Friday, September 18, 2015

Testimony by Professor Peter Dreier to Seattle Mayor and City Council on state preemption of local rent regulation

Date: Wednesday, September 16, 2015
From: Peter Dreier
To: ed.murray@seattle.gov; council@seattle.gov
Subject: Lessons for Seattle from the Rent Control experience in California and Massachusetts

Dear Mayor Murray and Council members:

I urge you to pass the resolution, sponsored by Council members Nick Licata and Kshama Sawant, asking the state legislature to repeal the law banning localities from enacting rent regulations.

I write as both a policy practitioner and a scholar who is very familiar with the issue of rent control and housing policy in general.  For eight years I served as housing policy advisor to Boston Mayor Ray Flynn and as housing director of the city’s planning and redevelopment agency, the Boston Redevelopment Authority.  I left those positions in 1993 to teach at Occidental College in Los Angeles.  For the past 15 years I have been chair of the Urban & Environmental Policy Department at Occidental College. I have written extensively about housing policy in general and rent regulations in particular.  In 1997, in my capacity as a professor at Occidental, I did a comprehensive study of the efforts by the real estate industry in Massachusetts and California to pre-empt localities from adopting rent regulations of any kind.  The report was commissioned by the New York City local government; at the time, the state government was considering weakening  the rent regulations allowed by local governments in New York State. The effort to weaken rent regulations was successful in Massachusetts but only partially successful in California. Here is a copy of the report: http://www.nycrgb.org/downloads/research/pdf_reports/dreier.pdf.  I drew on this report to publish a number of articles on this topic in scholarly journals, but the report itself is more comprehensive and more accessible. Among other books and articles, I am coauthor of Place Matters: Metropolitics for the 21st Century, currently in its third edition. The book is used in many graduate and undergraduate courses in urban planning and urban policy.

The Massachusetts state government pre-empted local governments from adopting rent control. A number of cities which had adopted local rent regulations, including Boston, were impacted. Boston and adjacent Cambridge experience an immediate wave of rising rents which has not abated, although the scale of rent increases has fluctuated.  The cities’ demographics changed dramatically.  The proportion of low income families, and families of color, declined significantly as rents increased and widescale displacement took place. The number of homeless people increased.  The number of families who double-up and triple-up in overcrowded apartments increased.  Working families, especially those working for wages below the regional and state median, confronted higher and higher rent burdens; the proportion of families paying 50 percent of more of their household income for rent increased significantly. As a result, they had less disposable income, and thus less money to spend in the local economy (retail stores, etc) because so much of their household income was absorbed on rent, much of which went to absentee landlords who did not live in the city and many of whom did not even live in the state.  The trends have continued in the past two decades since I wrote my report.

In California, where many cities had adopted rent control, the real estate industry had sought for many years to pre-empt local rent regulations.  Finally, in 1995, they succeeded in weakening, but not eliminating, local rent regulations. The state legislature passed the Costa Hawkins act, which banned local rent controls but allowed cities to adopt “vacancy decontrol.”  This allows landlords to raise rents to market levels when a tenant leaves, after which cities can regulation rents.  Obviously, this is a way to slowly eliminate rent control. It also creates an incentive for landlords to pressure long-term tenants to leave so they can raise rents to market levels.  Landlords routinely harass long-term tenants, especially the elderly, to leave, resorting to a variety of illegal tactics as well as deferring basic maintenance of apartments.  Many of the same trends that occurred in Massachusetts also happened in California, including in Los Angeles, San Francisco, Santa Monica, and other cities, although they occurred more slowly.  Los Angeles now has more homeless people than any other city in the United States. This is not entirely due to the weakening of rent regulations, but it played a critical role. In the wake of the current severe housing crisis in California cities, there is growing discussion about repealing the Costa-Hawkins law and once again giving cities the authority to adopt full rent control.

There is much research about the impact of rent control.  Research conducted by independent scholars who are not tied to the real estate industry agree that rent control helps preserve economic and racial diversity in a city but does not have any impact on inhibiting new construction of rental housing. Nor does it create a disincentive for landlords to maintain their properties. Rent regulations protect the existing supply of affordable housing. Given the shortage of funding for affordable housing at the federal, state and local levels, it is impossible to address the shortage of affordable by creating new  housing units affordable to low- and moderate-income families.  Even raising the minimum wage to $15/hour – which you did in Seattle and which Los Angeles and a few other cities have now done in the wake of your policy – cannot, on its own, solve this problem.  The “housing wage” – the amount families need to afford a typical apartment rent – is close to $30/hour in Los Angeles.  Finally, it is not possible for cities to build their way out of shortage of affordable housing by building more market-rate housing. This assumes that there is a filtering process, or a trickle down process,  in the housing market.  Instead, there’s a trickle up process; when developers build more market-rate housing, landlords of existing apartments raise rents.

Irrespective of the impact of rent control, the broader issue is one of local control.  Rent control is only one tool that cities can adopt to address the widening gap between family incomes and the price of rental housing, but it is an important one.  The underlying question is whether local governments should have the authority to adopt policies that they consider to be useful and effective in addressing local problems.  I believe they should and I hope you agree and will thus urge the state legislature to give Seattle the authority to adopt whatever rent regulations you considered appropriate to address Seattle’s needs.

