COMMENTARY | COLUMNISTS | SEAN KARAFIN

Minimum-wage increase doesn’t address poverty

The San Diego County Taxpayers Association and the San Diego Regional Chamber of Commerce released a joint study last week detailing the issues businesses and our local economy would face if a proposal before the San Diego City Council — which would raise the minimum wage by 64 percent — is approved.

Entitled “Minimum Wage and Poverty in San Diego,” the study is based on interviews with local small businesses and research on minimum wage and poverty.

Poverty is the real issue

Proponents of increasing the minimum wage argue that “nobody working full-time should be living in poverty.” We agree. But that is not good enough. No San Diegan should be living in poverty.

First, we have to agree on our goals and decide how we are going to measure them. If we don’t do that now, we will argue about whether or not the goals were successful later. Then we need to formulate clear strategies for actually reducing poverty.

As a region, we have identified ending homelessness as an achievable objective. Further, we have proven that housing the chronically homeless can save taxpayer dollars. So now we need to find funding to maintain and expand Project 25, which helps the homeless get off the streets. Project 25 is a pilot program that will end without further funding.

We should also explore the idea of creating a state-level Earned Income Tax Credit that would ease tax burdens for impoverished workers. This type of tax credit encourages work and is proven to reduce poverty, especially among children. Every cent reaches families living in poverty – making it an efficient tool for addressing the issue.

Minimum wage to rise in July

Raising the minimum wage is another approach we are taking. Beginning in July, the minimum wage in California will increase 12.5 percent. By 2016, it will have risen 25 percent over current levels. Increasing the minimum wage also increases business expenses linked to wages, such as payroll taxes and workers’ compensation.

While raising the minimum wage is part of our multipronged approach to reducing poverty, we should move forward cautiously. Many small businesses have expressed legitimate concerns about having to raise prices, cut hours, lay off workers and drop benefits. Further, many economists worry about higher unemployment.

The current proposal before the San Diego City Council — which a council committee is considering Wednesday — would increase the minimum wage by 64 percent over three years. The truth is, none of us knows exactly what the economic consequences would be if the minimum wage jumps from $8 to $13.09 during such a short time. Economists are split on the net impacts of minimum-wage increases in general, and the most similar examples in other cities are not similar at all.

In San Francisco, for example, the minimum wage slowly grew to $10.74. In San Diego, we are already committed to a $10 minimum wage by 2016.

Seattle’s City Council recently increased the minimum wage to $15 per hour by 2021. This will provide valuable information about how a city reacts to dramatic minimum-wage increases, but it will take time to see how Seattle is affected.

Similarly, our statewide increases in July and in January 2016 will provide insight into how today’s San Diego regional economy will react.

It would not be prudent to force local minimum-wage increases on businesses without first understanding the impacts of the statewide increases.

Back to poverty reduction

As a poverty-reduction measure, increasing the minimum wage is not effective because most low-wage workers are not living in poverty. A recent study estimated that fewer than three in 10 low-wage workers in San Diego actually live in poverty.

One national study estimated that the average annual income for households with minimum wage earners is more than $53,000. In other words, only a fraction of increased wages actually makes it to families living in poverty.

If increasing the minimum wage is the cornerstone of our efforts, our success at alleviating poverty will be limited at best. Not only is it inefficient, but it also does not address the issue at the heart of stagnating wages: skills.

Wages are flat because our education system is not built to prepare us for a technology-driven global economy. One study estimates that the U.S. economy has lost 2 million clerical jobs from automation since 2007 alone.

Another study estimates that about 47 percent of U.S. jobs are at risk of being replaced by computerization over the next two decades. Self-checkout stands at grocery stores are essentially competing for even lower-wage jobs.

Many businesses also now face competition from across the globe in many places where regulations are limited and labor is cheap.

Education and workforce development provide the best opportunities for adapting to our changing global economy. If we really want to tackle poverty, we need to prepare our workforce for the higher-skilled, middle-class jobs our economy can realistically sustain.


Karafin is interim president and CEO of the San Diego County Taxpayers Association. Sanders is president and CEO of the San Diego Regional Chamber of Commerce.

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