, he said. “I’ve talked to some of our suppliers and other people in the business—in particular, owners that are in small manufacturing—and they’re thinking about it.”
But evidence for the harmful effects of the $15 an hour minimum wage goes beyond anecdotes, beyond human interest stories. That’s clear from an examination of the impact of “living wage” laws, similar to the $15 an hour minimum wage. With a “living wage” law, the stated goal is to mandate a minimum wage at a level that is deemed necessary to cover all basic household expenses, a level that is indexed to inflation.
In 1999, the Washington, D.C.-based Employment Policies Institute published a study by economists George Tolley (University of Chicago), Peter Bernstein (DePaul University), and Michael Lesage (RCF Economic & Financial Consulting) on the effects of a proposed (and eventually passed) “living wage” measure that was before the Chicago City Council in 1996. The proposal called for a 79 percent hike in the minimum wage for employees of city contractors that receive municipal tax breaks. The ordinance, concluded the authors, would cost the city nearly $20 million a year, with more than 20 percent of this sum to be spent on enforcement costs. They projected that it would result in at least 1,300 lost jobs.
Meanwhile, David Neumark, now with the University of California-Irvine, in 2002 published a monograph for the San Francisco-based Public Policy Institute of California, How Living Wage Laws Affect Low-Wage Workers and Low-Wage Families. The author, having surveyed living wage laws in cities across the country, concluded that while wages of low-income workers rise, overall employment among low-skilled workers falls. “These disemployment effects,” Neumark wrote, “counter the positive effect of living wage laws on the wages of low-wage workers, pointing to the tradeoff between wages and employment that economic theory would predict.” He also found, these ordinances tended to reduce the incentives for cities to contract with private entities, thus warming the hearts of public-sector unions.
Even a hike to $10.10 an hour, something President Obama mandated for federal contractors in a 2014 executive order, is likely to lead to unemployment. At the time of the executive order, the Congressional Budget Office published a report on the impact of raising the minimum wage, respectively, to $9.00 an hour and $10.10 an hour for the entire U.S. labor force. At $9.00 an hour, the CBO calculated, there would be a net job loss of 100,000 jobs. At $10.10 an hour, the net loss would be 500,000 jobs. Using the CBO methodology, William Even (Miami University of Ohio) and David Macpherson (Trinity University of San Antonio), in a separate study, concluded that a $12 an hour national minimum wage would lead to the loss of 770,000 jobs.
A reasonable extrapolation suggests that with minimum wages fixed at $15 an hour, the net job loss could run into the millions. Last July, in fact, the Heritage Foundation published a paper projecting precisely that. If Congress were to enact the Bernie Sanders $15 an hour minimum wage bill and put it into play in 2017, Heritage labor policy analyst James Sherk concluded, nearly seven million full-time equivalent (FTE) jobs would be lost over the next four years. Working with a Current Population Survey/National Bureau of Economic Research data base, he noted:
If Congress raised starting wages to $15, employers would reduce employment of affected workers by approximately 19 percent. That represents about 6.9 million fewer FTE jobs in the U.S. by 2021. These jobs losses come on top of jobs lost by state-level minimum-wage increases. The Pay Workers a Living Wage Act would prevent seven million workers from getting paid anything.
In his analysis, the author said that employers on average would have to hike affected workers’ wages by 27.4 percent, and more likely than not, would have to offer additional compensation to workers who make just above the newly-created minimum. He also took into account the fact that employer expenses include FICA payroll taxes (i.e., Social Security and Medicare Part A), unemployment taxes, worker’s compensation contributions, and a wide range of benefits. In the case of healthcare benefits, employers with 50 or more employees who decline to sponsor a plan would be forced under the Affordable Care Act to pay a per-employee penalty out of after-tax revenues. The 2016 healthcare figure of $2,160 per worker is set to rise to $2,886 by 2021. From the employer’s standpoint, Sanders’ proposed minimum wage would work out to $18.61 an hour.
An ounce of prevention?
Employment impacts aside, “living wage” enthusiasts justify a hike to $15 an hour as fiscal prudence. By forcing employers to pay a living wage, they argue, millions of working Americans would be lifted out of poverty and hence would be relieved of the need for cash welfare, food stamps, Medicaid, and other forms of public assistance. Taxpayers in turn would realize huge savings.
A left-leaning Washington, D.C.-based think tank, the Economic Policy Institute, has been prominent in advancing this “ounce of prevention” rationale. In a recent report, EPI concluded, “Raising the minimum wage to $10.10 would reduce government expenditures on current income-support programs by $7.6 billion per year—and possibly more, given the conservative nature of this estimate.” Sen. Sanders cited this statistic in a tweet he sent to followers last May 4 following his victory in the Indiana Democratic primary. EPI researchers subsequently ran their model for a $12 an hour minimum wage, concluding that an annual $17 billion savings would result.