Thank you.
Peter Dreier, Ph.D.
Dr. E.P. Clapp Distinguished Professor of Politics
Chair, Urban & Environmental Policy Department
Occidental College
1600 Campus Road
Los Angeles, CA 90041
Phone: (323) 259-2913
Email: dreier@oxy.edu

[Another relevant article by Professor Dreier]
Peter Dreier. “Californians Defend Rent Control”. Montclair, NJ: Rooflines, June 5, 2008. http://www.rooflines.org/941/californians_defend_rent_control

Testimony by Professor Dennis Keating to Seattle Mayor and City Council on state preemption of local rent regulation

Date: Wednesday, September 16, 2015
From: Dennis Keating
To: Mayor and City Council, City of Seattle, Washington
Subject: State preemption of local rent regulation

I have been asked to comment on a Rent Control Resolution to the State of Washington to repeal the legislation banning localities from enacting rent regulation. From my long interest and knowledge of issues related to rent regulation, I am familiar with this issue. I have written extensively about rent regulation, including co-authoring the book entitled "Rent Control: Regulation and the Rental Housing Market" and a forthcoming article entitled "Forty Years of Rent Control' to be published in Cities: International Journal of Urban Policy and Planning (Vol. 49: 121-135).

Whatever you think about the efficacy and impact of the adoption of rent regulation, given differing local rental housing markets and the situation of renters in very tight local rental housing markets, I do not believe that it is sound public policy for state governments to deny to local governments the right to consider polices like rent regulation to address local housing needs. This is also true of other affordable housing policies like Inclusionary Housing to address the needs of low-and-moderate income households. In the case of rent regulation, I believe that the policies of the states of California and New Jersey which allow rent regulation by local option are the best approach to this issue, as opposed to requiring authority from the state before localities can consider the adoption of rent regulation (whether or not the state imposes certain restrictions on what type of rent regulation
is allowed).

Sincerely,

Dennis Keating
Professor, Department of Urban Studies
Levin College of Urban Affairs
Professor, Cleveland Marshall College of Law
Cleveland State University
2121 Euclid Ave.
Cleveland, Ohio 44115
Tel: (216) 687-2298

[A relevant article by Professor Keating]
Dennis Keating & Mitch Kahn. “Rent Control In The New Millennium”. Montclair, NJ: Shelterforce, May / June 2001. http://www.nhi.org/online/issues/117/KeatingKahn.html

Pass the Licata & Sawant Rent Control Resolution

(Testimony to a hearing of a Seattle City Council committee considering a resolution on the Washington state ban on any form of rent regulation)

To the Mayor and City Council of Seattle,

I’m writing to urge you to support the Rent Control Resolution introduced by Councilmembers Licata and Sawant. This resolution calls on the State of Washington to repeal or modify RCW 35.21.830, the state law that prohibits ordinances or other provisions that regulate the amount of rent. It also requests that the U.S. Department of Housing & Urban Development consider whether RCW 35.21.830 is an impediment the State’s obligation to affirmatively further fair housing.

I am probably one of the few citizens left standing who can speak from personal experience to how this state ban on local autonomy was enacted. I was one of the founders of the Seattle Tenants Union in 1975, and served on the executive board of the National Tenants Union in the early 1980s. I volunteered full-time on the Initiative 24 Fair Rent campaign in 1980, and briefly lobbied afterwards in Olympia against the state restrictions.

The real estate and financial industries reportedly raised over $870,000 dollars and spent nearly $500,000 to defeat I-24, a record for city initiatives that may still stand. The I-24 campaign raised and spent $40,000 in support of the initiative. With this 12 to 1 advantage, the opposition to I-24 hired a San Francisco public relations firm, Donald Solem & Associates, that specialized in defeating rent stabilization initiatives. They blanketed the city with an estimated seven mailings to each household opposing I-24. The campaign had little to do with democratic debate, and much to do with the raw power of concentrated wealth to impose its will on electoral processes.

With its remaining war chest and tremendous statewide cloud, real estate and finance went to Olympia and easily pushed the ban on local autonomy through the legislature. There was virtually no investigation or debate: it was a gimme putt for the big money and property guys. And it was a reflection of ignorant resentment, among some legislators from other areas of the state, of the big city that pays a lion’s share of the state’s bills.

As is still the case, restricting local autonomy runs counter to many conservative positions on other issues. Is this hypocritical? It certainly is wrong-headed. Ironically, there  may be no issue on which local autonomy is more sensible and necessary than affordable housing. In Washington state, as in many others, housing markets and issues in big, booming cities like Seattle are qualitatively different from those in most smaller cities and rural areas. One-size-fits-all legislation for the whole state is not a solution, but a barrier to solutions.

Incidentally, have we forgotten that those same real estate and financial industries, and their ideological co-dependents, are guilty of inflating a huge housing bubble and entangling us in a financial crisis that triggered a global Great Recession? Does anyone remember Washington Mutual and credit default swaps? Nobody has gone to jail for these economic crimes, and now the same laissez-faire hucksters are back trying to sell us very similar snake oil: shut out local democracy and accountability; blindly trust the same markets that melted down less than a decade ago.

This vote is not about rent regulations, but about the ability of cities to enact the kinds of measures they see fit to deal with the intractable problems they face of preserving and expanding affordable housing and protecting tenants from the ravages of housing market failures.

However, you should know that modern rent stabilization covers over a million units in New York City, and millions more in hundreds of cities in New Jersey, the District of Columbia, Maryland and California. It is not a rent freeze – the old NYC law dating from World War 2 that imposed a hard ceiling is now close to defunct, and nobody has proposed a similar one anywhere in the U.S. for the past 50 years. The standard model of rent stabilization adopted everywhere allows rents to increase according to a formula usually tied to inflation, and grants landlords further increases when necessary to ensure a reasonable return and to cover improvements. All such laws exclude new construction and many exempt small landlords. Modern empirical studies of their effects have nearly all found that they have no negative effects on rental housing construction or maintenance of existing units, and promote tenant stability by limiting extreme rent spikes and moderating the pace of rent increases in hot markets. They also often help to protect low-income communities, especially those of color, from displacement and gentrification.

