The Effects of the Proposed Santa Fe Minimum Wage Increase

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On February 27, 2002, Santa Fe, New Mexico passed a “living wage” law that applied to most city employees and city contractors. Including Santa Fe there are now more than 90 living wage ordinances across the country, and at least 100 campaigns currently underway. Living wage advocates press for larger and more inclusive living wage laws requiring employers to pay according to the perceived needs of employees, rather than basing wages on skills. This movement has gained popular appeal despite the fact that living wages have been shown to be poorly- targeted and inefficient.

In the past year, the living wage movement has pressed for locally applied mandates in places such as New Orleans, Louisiana; Santa Monica, California; and now Santa Fe, New Mexico without regard to “contractor” status. The Santa Fe city council has proposed an ambitious “living wage” law that would apply to a large number of privately-owned businesses within the city limits.(1) The $8.50 wage mandate for private employers, if enacted will go into effect July 1, 2003, and will reach $10.50 by 2007. While only about 20 percent of businesses in Santa Fe would be affected by this law, these businesses employ nearly 80 percent of the city’s employees.

This report by economist Dr. David Macpherson from Florida State University reviews the Santa Fe living wage proposal as it applies to private employers. Using Current Population Survey data and labor demand estimates as reported by a consensus of economists, Dr. Macpherson’s research shows that the living wage will be an expensive mandate on the employers of Santa Fe.

This study concludes a citywide $10.50 minimum wage is inefficient and also detrimental to many of those it is intended to help. First, approximately 154 of the 2,700 affected employees would be expected to lose their jobs because of this ordinance. This translates to over 5% of affected employees or about one in every twenty employees. Second, the employees who lose their jobs will see a loss of $1.9 million, while employers will see their labor costs increase by $6.6 million after cutting back the workforce. Third, over one in every five dollars in wage increases will go to low-wage employees in families earning more than $40,000 a year. Fourth, over one in four of those affected by the minimum wage live with either their parents or another relative. Finally, fewer than one-fourth of affected beneficiaries are the sole supporter of a family with children, the often mentioned target of these wage increases.

The outlook for the low-wage workforce is of prime importance when considering this proposal. While families that benefit receive a boost in wages, many families will ultimately lose as a result of this mandate. Families who are eligible for means-tested benefits like food stamps will lose a substantial portion of their benefits, and may lose their eligibility altogether for certain programs. However, the worst outcome occurs for the family wage earners who see their hours cut back or lose their jobs and their incomes. Of the jobs estimated to be eliminated because of this mandate, over 54% are projected to be in families earning less than $25,000 a year, 66% are Hispanic and 53% never graduated from high school. Essentially, much of the increased income for the beneficiaries comes directly out of the pockets of those who lose their jobs.

After considering job loss, employers would have to pay an additional $2,500 per low-wage employee on average every year regardless of their skill, productivity or family situation. This wage hike poorly targets sole supporters of children; instead, three-fourths of the expected beneficiaries are either single adults, teenagers living with their parents, in a family without children or the second earner in a family with children. In lieu of passing a law that poorly targets families in need, causes job loss and discourages business investment, the city could consider an alternative program piggybacking on the federal Earned Income Tax Credit providing well-targeted assistance to single parents and other families based on their needs.

(1) The law would increase the minimum wage from $5.15 per hour to $8.50 per hour on July 1, 2003, to $9.50 in July 2005, and to $10.50 in July 2007. This increase would apply to any employer with 10 or more employees (or non-profit organization with more than 25 employees) whose minimum wage payroll would increase 65% this year to $8.50, and by a total of 104% in the next four years. Employees who receive at least $100 per month in tips would be required to receive a $5.50 hourly wage and would apply to individual employees however, no tipped workers were included in the final calculations.