Minimum wages, and other local measures

I’m going to conclude my spree of ballot-initiative opinions with those in the parts of California I and my friends live in most predominantly – Oakland and San Francisco. Most of these can be dealt with quickly, but the biggest issue, the minimum wage, is on the ballot in both cities, so I’ll bring those two together.

Measure FF, Oakland, and Proposition J, San Francisco: Yes. FF in Oakland would raise the minimum wage in the city from the current statewide $9 to $12.25 as of March 2015, and index it to inflation thereafter. J would bring SF’s wage to the same level in May 2015, but also raise it a dollar every year until it reaches $15 in 2018, and then inflation.

Even among people who support the minimum wage, there’s not always a proper appreciation of its full benefit. We sometimes fall to thinking of a high minimum wage as a luxury of a wealthy country, something that might have negative economic impacts but worth it for the moral stand of wanting people to not fall below a minimum standard of living. And that’s a perfectly valid moral stand: minimum wage is not a living wage, and as the price of housing goes up, conditions are becoming more and more immiserating and untenable for the lower-income, especially in the Bay Area. But I want to get across that a higher minimum wage is not even a sacrifice – it’s a benefit.

There’s an oversimplified economic logic people have internalized from decades of propaganda, that minimum wage is a price floor, and if that you increase prices over the market equilibrium, you necessarily decrease demand, which in this case means reducing the number of jobs available. That logic, though, relies on a whole raft of assumptions, and the most rigorous research has found over and over that higher minimum wages, all else being equal, have just about zero effect on employment*. There are many theorized factors behind these results, but I’d note a few in particular. Employers have an inherent social and institutional upper hand over employees – except perhaps for a subsection of highly-skilled people, it’s not a market relationship on equal terms – and so have the ability to collectively drive wages well below how much employees are worth to them. This helps them extract surplus from the business in the form of extra profits and upper-managerial salaries. (And all the evidence points to soaring executive salaries being unrelated to productivity or merit – another choice made for social and institutional reasons, not pure economics.) When the minimum wage rises, owners and executives can end up taking a haircut themselves, or making operations more efficient, or training workers so they’re more valuable, or passing a bit of the cost on in the form of prices. Also, employee turnover may go down, which is a benefit. Some combination of these factors is probably the story; in the end, there is little tradeoff to the benefits to low-wage workers.

There’s also an economic benefit to everyone from the minimum wage, not just more people being able to make a living. It’s the collective-action effect: if one company chose out of sheer benevolence to raise wages while all others didn’t, it would be putting itself at a disadvantage. But if all companies do it together under law, that puts money in the pockets of the working classes, which they spend through the same businesses. And therefore the economy grows more than otherwise. FDR put it eloquently in one of his addresses:

Throughout industry, the change from starvation wages and starvation employment to living wages and sustained employment can, in large part, be made by an industrial covenant to which all employers shall subscribe. It is greatly to their interest to do this because decent living, widely spread among our 125,000,000 people, eventually means the opening up to industry of the richest market which the world has known.  

…. No employer and no group of less than all employers in a single trade could do this alone and continue to live in business competition. But if all employers in each trade now band themselves faithfully in these modern guilds–without exception–and agree to act together and at once, none will be hurt and millions of workers, so long deprived of the right to earn their bread in the sweat of their labor, can raise their heads again. The challenge of this law is whether we can sink selfish interest and present a solid front against a common peril.

Let’s brush aside some other common objections:

  • Does a higher minimum wage disproportionately benefit teenagers who aren’t supporting a family? Nope – of those who would be affected by a raise from $7.25 to $10.10 nationwide, 88% would be 20 or older.
  • Should we increase the earned income tax credit (subsidies through the tax system that make wages worth more) in preference to the minimum wage, as some centrist Democrats like Christina Romer suggest? No – the minimum wage and the EITC work best together. If you just hike the EITC on its own, research suggests employers can end up capturing a good portion of the benefit. 

Finally, a high minimum wage was part and parcel of the American postwar boom. Accounting for inflation, through most of the sixties the federal minimum wage was between $8 and $10. and productivity has grown a great deal since then, so arguably something as high as $18 would be justifiable. A decent minimum wage didn’t grind the economy to a halt then, and it won’t now.