Yet when it comes to a $15 an hour minimum wage, EPI appears to be hedging its bets. Lead investigator David Cooper puts it this way: “I don’t think we know definitively whether $15 would be different because it is larger than the increases that have been rigorously studied. If you think $15 would have some sizable negative effect on employment or hours, it’s going to moderate those savings (on government assistance programs). We have no way to know how much.” That doesn’t exactly sound like a ringing endorsement.
The larger issue here is that a taxpayer windfall of any size is highly unlikely: No previous hike has produced a reduction in public benefits expenditures, and it is hard to imagine any will. Anyone with a grasp of political reality knows that the people demanding a $15 an hour minimum wage are the very sorts of people who for decades have been demanding, and receiving, public benefits. They are not likely to quiet down because the federal minimum wage has been doubled. Equally to the point, hiking the minimum wage by this magnitude will discourage entry-level employment either via job elimination or schedule reduction. The outcome, if anything, would be an increase in the demand for public assistance.
A number of economists have expressed this concern. Tara Sinclair, an economist at George Washington University, puts it this way: “A larger hike is more likely to cause a decrease in employment opportunities, and that could result in an increase in the demand for government support rather than a decrease.” Texas A&M economist Jonathan Meer likewise is skeptical. “These estimates are predicated on the notion that the minimum wage is a simple transfer from employers to employees, with no negative effects on employment,” he said. “The higher the minimum wage goes, the worse of an assumption that is.”
Would the poor benefit?
A cursory examination of the issue might indicate advocates of a $15 an hour minimum wage are on solid ground when they argue that it will eliminate poverty. Whatever net job losses occur, they argue, would be more than offset by the elimination of poverty among previously underpaid workers. Empirical research, however, does not support such an assertion.
In a 2007 peer-reviewed article, economists Richard Burkhauser (Cornell) and Joseph Sabia (San Diego State University), after examining Census data for 1979-2003, concluded that minimum wage increases produced no significant reductions in poverty. The authors did a follow-up study on the consequences of instituting a $9.50 an hour federal minimum wage. Once again, they found at best a weak association between higher wages and lower poverty rates. In a separate study, Sabia and University of Georgia economist Robert Nielsen used an alternate data base for measuring poverty, the Survey of Income and Program Participation, once more finding no evidence that raising the minimum wage will eliminate poverty. In yet another study, the aforementioned David Neumark and William Wascher (Federal Reserve Board), using Current Population Survey data, concluded that a minimum wage hike redistributes incomes of the poor more than it raises them. The net movement out of poverty was minimal, they explained, because of employee layoffs and schedule reductions, among other factors.
What’s new in Seattle?
Enthusiasts for a $15 an hour minimum wage respond to such studies by noting that they are projections and thus do not evaluate actual results. Though available evidence regarding the beneficial effects of the $15 an hour minimum wage at this stage is obviously minimal, supporters insist it is encouraging.
The case of Seattle, whose city council in June 2014 enacted a $15 an hour minimum, has been of special interest. Jacob Vigdor, a professor of public policy at the University of Washington, has studied the evidence and sees no real problem. “The sky is not falling,” he said last year. “If it was (sic) really bad, a lot of people would have lost their jobs and every opening would get tons of applicants. That is not happening.” Vigdor and fellow researchers, analyzing state employment data at a time when the local minimum wage stood at $11 an hour (compared to $9.32 an hour for the rest of Washington State) found that a higher wage did not have a significant effect on unemployment rates, scheduled employee hours or business failures. Local retail and gasoline prices also were unaffected.
Such a conclusion appears hasty. For one thing, the $15 per hour rate has yet to take full effect across the workforce, even for large businesses (defined as employing no less than 500) which are supposed to adopt the wage hike first. Smaller businesses have an additional four-year reprieve before full implementation. Preliminary evidence suggests a rough ride ahead, especially for restaurants. Seattle magazine explained the situation in March 2015, less than a year following passage of the $15 per hour minimum wage law:
Since the legislation was announced last summer, The Seattle Times and Eater have reported extensively on restaurant owners’ many concerns about how to compensate for the extra funds that will now be required for labor: They may need to raise menu prices, source poorer ingredients, reduce operating hours, reduce their labor and/or more.
The Washington Restaurant Association’s Anthony Anton put it this way: “It’s not a political problem; it’s a math problem.”
A Seattle-based think tank, the Washington Policy Center, offered a similar prognosis in a blog published later that month:
As the implementation date for Seattle’s strict $15 per hour minimum wage law approaches, the city is experiencing a rising trend in restaurant closures. The tough new law goes into effect April 1st. The closings have occurred across the city, from Grub in the upscale Queen Anne neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Café on Western Avenue near the waterfront.
The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the law have dropped the hourly wage for these workers to zero.
Advocates of a high minimum wage said businesses would simply pay the mandated wage out of profits, raising earnings for workers. Restaurants operate on thin margins, though, with average profits of 4 percent or less, and the business is highly competitive.
