Wednesday, June 15, 2016

Proposed amendments to Ord. 621-16: $12.00 min wage by 2022 with annual incremental increases

Since my initial post on 5/17 calling for a consideration of an amendment for an incremental increase in the minimum wage to an amount between 50-60% the median wage, I’ve subsequently continued to review studies and have had discussions with local business owners, academics and policy makers and have arrived at a more formal proposal.

I propose an amendment to ordinance 621-16 to:
  • Set the rate of the minimum wage in Cleveland to a rate of $12.00 by the year 2022 – see chart below.
The proposal is based on two important economic factors that have been identified by a majority of economists.
  1. The minimum wage should be no more than 50-60% of the median wage (a).
  2. The incremental increases should be less than 7-10% per year (b).
(a) Proposal 13: Designing Thoughtful Minimum Wage Policy at the State and Local Levels, by Arindrajit Dube, University of Massachusetts Amherst, 06.16.14, an economic policy initiative at the Brookings Institution. &
Designing Thoughtful Minimum Wage Policy at the State and Local Levels.

(b) Effects of raising the minimum wage: Research and key lessons, October 19, 2015; and perspectives from local employers of the impacts of wage or cost increases on a business and employment if over 5%.

Upon review, although there is no specific calculation of what the median income is for just the City of Cleveland, economists and researchers indicate an estimated rate higher than the metro region’s rate of $17.94, or approximately between $19.00 and $20.00.  For purposes of developing a proposed amendment I utilized a median rate of $19.50.  This estimation is based on the employment base of Cleveland and reflects a urban core employment center that has on general a higher median wage rate.

I then applied a 58% multiple of the estimated median rate of $19.50 to obtain a rate of $11.22.  Then applied a 1.35% inflation adjustment for 2017-2022 to arrive at the target rate of $12.00 by 2022.  See the enclosed worksheet for calculations.

The result is the following proposed amended incremental rate increases:
[click on the image for a larger view]

I share the concerns of Council President Kelley and others who fear that by applying a increase to the minimum wage to the small geographic area of just the City of Cleveland has the potential to have negative impacts on both employment and jobs.

But, I would argue that by following sound economic advice - of considering increases to no more than 50-60% of the median wage, with annual increases below 7%, we could improve wages for low income earners and set an example for our State and the nation as taking a prudent approach to a very difficult challenge.  Namely, how can we as a municipality help our most vulnerable in being able to earn a decent and fair wage without having detrimental impacts to our economy.

Unfortunately the proposed increase to $15.00 in one single increase has drawn attention to what most economists would agree would be serious negative impacts. The impacts would likely include loss of jobs, potential closures of small businesses and large discrepancies in wages and the costs to businesses located within Cleveland.

It is unfortunate that the focus is currently on the negative impacts of a large one-time increase, while the positive impacts of an incremental rate increase, to a moderate rate as suggested (50-60% of the median) are not being discussed.  Those positive impacts include more purchasing power for our residents, and increase expenditures within our City, and a decrease in public assistance expenditures.

I look forward to continuing the discussion on ordinance #621-16 at our Council's scheduled hearing tomorrow.

NOTE: Please see the original blog post regarding this issue that provides more links to research and explanation of how an increase may impact employees, employers and the economy.

Also, Cleveland City Council is having its 3rd hearing on the legislation tomorrow, Thursday June 16th at 10:00 am. The hearing can be viewed live on Cleveland Channel 20 that is also streamed at this link.


Worksheets utilized to formulate the $12.00 by 2022 proposed amendment:
[click on the images for a larger view]

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