If you give us a chance, I think we supporters of modern rent stabilization will be able to convince you that it is a useful tool to preserve existing affordable housing and protect vulnerable tenants, in conjunction with the many promising ideas being considered to stimulate new construction, such as those suggested by the HALA report and the linkage proposal. But for now, all I’m asking is that the City of Seattle show the intestinal fortitude to stand up to the power of concentrated wealth and demand that the state stop tying our hands.

Sincerely yours,

Peter Costantini
Seattle
 
An important afterthought that I would have liked to include:
 

California has demonstrated that voters with long experience with rent regulations believe they should be decided on a local, not state, level.


In 2008, California voters defeated a statewide initiative by the real-estate industry that would have eliminated all rent regulations by a landslide 61% to 39%.

Sixteen cities in California, including Los Angeles, Santa Monica, San Francisco, Oakland and San Jose, have rent stabilization ordinances in effect, many since the 70s. Voters have had three or four decades to evaluate how well they work. Their verdict was clear.

This vote came in spite of a well-funded and deceptive campaign by real-estate and big landlords, who tried to disguise the initiative as one opposing the abuse of eminent domain.

The vote said in effect that a large majority of citizens have found that rent stabilization has worked well in many cities, and should be available as a policy option to others who want to implement it.

This August, the East Bay city of Richmond passed a rent stabilization ordinance, the first new rent regulations anywhere in many years.

Washingtonians may traditionally have mixed feelings about Californians, but in this case we should thank them for demonstrating the value of implementing rent stabilization on a massive scale, and rejecting the proposed statewide ban on it.

Peter Dreier. “Californians Defend Rent Control”. Montclair, NJ: Rooflines, June 5, 2008. http://www.rooflines.org/941/californians_defend_rent_control

Jake Blumgart. "In Defense of Rent Control". Santa Barbara, CA: Pacific Standard Magazine, April 1, 2015. http://www.psmag.com/business-economics/in-defense-of-rent-control

Two related posts:

Testimony by Professor Dennis Keating to Seattle Mayor and City Council on state preemption of local rent regulation. September 18, 2015. http://petepaycheck.blogspot.com/2015/09/testimony-by-professor-dennis-keating.html

Testimony by Professor Peter Dreier to Seattle Mayor and City Council on state preemption of local rent regulation. September 18, 2015. http://petepaycheck.blogspot.com/2015/09/testimony-by-professor-peter-dreier-to.html

Friday, June 27, 2014

1996 Interview with Dr. Mariano Fiallos

A law professor could be Nicaragua's next Foreign Minister

by Peter Costantini, MSNBC News
Managua, Nicaragua
October 16, 1996
 

If the Sandinista Front for National Liberation (FSLN) wins Sunday's elections in Nicaragua or an ensuing runoff, Dr. Mariano Fiallos will become Foreign Minister for President Daniel Ortega in what the party has dubbed Everybody's Government [el Gobierno de Todos].

For Nicaragua's 1984 and 1990 elections, Dr. Fiallos directed the electoral process as President of the Supreme Electoral Council.  His efforts in this critical position were widely praised by Nicaraguan and international observers.

From 1980 to 1984, Dr. Fiallos served on the Council of State, Nicaragua's provisional government.  He advised the National Assembly on the drafting of the nation's constitution from 1985 through 1987.  President of the National University of Nicaragua from 1974 to 1984, he has been professor of Constitutional Law there since 1964.

Dr. Fiallos holds a Ph.D. in Political Science from the University of Kansas, and law degrees from the University of Paris, Southern Methodist University and the National University of Nicaragua.  In 1986, he was a visiting scholar at the University of Washington.

In 1979, the Sandinista guerrillas overthrew the 43-year Somoza dictatorship, which had been supported by the U.S., and assumed power.  The Reagan and Bush administrations made removing the left-nationalist FSLN government a centerpiece of their Latin American policies.  A U.S.-funded and directed group, the contras, fought a war of attrition from bases in Honduras and Costa Rica.  The U.S. also imposed an economic embargo on Nicaragua in the mid '80s.  After the U.S. blocked military aid from Western Europe, the FSLN received substantial amounts from the Soviet Union and Cuba.

In 1984, the FSLN won the first reasonably democratic elections in Nicaragua's history, according to observer groups from the British, Irish and Dutch parliaments.  In the 1990 elections, Daniel Ortega and the Sandinistas were defeated by the United Nicaraguan Opposition coalition of Violeta Barrios de Chamorro, which was supported politically and financially by the United States.

MSNBC spoke to Dr. Fiallos, a courtly man with a salt-and-pepper beard, at his office in the FSLN's Managua headquarters.  In the interview, conducted in Spanish, he talks about his plans for a foreign policy of non-confrontation and reconciliation.





MSNBC

What foreign policy will the Sandinistas pursue if they win the elections?

Fiallos

In the case of Everybody's Government [el Gobierno de Todos], which is the name of the future government of Nicaragua, headed by Daniel Ortega as President and Juan Manuel Caldera as Vice-President, the general line of our foreign policy is basically the line of non-confrontation.

That is to say, first, to seek relations with all the nations of the world.

Second, to avoid confrontations or clashes or conflicts with those countries with which we had them in the previous [Sandinista] government.  This means the United States, the countries of Central America.

We don't want to begin to go over what happened, who was at fault, who did this or that, bad or good, but simply to design a policy that does not bring Everybody's Government into conflict with the countries and the world around us.

This is easier now than before, because the confrontation of the Cold War has disappeared from the world.  And on the other hand, there is globalization.

So this approach is easier, and besides, it's impossible, at this point, to have a situation like that of the '80s.