Measure FF also makes some compensation changes other than minimum wage: it adds a requirement for employers to provide sick leave. The City Attorney’s analysis in the guide is not being as informative as it could when it says “existing law does not require employers to provide paid sick leave to their employees”; actually, a state law passed this year does make sick leave a universal benefit for the first time, starting 2015, at the effective rate of about 3 days a year. FF would, however, raise the basic number of sick days above the statewide level, to 5 for small businesses and 9 for all others.

(I don’t need to defend sick leave, right? It’s a matter of basic dignity, it reduces the spread of disease, and it improves productivity by cutting down on presenteeism.)

California has already raised the minimum wage over the federal level, to $9 this year and to $10 in 2016. $10 might be near enough for Bakersfield, but it’s not enough for Oaklanders or San Franciscans – so vote yes on FF or J.

* That’s not to say that a minimum wage of any value would have no impact on jobs. This data is from our experience to date; if we made the wage extremely high like $25 or $30, it could start to be a net negative.

Measure BB, Alameda County: Yes. This raises the special transportation sales tax add-on in Alameda County from half a cent to one cent, and devotes the revenues to a diverse mix of important transportation repair and improvement: $2.7 billion over thirty years to buses, BART, and commuter rail; $3 billion for streets and highways; $964 million subsidizing transit for seniors, people with disabilities, and students; $651 million to bike and pedestrian projects; and $300 million to transit-oriented development and other projects to improve transit access. BB keeps our transportation system functional while steadily moving us in the direction of more mass transit and non-car modes, which we will be very grateful for over time. It builds two new suburban BART stations. The managing entity is the county transportation commission, which has representatives of various governments across the county, and can keep everything coordinated.

The main objection is that it’s a sales tax and therefore regressive (since the low-income spend more of their income on goods than the higher-income), but counties aren’t allowed to collect income tax, so they’re left with this. The benefits it provides are certainly quite progressive.

A very similar measure, B1, failed in 2012, because it needed 66.67% of the vote to pass, and it got 66.53%. Fortunately, the half-cent sales tax we already have doesn’t expire until 2022. Let’s get it right this time.

Measure N, Oakland: Yes. Parcel tax on real estate that would fund high schools in preparing and helping connect kids to college and jobs. Parcel taxes aren’t a great type of revenue source – same value no matter how much the real estate is worth – but there are exemptions for the low-income and seniors. And if ever any schools needed this kind of effort, it’s Oakland’s.

Measure Z, Oakland: Yes. Renewal of an existing parcel tax going to police, specifically antiviolence work and keeping up the number of officers. It also renews an 8.5% surcharge on parking rates.

(If you’re thinking “isn’t Measure Z about marijuana?” – that was Measure Z passed in 2004 and still in effect, such that one still hears about it. This is the renewal of Measure Y, which also passed in 2004; by coincidence the renewal got assigned the letter Z.)

Z supposedly requires a minimum staffing level for OPD, although I’m not sure how toothsome it really is: staffing dropped below the minimum level in Measure Y during its lifetime. It also ties the hands of the city financially in case of a crisis by prohibiting layoffs that would leave fewer than 800. OPD needs to be run much better – it’s still not even out from federal supervision from a court case more than 10 years ago – both in terms of being an effective organization and in acting like part of the city rather than an occupying force. But public safety is still a critical public good, staffing is far below any recommendation, and reducing existing funding is the opposite of what we need. We should pass Z and simultaneously press for more substantive improvement.

Measure CC, Oakland: Yes. This beefs up the staffing and power of the Public Ethics Commission, removing the $1,000 limit on fines it can impose, allowing commissioners to serve for six years instead of three, and guaranteeing a sufficient staff. It also reduces the number of commissioners appointed by the mayor, and gives the commission the power to fire the executive director. (The actual appointment of the executive director is the responsibility of the city administrator, which can create some appearance of impropriety, and that wouldn’t change under CC, but the ability to fire is an improvement.) It would make the commission have actual teeth, which is a basic good-government component. I am lukewarm about the ballot-box budgeting of requiring a staff of 6, but that’s a pretty small requirement compared to the city budget, and arguably having a reasonable staff is part of having an effective commission.

Measure DD, Oakland: Yes. Traditionally City Council boundaries have been drawn by the City Council itself, but it’s becoming more and more obvious today that redistricting is too gameable for politicians to be treated with it. For both state and federal legislative boundaries, California now uses an independent commission of non-politicians chosen from the general public, and it worked quite well. DD would create a similar commission to draw the city and school district’s boundaries for the next redistricting after the 2020 Census. Good idea, let’s do it.

