Dueling studies

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You know the old saying, be careful of what you wish for, because you just may get it?

The Detroit Regional Chamber recently learned just how true that can be.

In March, the chamber released a study prepared for it by Lansing-based Public Sector Consultants, which predicted a broad range of negative fallout from implementing the living wage ordinance approved by more than 80 percent of Detroit voters in 1998.

The law mandates that businesses and nonprofits receiving $50,000 or more annually in city contracts or grants must pay workers a minimum of $8.35 an hour plus medical coverage – or $10.44 an hour if no medical coverage is provided.

The chamber study predicted that, among other things, the ordinance would cause affected firms to employ fewer low-skilled workers and shy away from seeking government contracts. The report also said the ordinance would result in millions of dollars in additional costs for the city.

David Reynolds, a professor at Wayne State University’s Labor Studies Center, says the report is flawed because it relied on "abstract economic models and general claims about how firms react to wage increases. Thus, the report is entirely theoretical."

Even in that respect, say critics, it was less than thorough. The chamber study made no mention of two studies looking at Baltimore, which was on the forefront in enacting a living wage ordinance, or research done in Los Angeles, another city that has instituted a living wage law.

Those studies and others criticize the rhetoric of opponents as overblown and unsubstantiated.

When University of California researchers evaluated a proposed San Francisco living wage ordinance, for instance, they concluded it would "generate a modest transfer from the city budget, city firms and external sources to the intended beneficiaries of the ordinance without posing harm to the overall economy or the city’s finances. Indeed, considerable net benefit to the city economy is likely."

According to Reynolds, "… no research has been able to find empirical evidence documenting the negative effects predicted by opponents in any of the 35 municipalities with active living wage ordinances."

Along with predicting a host of negative repercussions from the living wage proposal, the Detroit chamber study also called for "a much more comprehensive analysis … to develop detailed estimates of how many workers will be affected by the Detroit Living Wage ordinance, how many jobs may be lost, and what might be the overall effect on the income of city workers and residents."

Which is what Reynolds did.

In a report presented to the Detroit City Council last week, Reynolds contends the city’s living wage ordinance will have a minimal negative affect.

Using a methodology similar to that employed by economist Robert Pollin when he evaluated a proposed Los Angeles living wage ordinance in 1996, Reynolds looked at approximately 585 city of Detroit contracts with 352 employers to evaluate associated costs.

"Using conservative assumptions which likely overstate the actual costs, this study determined the maximum costs to city contractors to comply with the living wage ordinance would be about $6.9 million or 2.5 percent of the overall funds allocated to the contracted work," Reynolds reported. "Using a worst-case scenario and assuming that the ordinance would do nothing but raise costs, these costs still represent less than three-tenths of 1 percent of the city’s annual budget."

Moreover, concluded Reynolds, "the benefits of a living wage ordinance demonstrate a variety of ways the affected workers and their families, the covered firms, and the citizens and taxpayers of the city would gain. Given the large potential benefits from the ordinance and the rather small price tag, the living wage law appears to have a great deal of merit."

Not surprisingly, the chamber isn’t buying that conclusion.

Sebastian Wade, director of public policy and community affairs for the Detroit Regional Chamber, said the methodology developed by Pollin is biased to produce a pro-living wage outcome.

One problem he sees with the Reynolds study is that, with the ordinance only in effect since January, there has not been enough time to come to firm conclusions.

The Reynolds study, at least, uses hard numbers based on actual city contracts, as opposed to the chamber report, which relies primarily on an analysis of the impact of the minimum wage, itself an issue that is disputed among academics.

Would it be fair to say that the chamber study – which appears to include only information critical of the living wage while ignoring evidence of its benefits – is itself quite biased?

"No," insists Wade. "We stand by our study."

The issue is anything but academic, with the issue picking up steam at state and local levels.

Because the ordinance was approved by voters it cannot be changed for one year. After that, the City Council is free to amend or even abolish it.

On the state level, two bills have been introduced in the Legislature that would prohibit local governments from passing such ordinances. Senate Bill 731 (introduced by Sen. David Jaye, R-Washington Township) targets only living wage; House Bill 4777, covers a host of additional issues as well, limiting local governments’ ability to pass laws regarding everything from civil rights to consumer protections.

Wade says such legislation is badly needed.

"The way this is now evolving, it is becoming a statewide problem," he observes. "If there’s a conflicting maze of mandates, that’s not good for business."

The legislation isn’t being supported by Detroit Mayor Dennis Archer, says spokesperson Greg Bowens. However, the mayor is concerned about the impact living wage is having on nonprofit organizations.

"The mayor wants to minimize the impact on nonprofits," said Bowens, adding that his boss is "taking a lot of heat" from the chamber and prominent Republicans for "not saying we should abolish the ordinance altogether. But it’s been voted on by the people of Detroit. It’s the law."

Reynolds recognized the burden on some nonprofits and pointed out options, including empowering the City Council to "exempt nonprofits who demonstrate that the living wage requirements would cause unreasonable economic harm," or using tax dollars to supplement grants to nonprofits.

The second option didn’t do much to inspire Bowens, who pointed out that the city is already struggling to enforce the ordinance. Because the measure was approved without funding to police it, the city is "struggling" to make sure the law is being carried out.

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