This is the more general policy.

This is reflected in our domestic policy as well, which is complementary.  Within the country, the government proposes to form Everybody's Government.  As its name indicates, this government will make or is making arrangements or agreements with different social sectors.

First, the vice-presidential candidate is an agricultural producer, and therein lies one of the most difficult points for the future of Nicaragua: to increase production, particularly that of moderate-sized producers.

Then we have reconciliation with the contras.  This reconciliation with the contras is also reflected in the foreign policy, because the reasons for an internal war have disappeared.  And the reflection of U.S. policies that we saw in this have also disappeared.  So this is an element that helps to avoid a confrontation.

MSNBC

Do you think peace can be reached with Somocista elements in Miami?  Do you hope to achieve that with this strategy? [Somocista refers to supporters of the U.S.-backed Somoza dictatorship, which ruled Nicaragua from 1936 to 1979.]

Fiallos

The groups in Miami are not the important thing.  The important ones are those who are here in Nicaragua.  Those in Miami are important inasmuch as they help those who are here, or to the extent that they can influence powerful groups in the United States.  So in this sense, they are important.

Therefore, if we establish a policy of non-confrontation and friendship with the government of the United States, the government of the United States will continue its policy of recognizing the government that is elected October 20.

If the government of Nicaragua, from January 10 on, maintains good relations and meets the requirements of strengthening democracy and human rights, takes care of the pending problems of justice with respect to North American citizens, etcetera, then there is the possibility of having good direct relations with the United States government.

A Democratic triumph might possibly help, in the sense that it is groups of Republicans that are creating bigger problems because they have relations with the groups in Miami.  And inside Nicaragua, the people in Miami have relations with those people who are fighting here or who were fighting here.  And with the remnants of these groups. [the contras or Nicaraguan Resistance]

They are the ones with whom Everybody's Government has tried directly to reach an understanding.

MSNBC

It seems likely that Clinton will win, but perhaps Jesse Helms will still be there.

Fiallos
Look, of course the problem will still continue.  I'm not saying that it will disappear.  What we want is to establish a government which is not the source of the confrontation, Everybody's Government.

Rather, we want, one, to try to resolve the conflicts that exist, two, to not create any conflicts.


MSNBC

Can the problems around the properties be resolved?  Are the funds there to resolve them? [The Sandinista government confiscated properties owned by the Somoza dictatorship, by some of those close to it and by some other opponents during the '80s.]

Fiallos

No, the funds don't exist, but the will does to continue resolving the problems.  And just as this government has tried to resolve them for six years, the next overnment, Everybody's Government, the Sandinista government, will try to resolve them.

MSNBC

What about economic foreign policies?  I recall that in the '80s, there was a policy called the "four-legged stool" of trade with the United States, Europe, Japan and the Eastern Bloc.  Will there be a new incarnation of this policy of "diversifying dependency"?

Fiallos

What's happening is that we have little margin of action or of liberty in choosing our markets.  And there's the situation of the disappearance of the Cold War, of the blocs.  So in reality what we have to do is make deals and seek trade relationships of all types with all countries.

MSNBC

With Europe, for example?

Fiallos

We've always had contact with the European countries.  We've never stopped trading with them or with Japan or with the Central American countries.  The problem is to increase these relations.

...


MSNBC

[And the foreign debt?]

Fiallos

The foreign debt has been reduced under the present government, and the government that takes office January 10 will have to continue this task of reducing it.





Interview and translation from the Spanish by Peter Costantini for MSNBC News.

Tuesday, May 27, 2014

Setting a fair minimum wage for Seattle

Testimony to the Mayor's Income Inequality Advisory Committee
Submitted by Peter Costantini ~ April 2, 2014


I attended the Income Inequality Symposium on March 27 as an analyst for Inter Press Service, a global non-profit newswire based in Rome.  However, I’m submitting these comments as a citizen.

I’ve looked at work from both sides now.  Of my 40 years in Seattle, I’ve spent twenty as a blue-collar worker and another twenty as software professional.  I’ve been a union member and a manager.  I’ve done community organizing locally, nationally and internationally.  And as a journalist, I’ve covered issues of labor, poverty and economics in this country, Latin America and Europe. (See “Who is this guy anyway?” below.)

Naturally, my opinions have been shaped by these experiences.  Following are a few observations and recommendations in response to the Symposium and based on other research.

Look at total impact on affected workers’ livelihood


Many studies have examined the effects of minimum wage increases on employment in terms of job loss or gain.  The implication has been that, to the extent that raising the wage might cause job losses, it would create some losers along with the many winners.

Most researchers around the country have found no statistically significant effect on overall employment of workers impacted by minimum wage increases.  This was true even of Santa Fe, NM, which mandated an increase of 65.0 percent in 2004 (from $5.15 to $8.50), a higher percentage increase in the minimum wage than the 60.9 percent increase that $15.00 would represent for Seattle in 2014.

However, the relevant measure is not whether a minimum wage causes any net loss of jobs.  From the point of view of wage earners, the question is whether their total income in the course of a year is reduced or increased.

Most low-wage jobs already have variable hours and high turnover: many people do not work a full 40 hours and many lose or leave jobs in the course of a year.  Labor “flexibility” has brought us far from the mid-20th Century manufacturing jobs that offered workers with a high-school diploma long-term full-time employment at union wages sufficient to support a family and even buy a house.

