A $15 Minimum Wage Is A Booby Prize For American Workers


In principle, there is solid moral ground for the recent drive to boost the minimum wage to $15, with California and New York State taking dramatic steps Monday toward that goal. Low-wage workers have been losing ground for decades, as stagnant incomes have been eroded by higher living costs.

This has been particularly tragic for workers in high-priced cities like San Francisco, Seattle, Los Angeles and New York, where the movement has achieved irresistible momentum. If the Democrats manage to win a sweeping victory in the fall, the $15 minimum could also be imposed nationwide, with huge impacts on “laggard” regions like the South.

Yet if the campaign to boost the minimum wage reflects progressive ideals, the underlying rationale also exposes the failure of these high-priced cities to serve as launching pads for upward mobility for the vast majority of their residents. In effect, the fight for $15 is a by-product of giving up – capitulating on the idea that better opportunities can be created than the menial service jobs that increasingly are the only opportunities for the urban poor. Higher wages will make these jobs moderately more tolerable, while further cementing the wide gulf between the haves and have knots.

It is not a coincidence that inequality — the issue most closely tied to the minimum wage drive — is consistently worst in larger, denser, deep blue cities such as New York, Los Angeles, San Francisco. Manhattan, the densest and most influential urban area in North America, exhibits the most profound level of inequality and bifurcated class structure in the United States. If it were a country, New York City would rank 15th worst out of 134 nations, according to James Parrott of the Fiscal Policy Institute, landing between Chile and Honduras.

New York, San Francisco, L.A. and Seattle are at the forefront of a new urban economy, based on industries such as finance, technology and media, that generally creates jobs for the highly educated only. Virtually every region at the cutting edge of the minimum wage movement has seen a rapid decline in traditional blue-collar jobs — notably in manufacturing — which often paid well above the minimum wage, and offered potential for further individual advancement.

In these and other core cities, we are seeing something reminiscent of the Victorian era, where a larger proportion of workers are earning their living serving the wealthy and their needs as nannies, restaurant workers, dog-walkers and the like. In New York City, as of 2012, over a third of workers were employed in low-wage service jobs, a percentage that rose through the recovery from the Great Recession, according to a study by the Center for an Urban Future. The largest growth in new jobs in NYC between 2009 and 2014 came primarily in low-wage fields. Of the 401,800 net jobs the city gained over that span, 76,400 were in food services and drinking establishments, with an average annual wage of $26,200. The sector that added the second largest number of jobs: ambulatory health care, at 55,400, with an average wage of $46,200. Meanwhile at the high-wage end of the spectrum, Wall Street employment was flat, and the glitzy fields of information services and movies and sound recording added 26,000 jobs.

Given shrinking opportunities for middle and working class people, it’s not surprising that many seek a more direct redress from the government. If the odds of working your way up are limited, and a working-class job cannot pay for your basic necessities, people have to resort to political solutions, much as occurred in the early decades of the last century. If you have been relegated to the expanding precariat –those essentially living check to check — raising the wage floor might seem very appealing.

Essentially the minimum wage campaign rests on the notion that traditional middle class uplift cannot be achieved. The problem is, a $15 an hour income represents hardly enough to pay the rent for a small apartment anywhere near the blue cities where the new minimum will hit first. It does allow, however, a way of allowing the dominant wealthy wings of the Democratic Party — financial, real estate, media and tech interests — to hand out a convenient sop to their erstwhile labor allies.

In some places, the hike may not have an immediate discernible economic impact. Higher wages and prices can likely be absorbed in high-cost areas with lots of wealth, such as Seattle, Manhattan and San Francisco. Some recent research shows that Seattle, which was the first big city to pass a wide-scale, phased in increase, with some wages now hitting $13 an hour, has seen slower growth in restaurant employment than its periphery. However, its economy has hardly collapsed.

The impacts may be less positive in places like the Bronx and ungentrified Brooklyn. It is in these areas where the likely shrinking of lower-wage opportunities in response to higher salaries may be felt the strongest; the flow of jobs that can move to lower-wage states will likely accelerate.

The  impact in California will, if anything be larger, as the wage hike will be imposed in a wider fashion on a hugely diverse state. Some 25 percent of workers would get a raise through the kindness of Sacramento. By 2022, by some estimates, the California minimum wage would represent 69 percent of the median hourly wage in the state, assuming 2.2 percent annual growth from the current median of roughly $19 per hour. This compares with a current federal minimum that is 38 percent of the median. Economic modeling suggests the precipitous rise on such a mass scale will slow the state’s employment growth, particularly at the lower end.

To be sure, higher wages could be a blip in wealthy and thoroughly de-industrialized places like San Francisco – if higher labor costs boost the price of beet-filled ravioli, it doesn’t undermine the market in a place where hipsters and elite workers still have dollars to spend. But it could mean the loss of employment in the lower ends of construction, manufacturing and logistics, and a broader impact in the state’s interior and more heavily minority cities, where much of the state’s poverty is concentrated. The $15 dollar minimum represents only 40 percent of median wages in San Jose/Silicon Valley and 44 percent in San Francisco, but 61 percent for Los Angeles and 74 percent in Fresno.

Ultimately local workers in poorer areas may see higher wages, but less opportunity. One possible harbinger may be the decision by Wal-Mart to leave Oakland.

Who Wins: Reviving the Blue Model

Of course, not all jobs can be moved — but they can be automated. This is already occurring in parts of the restaurant industry, where chains have been introducing touch screen devices to take orders in lieu of waiters and waitresses. The mass automation of industries such as fast food will accelerate, eliminating all but necessary jobs. Some of this would occur naturally; it’s interesting that some of the most cutting-edge developments in the low-labor content restaurant model have occurred in high cost, progressive San Francisco, where the new restaurant Eatsa has almost entirely automated service, and the startup Momentum Machines is developing a mechanized system to cook and assemble burgers, and other meals. Those who will find their way to a new minimum will sing its praises, and rightly so, but many others –notably entry level workers and teenagers — may find themselves forced out of the labor market, or joining the growing ranks of contingent workers.

Perhaps the greatest beneficiaries of the minimum wage hike will not be the bulk of lower wage workers in blue states, but the people who increasingly dominate their economies. For one thing, a higher minimum removes the stigma of extreme inequality that gives a bad reputation to an economic system that has little need for broad categories of workers. They can feel better about themselves, and avoid the kind of redistribution promised by the likes of Bernie Sanders.

And as the American Interest recently predicted, those most likely to benefit down the line from the higher wages will be the tech companies that will come up with the software and automated systems that replace the service jobs now made less economically competitive by the wage hikes. It’s not a loony fringe concept: the President’s Council of Economic Advisers recently estimated that lower-wage service jobs have an 80% probability of being automated.

So in the end, a $15 minimum wage, set in the low growth economy of our times, may end up boosting the very class-based hierarchies that are already increasingly evident. Ultimately it may represent a case of a well-intentioned measure that, while sounding radical, only accelerates our road back to feudalism: a society dominated by the few where many depend on the generosity of their betters and the middle class, already shrinking, fades into the dustbin of history.

This piece originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Unemployed woman photo by BigStockPhoto.com.