(DD would not affect the boundaries determining which schools students attend.)

Measure EE, Oakland: Yes. There’s a legacy civil service retirement system, OMERS, which stopped taking new members in 1970. There are 22 people left alive drawing retirement under it, average age 91. EE would use some of its remaining money to buy annuities from an insurance company so that the beneficiaries keep getting their payments without any effort on the city’s part. OMERS is not in financial trouble; this just saves administrative costs. It’s also not a way to try to duck responsibilities: if the insurance company defaulted on its obligations, which is unlikely, the city would still be responsible for paying. I wish the city were able to make this kind of decision without having to go to the voters, but this is how things are.

Measure FF, Oakland: Yes – minimum wage, see above.

Proposition A, SF: Yes. $500 million in bonds for transportation projects: deferred maintenance on Muni, improvement to transit stations, more separated bike lanes, and other non-car-oriented street improvements. Worthwhile improvements, a lot of the infrastructure is nearing decrepitude, and it’s a good time to be investing in general.

Proposition B, SF: No. I am a big booster of public transit. I think car-oriented development is a trap that has worsened quality of life in a number of ways, and would not be very much put out if natural resource constraints forced us to mostly abandon freemoving motor vehicles (as is likely in my lifetime). I’d like spending on public transit to be treated not as a subsidy but as a necessity, the way road spending is currently treated. Even from this personal perspective, Prop B is a bad idea.

Currently, the SF Municipal Transportation Agency gets guaranteed funding from the city starting from a base amount and increasing over time along with the city’s discretionary revenues. B would require that the funding also go up in proportion to population, and would start by increasing the funding for the last 10 years of population growth. It does not secure any new revenue to fulfill this obligation. This is ballot-box budgeting of the worst kind. No matter how much revenue there actually is, no matter what SFMTA actually needs to maintain or improve service (new technologies?), no matter what other priorities transportation might need to be balanced against, it guarantees SFMTA this funding. And we cannot even reasonably expect revenue to consistently grow in step with population. This is a denial of the possibility of rational governance.

B appears to be a fallback measure from a failed attempt to actually raise the vehicle license fee for this purpose, which is going to be pursued once more in 2016; it could be turned off if such a fee raise is accomplished. But that’s not a decent excuse: there are many reasons that might not pass, and SF could then be stuck with this bad constitutional amendment indefinitely. We should be generous in spending on transit (voting in Prop A is one way to do it), but we must not create new unfunded obligations that are certain to make everything more complex and hard to handle down the road.

Proposition C, SF: No. This renews and marginally increases a complicated existing system of funding set-asides for education and various child/youth-related services, It doesn’t raise its own revenue, just requires portions of property tax and discretionary revenues to go to these programs, a little more than before. The effect is not quite as bad as B’s because it’s a mandatory allocation of money to the extent that it actually exists. It also slightly expands the range of policy purposes the money can be put to, and dedicates part of the city’s rainy-day fund as a school-specific rainy-day fund,

This is an extreme snooze, smelling strongly of interbureaucratic politics and feelgoodism. I think San Francisco is likely to be pretty progressive in how and where it dedicates education funding regardless of Rube Goldberg mechanisms like this tying its hands. Also, the amounts at stake are fairly small: currently, about $125 million compared to over $4 billion in total annual revenues (see the CAFR). It would not affect much if you vote yes, but voting no would send a signal about how compelling to the public ballot measures need to be, seeing how paltry and goofy the opposition is. (Bless your heart, libertarians.)

Proposition D, SF: Yes. This is a fairness issue – about 50 city employees had their agency unexpectedly shuttered due to a state budget decision, and have now been or will soon be rehired with other funds, but because of the way the decision works, they won’t get retiree health benefits counting their full term of service in the way that other city employees do. It will cost about $75,000 per employee, or $3.75 million, over some decades, which is minimal. Even if you aren’t sure the city should be paying for retiree health, and maybe prefer to kick it to Medicare, any change to the current system should treat city employees the same, not exploiting a glitch.

However, I’d observe that if the city didn’t have this habit of sticking everything they think is important in the Charter, making it untouchable by the Board of Supervisors, we wouldn’t have to put a simple fix like this on the ballot.