For low-wage workers today, employment effects show up primarily in average hours worked weekly and total time out of work yearly.  As a hypothetical case, if my hourly wage goes up 50 percent from $10.00 to $15.00, but my average weekly hours worked drop from 36 to 32 and I’m out of work for 4 weeks instead of 2 weeks, I’m still considerably ahead of the game with a 28.0 percent increase in my yearly income.

year
average
wage
average
hours/week
weeks
unemployed
total hours
worked
yearly
income
yearly
increase
2014
$10.00
36
2
1,800
$18,000
2015
$15.00
32
4
1,536
$23,040
28.00%

If I qualify for unemployment insurance for the weeks out of work, my situation is even better.  Even if I were no longer eligible for food stamps at the higher wage, my wage income replacing them would now be paying into unemployment insurance, Social Security and Medicare.  And that food-stamp funding would now enlarge the pool for others.

Making more money for fewer hours worked also frees up other possibilities off the job, such as spending more time taking care of my family.  In the job market, it would create space to take training courses, change careers, look for a better job in the same industry, or get a second part-time job.

Alternatively, let’s say I’m making $12.00 when my wage rises to $15.00, a 25 percent increase. Assuming my average weekly hours worked drop from 36 to 34 and I’m out of work for 3 weeks instead of 2 weeks, my yearly income would still be 15.69 percent higher.

year
average
wage
average
hours/week
weeks
unemployed
total hours
worked
yearly
income
yearly
increase
2014
$12.00
36
2
1,800
$21,600
2015
$15.00
34
3
1,666
$24,990
15.69%

These examples intentionally use improbably large reductions in hours and increases in unemployment, despite strong evidence that cities that have implemented substantial wage increases have seen no significant employment effects.  Even if there were some reduction of total yearly hours for workers who got the full 60.9 percent raise from $9.32 to $15.00, the loss of hours or increase in unemployment would very likely be smaller for workers now making $11.00, and smaller still for those now making $13.00.  This is because the percentage of their wage increase, and thus the increased costs they represent to their employers, would be much smaller.

Similarly, if the minimum wage were raised in steps, for example to $11.00, then $13.00, then $15.00, any employment effects would likely be much reduced, based on the experiences of other localities.

“What will be the impact on total yearly incomes of the workers involved?” rather than “Will any jobs be lost?” is the first question we should be asking when considering raising the minimum wage.[1]

Link future increases to productivity growth, not just inflation.


There seems to be wide agreement that any minimum wage ordinance should be adjusted for inflation.  It is merely “truth in advertising” to specify wage levels in real terms for year-to-year comparisons.  Nominal wage values are not meaningful over time because they are constantly eroded by inflation: $7.25 per hour today is worth less than $7.25 in 2009. What matters is the use value of a wage – how much it can actually buy – and this is captured only when changes in the wage are stated in terms of constant dollars.

The Washington state minimum wage is inflation-indexed, but the federal minimum wage is not.  This has meant that the latter has stagnated, but each effort to raise it has ignited political trench warfare.

Example of a $15 wage linked to inflation over 6 years.
 


year
real minwage
inflation
2015
$15.00
2.00%
2016
$15.30
2.00%
2017
$15.61
2.00%
2018
$15.92
2.00%
2019
$16.24
2.00%
2020
$16.56

Using the Bureau of Labor Statistics estimate of 2 percent average inflation for the next five years, $16.56 in 2020 dollars would have the same purchasing power as $15.00 in 2015 dollars.

However, indexing the minimum wage only to inflation would not help those who work for it to maintain their standard of living over time, relative to the rest of society and the economy.  Productivity growth raises the general standard of living each year, and business owners along with higher-paid employees have usually been able to hitch their wagons to it.  But most middle and low-wage workers have long since fallen behind.

Productivity is a measure of total outputs created per unit of input.  A yearly productivity increase represents the growth of economic efficiency over that year, and the fruits of it are usually divided between labor in the form of income and capital in the form of profits (except during the recent recession, when a sizeable portion was offered as a sacrifice to Mammon).

Fox News commentator Bill O’Reilly was scandalized to discover that 99 percent of poor people have refrigerators and 81 percent have a microwave.[2] Imagine his outrage if he ever learns that the same thing has happened historically for indoor toilets, televisions, and cell phones: what was once seen as a luxury has become a necessity for nearly everybody. 

A major culprit is decades of productivity growth – and the ability of wage workers to capture a fair share of it.

Prior to around 40 years ago, hourly wages in this country were roughly coupled to productivity and the benefits of economic growth were shared more proportionately across society. Since then, a central failure of our economy has been that, while productivity has continued to grow steadily, real wages have stagnated and become decoupled from it, in large part because of policies of business and government.  This wage/productivity gap is particularly damaging for low-wage workers, but in Seattle we’ve recently seen a vivid example of how it can bite even Boeing machinists.

Graph: John Schmitt, CEPR

If the minimum wage had been indexed to productivity in 1968, by 2012 it would have been $21.72, according to economist John Schmitt of the Center for Economic and Policy Research.

Tying the real minimum wage to productivity growth would help to incrementally reduce the wage/productivity gap for workers at the bottom of the wage scale. It would set a precedent for moving towards an economy where all workers can once again share more fully in the fruits of their labor, or, as we like to say in the software industry, their value-add.

Example of a $15 wage linked to current inflation and productivity over 6 years.
 
year
productivity minwage
inflation
real minwage
productivity
growth
2015
$15.00
2.00%
$15.30
2.00%
2016
$15.61
2.00%
$15.92
2.00%
2017
$16.24
2.00%
$16.56
2.00%
2018
$16.89
2.00%
$17.23
2.00%
2019
$17.57
2.00%
$17.93
2.00%
2020
$18.28

U.S. Bureau of Labor Statistics studies estimate that inflation will average 2.0 percent and that productivity growth will average 2.0 percent for the rest of the decade through 2020.[3]

Provide incentives for employee-employer negotiations.