Seattle small businesses won’t have to pay the $15 an hour an hour minimum wage until 2021; given the job losses occurring already, things don’t look too promising. But defenders of the Seattle law aren’t about to give up. A letter to Forbes magazine, published in March 2016, is typical of the rosy assessments of some: “Between January and December 2014, while SeaTac’s business owners (and their customers) were absorbing the cost of paying minimum wage,” the letter asserted, “employees $15 an hour, unemployment decreased 17.46 percent, falling from 6.3 percent to 5.2 percent. It turns out that you CAN increase the minimum wage (even in large increments) and increase overall employment at the same time.”
The author of this letter seems to have a problem with the concept of cause and effect. There are, in fact, any number of explanations for Seattle’s healthy economy that have absolutely nothing to do with a minimum wage hike. For one thing, the Seattle employment situation, like anywhere else, is a reflection of regional and national employment job trends, which at present are far from ominous. For another, Seattle has an educated, mobile and well-paid work force, many of whom make well in excess of $15 an hour or its salary equivalent. Some of the nation’s largest, innovative and profitable companies—Amazon, Boeing, Microsoft—are either based in the Seattle area or have a major presence there.
Skepticism within the economics profession
In advancing a $15 an hour minimum wage, unions and their political allies claim that only “right-wingers,” often funded by shadowy financiers such as the Koch brothers, oppose the idea. In fact, many economists, including those with a sterling reputation for liberalism, are highly skeptical.
The Brookings Institution’s Gary Burtless, for example, admitted: “It’s very hard to believe that a minimum wage hike to $15 would produce the same adverse impact on employment as a hike to just $10.10.” That adverse impact would likely be higher at $15, he suggested. Harry Holzer, chief economist for the Department of Labor under President Clinton and currently, like Burtless, affiliated with Brookings, noted that “such increases are extremely risky. In job markets where young or less-educated workers already have difficulty finding jobs and gaining important work experience, such mandates will likely make it much harder.”
And Princeton’s Alan Krueger, who during November 2011-August 2013 chaired President Obama’s Council of Economic Advisers, also has choice words: “A $15 per hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences….[T]he push for a nationwide $15 national minimum wage strikes me as a risk not worth taking.”
Such apprehensions are widespread in the economics profession. In the fall of 2015, researchers at the University of New Hampshire conducted a nationwide survey on behalf of the Employment Policies Institute: They asked economists their opinions regarding the $15 an hour minimum wage: of the survey’s 166 respondents, 83 percent and 52 percent, respectively, believed the wage hike would adversely affect youth and adult employment. Fully 76 percent believed it would diminish the number of available jobs. And 67 percent said it would make it harder for small businesses to operate.
As evidence of support among economists, backers of the $15 an hour minimum wage point to a strongly-worded online petition with 208 signatures. Upon close inspection, this manifesto is a lot less impressive than it looks at first glance. First-tier economics departments at major universities are largely unrepresented; the roster is heavily weighted toward a handful of institutions. Fully 23 of the signers were affiliated with the University of Massachusetts-Amherst, five with the University of Massachusetts-Boston, and six with the University of Missouri-Kansas City. That lack of academic diversity suggests that peer pressure played a role in the gathering of signatures.
A dishonest campaign
Only a few years ago, a $15 an hour minimum wage was not a mainstream idea. Now, it has captured the imaginations of many well-meaning people–who doesn’t want low wage workers to earn more, to better themselves, to live a more comfortable life? As more and more cities, counties, and states adopt it, pressure for corresponding federal legislation will increase. There is no rational basis for this campaign; the $15 an hour figure was invented out of thin air, without serious consideration of the pros and cons of higher or lower numbers, and the idea was spread through an expensive public relations campaign by the Service Employees International Union.
A leading SEIU organizer, Kendall Fells, disclosed during a panel discussion in December 2015 how his union arrived at the number. “I would say it was a pretty scientific process,” he offered. “$10 was too low and $20 was too high, so we landed at $15.”
Ironically, unions supporting the $15 an hour minimum don’t necessarily practice what they preach. For example, an AFL-CIO front group, Working America, not long ago advertised job openings for field organizers beginning at $12.25 an hour.
Supporters of more than doubling the current federal minimum wage typically invoke lofty rhetoric about justice, decency, and fairness. In pursuing their mission, they rarely consider that good intentions can lead to counterproductive outcomes. When criticized, they often respond by projecting nefarious motives onto their critics.
In reality, opponents of a radical hike in the minimum wage are not saying that workers should be paid less than what they are worth. They’re trying to preserve jobs for entry-level and other unskilled workers. They’re pointing out that, if the government sets a minimum wage higher than the value of an employee’s labor, it destroys jobs. They’re pointing out that $15 an hour—which costs employers almost $19 an hour when taxes and mandated benefits are added in—would remove that first critical rung on the jobs ladder, making it ever harder for many Americans to lift themselves out of poverty.
Unfortunately, labor unions and allied political operatives prefer going the route of government mandate to achieve their ends. The unintended consequence of such a mandate will be fewer jobs for entry-level workers and, for many employers, an increased risk of going out of business altogether.
Carl F. Horowitz heads the Organized Labor Accountability Project for the National Legal and Policy Center in Falls Church, Virginia.