One value that minimum wage ordinances ought to encourage is the active involvement of workers in their workplaces.

For example, SeaTac’s minimum wage ordinance offers a waiver for unionized employees, allowing them to modify provisions of the law in a bona fide collective bargaining agreement.  San Francisco’s minimum wage law has a similar provision.

Critics of the SeaTac law said it was merely a ploy to give unions a foot in the door of the affected industries.  So far there has been no indication that this is true.  But even if it were, for anyone concerned about reducing income inequality, encouraging workers to form labor unions and to bargain collectively for their interests is an indispensable policy tool.  It is also one that does not involve public expenditures.

The decline of labor unions has been a major factor in the stagnation of real wages for workers in this country over the past few decades.  Overall union membership has dropped from over 30 percent in the 1950s to 11.3 percent in 2013, with only 6.7 percent unionized in the private sector.

Some parts of the U.S. labor movement shared responsibility for this decline: certain strains of unionism were known for looking out mainly for the narrow interests of their own members, and some were infiltrated by organized crime.  In the 70s and 80s, I belonged to the Laborers International Union of North America, a construction trade union that I later learned was associated with La Cosa Nostra in some areas (though not Seattle).  Today, after a consent decree with the U.S. Justice Department and a period of de-mafiafication, LIUNA has become one of the more democratic, progressive and dynamic unions in the country, and a leader in organizing low-wage workers.

Overall, though, the near-death experience of organized labor has been mostly due to unremitting attacks by big business in partnership with the Reagan and later administrations, and labor laws increasingly hostile to the interests of workers.

Despite their shortcomings, unions in any industry or business are nearly always more democratic and transparent than their employers.  By definition, businesses are plutocratic: even if they have shareholders, the reality is typically one million dollars, one vote.  A labor organization, by contrast, is a very direct kind of democracy, and its local leaders are often held accountable by members who are well versed in the issues they are confronting.  It follows that public policies that seek to reduce inequality and increase democracy should encourage worker involvement in labor organizations and workplaces.

Nevertheless, not all low-wage workers may want to join a union.  So any minimum-wage ordinance should encourage involvement in all kinds of employee activity, including less-formal associations.  One successful model of this is the non-profit workers centers in many cities - such as CASA Latina in Seattle - that provide support, training, information and a hiring hall to mainly immigrant workers, but don’t formally represent them in collective bargaining.

On an individual level, a higher wage gives each worker more power and flexibility to bargain informally with their employer about their job.  Individual workers who are not economically squeezed are more likely to negotiate with their employers on things like raises, promotions and working conditions, and if dissatisfied to vote with their feet and seek employment elsewhere.  This is obviously the case in high-paying, dynamic industries like software, but it applies in low-wage industries as well.

In addition to employee benefits, there are benefits for employers in this as well: workers who are more involved in their workplace and better paid often become more productive and dedicated to the business and its customers, reducing turnover and improving business processes.

All these levels of employee involvement are not merely economically and politically desirable.

The right of workers to organize derives from the freedoms of speech and association.  Some see the hours spent working for someone else as exempt from the civil rights we expect in the rest of our lives, but we do not have to check these protections at the workplace door.  Workplace freedoms are among the economic freedoms guaranteed by Universal Declaration of Human Rights of the United Nations, the highest authority of international law.

Article 23 Section 3 reads: “Everyone has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.”  Article 23 Section 4 reads: “Everyone has the right to form and to join trade unions for the protection of his interests.”  These rights are spelled out in more detail in the UN’s International Covenant on Economic, Social and Cultural Rights.

Beyond guaranteeing basic rights, the minimum wage ordinance offers an opportunity to recognize the agency of the workers involved and to offer them a chance to increase their capabilities.  Nobel-laureate economist Amartya Sen conceived of agency as the ability of each member of society to become “someone who acts and brings about change” rather than a “motionless patient”.  Capabilities, he says, “enable people to lead the kind of lives they value.” Public policy can not only enhance these capabilities, but in turn “can be influenced by the effective use of participatory capabilities by the public.” In effect, capabilities are interactive and can create virtuous circles.[4]

City policies should provide incentives for workers to become active protagonists in their worklife and to acquire effective voices in resolving issues that affect them.  Workers’ activism in the minimum-wage campaigns has already been an important step in this direction.  The Seattle minimum wage ordinance should further recognize the agency of the workers it covers by encouraging their active involvement in determining their levels of compensation and conditions of employment.  An exemption for collective bargaining agreements would be one small, practical way to accomplish this.

Create a mechanism for fairly resolving contested cases.


Minimum-wage ordinances have often had to confront questions of how to deal fairly with special cases, such as small businesses and non-profit organizations.  Some laws exempt or phase in increases for non-profits or small businesses with fewer than a certain number of employees: 25 in Santa Fe, 10 in San Francisco, and numbers varying by industry in SeaTac.[5]

Some participants in the Seattle discussion have proposed that small businesses, which employ only a small percentage of the total Seattle workforce, should be exempted from the ordinance or phased into paying the full wage.  Even if the net effect of the ordinance on the labor market would produce no job losses, it is credible that some small businesses that employ a large percentage of low-wage workers might have to cut their payroll significantly or even go out of business if forced to pay the full increase immediately.[6]

Non-profit organizations present similar issues. Many get funding on a yearly or biennial basis, and pay salaries well below the private sector all the way up to the top. By definition, all make no profits.  To avoid forcing them to lay off employees and leave low-income people without vital services, some have proposed that the ordinance give such non-profits exemptions or more time for them and their funders to adjust to new wage levels.[7] Should the minimum wage be raised, the city and state should quickly respond by raising funding proportionately for any affected non-profits.

Even if small businesses and non-profits were exempted or phased in, they would most likely still feel strong pressure to raise their wage floor towards the full minimum wage.  Most of the low-wage labor market in which they compete for workers would be paying the new minimum, and as a result many organizations not legally required to would probably need to raise wages to keep and attract workers.

If Seattle creates exemptions or phase-ins, one way to handle questions and conflicts that arise around them would be to create a hearing mechanism for dispute resolution.  This could be a new or existing permanent board, or contracted arbitrators or mediators, who would be empowered to collect data on the organization in question, establish its financial position, take public testimony from owners, managers, employees and customers, and decide issues.  To reduce costs, enforcement could be complaint-based, initiated by employers or employees.  If an organization were found to be a bona fide small business or non-profit, and its books and testimony of employer and employees established legitimate hardship, it could be granted relief or deferment.

Such a hearing mechanism would have the added virtue of encouraging employees to participate in the hearings.  The panel could independently verify the legitimacy of the issues raised by the employer, allowing its workers to evaluate their employer’s petition and support or oppose it.  The process could become another incentive for worker agency.

Who is this guy anyway?


I’m a native New Yorker, raised in New Jersey and schooled in Ohio, who came to Seattle in 1973.

Since then, I’ve participated in the labor market in a variety of roles.  For twenty years I did blue-collar work in construction, shipyards, light manufacturing, gardening and office equipment repair.  I worked out of a union hall and also in non-union jobs.  For the following twenty years, I retrained and became a technical professional in the software industry, including a number of years as program manager and people manager.

For those first twenty years I also volunteered a lot of time as a community organizer.  I worked for the Cascade Community Council, co-founded the Seattle Tenants Union, served on the executive board of the National Tenants Union, and represented it to community organizations in Europe. I also co-founded Seattle Central America Media Project and Northwest-Nicaragua Electoral Watch, and was active in the opposition to the Central American wars of the 80s.  I’ve also had the privilege of working with Nicaraguans and Haitians as a technical volunteer.

In a parallel career as a journalist and analyst, I’ve written about international economics, democracy, technology, labor, migration, popular movements, and poverty.  My reporting on these issues has taken me to Mexico, Nicaragua, Haiti, Italy, France, Ireland, China and Nepal.

I earned a Bachelor of Arts degree from Antioch College, and a Master of Unintended Consequences from the University of Hard Knocks.



References


Dean Baker. “Robert Samuelson's Arithmetic Challenged Economics”. Washington, DC: Center for Economic and Policy Research, Feb. 23, 2014. http://www.cepr.net/index.php/blogs/beat-the-press/robert-samuelsons-arithmetic-challenged-economics

Dean Baker & Will Kimball. “The Minimum Wage and Economic Growth”. Washington, DC: Center for Economic and Policy Research, Feb. 12, 2013. http://www.cepr.net/index.php/blogs/cepr-blog/the-minimum-wage-and-economic-growth

Kathryn J. Byun & Christopher Frey. “The U.S. economy in 2020: Recovery in uncertain times”. Washington, DC: Bureau of Labor Statistics - Monthly Labor Review, January 2012. http://www.bls.gov/opub/mlr/2012/01/art2full.pdf

Sylvia Fuerstenberg. “Guest: How raising the minimum wage to $15 would hurt a nonprofit”. Seattle Times, March 22, 2014. http://seattletimes.com/html/opinion/2023193234_sylviafuerstenbergopedminimumwage1523xml.html

Media Matters for America. “Fox Cites Ownership Of Appliances To Downplay Hardship Of Poverty In America”. July 22, 2011. http://mediamatters.org/research/2011/07/22/fox-cites-ownership-of-appliances-to-downplay-h/148574

Anne Minard. “Small Businesses Are Not the Enemy”. The Stranger, March 12, 2014. http://www.thestranger.com/seattle/small-businesses-are-not-the-enemy/Content?oid=19052563

Robert Pollin, Mark Brenner, Jeannette Wicks-Lim & Stephanie Luce. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Ithaca, NY: Cornell University Press, 2008.

San Francisco Administrative Code. Chapter 12R: Minimum Wage. http://www.amlegal.com/nxt/gateway.dll/California/administrative/chapter12rminimumwage?f=templates$fn=default.htm$3.0$vid=amlegal:sanfrancisco_ca

John Schmitt. “New CEPR Issue Brief Shows Minimum Wage Has Room to Grow”. Washington, DC: Center for Economic and Policy Research, March 19, 2012. http://www.cepr.net/index.php/blogs/cepr-blog/new-cepr-issue-brief-shows-minimum-wage-has-room-to-grow

John Schmitt. “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Washington, DC: Center for Economic and Policy Research, February 2013. http://www.cepr.net/index.php/publications/reports/why-does-the-minimum-wage-have-no-discernible-effect-on-employment

John Schmitt. “CBO and the Minimum Wage”. Washington, DC: Center for Economic and Policy Research, February 19, 2014. http://www.cepr.net/index.php/blogs/cepr-blog/cbo-and-the-minimum-wage

John Schmitt. “CBO and the Minimum Wage, PT 2”. Washington, DC: Center for Economic and Policy Research, February 20, 2014. http://www.cepr.net/index.php/blogs/cepr-blog/cbo-and-the-minimum-wage-pt-2

Amartya Sen. Development as Freedom. New York, Alfred A. Knopf, 1999.

Dixie Sommers & James C. Franklin. “Employment outlook: 2010-2020. Overview of projections to 2020.” Washington, DC: Bureau of Labor Statistics - Monthly Labor Review, January 2012. http://www.bls.gov/opub/mlr/2012/01/art1full.pdf



Footnotes


[1] Schmitt 2/20/2014; Baker 2/23/2014; Pollin et al 2008
[2] Media Matters for America 2011
[3] Byun & Frey 2012, p. 6; Sommers & Franklin 2012, p. 1
[4] Sen 1999. Pp. 18, 19 & 137
[5] Pollin et al 2008; San Francisco Administrative Code
[6] Minard 3/12/2014
[7] Fuerstenberg 3/22/2014

Thursday, February 20, 2014

What's the denominator?



In response to “Zerophobia and minimum wages”, Lynn Thompson, the Seattle Times reporter who wrote the story I was commenting on, replied with an e-mail that made a good point:

“Other readers also suggested that I put the amount in the context of the city budget. $1 billion is actually the amount of the general fund from which any $15 an hour pay increase will come. The other $3.4 billion is in City Light and SPU [Seattle Public Utilities] revenues—utilities that get their money from rate payers and are operated as independent business lines.”

In broader terms, when you’re calculating a fraction it’s important to get the denominator right. This is another major piece of making budget figures meaningful.

With an estimated $1 million price tag for the minimum wage increase, or $1.5 million if summer youth programs are included, that still makes the proportion of the available budget 0.1 percent, or 0.15 percent with the youth programs. This does not include any effects of bumping up pay levels that were close to the new minimum wage. On the other hand, neither does it include potential increases in city revenues from the multiplier effects of the wage increases.

In any case, it still appears overall that the raises will have a very small impact on the city budget.

Saturday, February 15, 2014

Zerophobia and minimum wages

 


In reporting on economic issues, numbers often lie.
 
Well, OK, let’s not blame the numbers themselves.  Let’s not even assume that the intent of those who deploy them is to deceive.
 
We’re still facing a pervasive problem: numbers and especially dollar figures without context – the fraction of the larger numbers of which they are a part, and the time period over which they apply – leave most consumers of economic reporting without points of reference in understanding what these numbers mean.
 
In that weakened condition, zerophobia, which often manifests as an involuntary rapid intake of breath sometimes followed by expletives inspired by large numbers of zeroes following a dollar sign, can lead stricken citizens to misunderstand the import of quantities central to economic issues.
 
Quick, how big is the total budget of the City of Seattle?  I doubt many of the Seattle Times’ readers can answer that off the cuff.  But the otherwise informative story it published January 28, “$1M price tag tied to paying Seattle city workers $15/hr”, seems to assume that most readers know that figure.  Otherwise, how would they have any idea whether $1 million is a lot or a little relative to city expenditures?  They need a fraction or percentage to put it in some larger context.
 
For the record, the total 2014 budget of the City of Seattle is $4.4 billion. That makes the cost of the minimum wage increase 1/4,400, or 0.023 percent, of the budget.  As the piece reports, the city believes it can cover that mostly from increases in general fund revenues due to the growing economy.
 
Another way to report this sort of figure would be the cost per capita to Seattleites.  For an estimated 2013 population of 626,600, the $1 million dollars compute out to $1.60 per person per year.
 
In evaluating Mayor Ed Murray’s proposal to pay all city employees at least a $15 minimum wage, it would also be nice to know a related economic effect: the multiplier created by the increase.  How much further economic activity and tax revenue will be generated by city employees spending their wage increases?
 
Of course this is not just a local Seattle problem.  Economist Dean Baker of the Center for Economic and Policy Research has raised the profile of this issue nationally and internationally.  CEPR offers a budget calculator that can help put numbers in the context of the total Federal budget.  In response to him and other critics, Margaret Sullivan, the New York Times Public Editor, has acknowledged the need to make the economic figures it reports clearer and more meaningful.

Zerophobia can be cured.  It need not condemn sufferers to a lifetime of economic cluelessness.  With the caring support of fellow sources, journalists, editors and readers, afflicted citizens can recover and make valuable contributions to public discourse once again.
 

References


Dean Baker. “Mindless Budget Reporting: Fooling Some of the People All of the Time”. Washington, DC: CEPR, August 14, 2013. http://www.cepr.net/index.php/blogs/cepr-blog/mindless-budget-reporting-fooling-some-of-the-people-all-of-the-time

Dean Baker with Paul Solman. “Mindless Budget Reporting: Fooling Some of the People All of the Time”. Washington, DC: PBS Newshour, August 14, 2013. http://www.pbs.org/newshour/making-sense/mindless-budget-reporting-fool/

Center for Economic and Policy Research. “The CEPR Budget Calculator”. Washington, DC. Accessed Feb. 14, 2014. http://www.cepr.net/calculators/calc_budget.html

Center for Economic and Policy Research. “Responsible Budget Reporting”. Washington, DC. Accessed Feb. 14, 2014. http://www.cepr.net/index.php/responsible-budget-reporting

City of Seattle – 2014 Proposed Budget Executive Summary. Accessed Feb. 14, 2014. http://www.seattle.gov/financedepartment/14proposedbudget/documents/OVERVIEW.pdf

City of Seattle – Population & Demographics (web site). Accessed Feb. 14, 2014. http://www.seattle.gov/dpd/cityplanning/populationdemographics/default.htm

Margaret Sullivan. “The Times Is Working on Ways to Make Numbers-Based Stories Clearer for Readers”. New York Times, Public Editor’s Journal, October 18, 2013. http://publiceditor.blogs.nytimes.com/2013/10/18/the-times-is-working-on-ways-to-make-numbers-based-stories-clearer-for-readers/?ref=thepubliceditor

Lynn Thompson. “$1M price tag tied to paying Seattle city workers $15/hr”. Seattle Times, January 28, 2014. http://seattletimes.com/html/localnews/2022771198_15cityemployeesxml.html