Proposition E, SF: Yes. A two-cent-per-ounce tax on sugar-sweetened beverages, meaning $0.24 a can, or $0.68 a liter. A small change that reflects an important realization we’re collectively coming to: taxes work better than “awareness”. Taken as a mass, people tend to do more or less what they feel like and can afford doing, unless you apply constraints, and taxes are a relatively efficient way to tamp down on activities in proportion to how much harm they cause, without going overboard with prohibitions. Cigarette taxes are the primary reason smoking has diminished so much; fining water overuse reduces it sharply; a carbon tax will do leagues more than voluntary efforts. A tax on sugar-sweetened drinks is the next logical step. Yes, there are a lot of other unhealthy things to eat and drink, but sugary beverages are a soft target, with little nutrition other than sugar, and seem to be related to a good chunk of the problem at least. Also, the extent people want to drink them is boosted by ubiquitous advertising and packaging strategies. Start out with this, and some good will be done, some revenues will come in to fund health and exercise programs, and most importantly, information on the efficacy of this measure can be collected, which could lead to better-designed price-based programs, or other helpful measures like eliminating sugar/corn subsidies nationwide.

Despite it being regressive on paper, it should not have a significant impact on the low-income as they can switch to untaxed beverages; this is a tax to modify behavior, not primarily to raise revenue. The overall impact would also be small on any individual; according to the National Health and Nutrition and Examination Survey, 2005-2008, the average man had 178 calories from sugar drinks per day, and the average woman 103. For ballpark figures, if we average this to 140, then double it to 280 since only 50% of the population actually drinks sugar drinks, that’s twice the calories in a twelve-ounce can of Coke, so the tax would average about 50 cents a day and $15 a month for the average drinker. And assuming that average is pulled up by heavy drinkers, a lot less for the median drinker. About enough to start modifying behavior somewhat, but definitely not punishing. The beverage companies are pouring money into opposing E because they know it’s the beginning of the end of their free ride.

Proposition F, SF: Yes. The city needs more density and more housing units to be affordable, pure and simple; height limits lock in benefits for lucky property owners, who can then clean up without spending a buck. Height limits don’t even make sense aesthetically; people know SF is a dense city. Voters shortsightedly imposed yet another height limit in June; now there’s what appears to be a more acceptable-to-everyone project, but it still needs a vote to raise height limits to 90 feet in the area. Do it already.

Proposition G, SF: Yes. This would impose an extra transfer tax on real estate for people who resell it within 5 years of purchase, with the tax starting at 24% of total value for flipping in under one year, and graduating down to 14% for between 4 and 5 years. We know that the housing market is not rational: in bubbles, frenzies of buying and selling work in a vicious cycle, as people get excited, bid high, then the rising prices excite more people… until it all collapses into misery. A tax on flippers makes sense as an attempt to counteract irrational exuberance and make it a better business proposition to invest in a property and think about the long term. One valid concern is that it does not exempt people who need to raise money quickly for medical emergencies or other exigent circumstances, but people in that position are likely to be owner-occupiers, who are exempted, and such an exemption would probably be abusable anyway. It’s also a bit odd that 30-unit-plus buildings are exempted (influence of big business?), but otherwise, it makes reasonable exemptions, like for people selling property they inherited.

Of course it will not make housing affordable by itself; we still have the fundamentals of not enough housing and lots of rich people (many of them not speculators) here to buy. It might do more to smooth out the boom-and-bust cycle than it does for actual affordability. We need to do more and build more, but G can be part of a solution, and is worth a shot.

Propositions H and I, SF: No and no. Turf and lighting? San Francisco, be ashamed of yourself. Work this kind of shit out through public input and Board votes and don’t clutter up the ballot with it.

(If you’re wondering the likely impact of rejecting both these measures, it’s that a few soccer fields at the far western end of Golden Gate Park will get artificial turf and be lit until 10 to allow for more use. Oh, the horror. But don’t vote for Prop I if you want to specifically support that plan either; it’s a bad counter to H that would tie yet more knots in the city planning process.)

Proposition J, SF: Yes – minimum wage, see above.

Proposition K, SF: Yes. No actual impact, but a general policy statement that more housing, including affordable housing, should be built or rehabilitated.

Proposition L, SF: No. Also no actual impact, just a policy statement, but a very bad one, basically saying that motorists should be favored above all other SF residents. Freeze in parking rates, free weekend and evening parking, no demand-responsive pricing, and more publicly funded parking garages. Cars have a lot of externalities; SF is slowly promoting other coequal transportation options as part of becoming a more functional, affordable, and clean city, so fixing in place the subsidies motorists have historically gotten (especially providing, far below market rates, large amounts of otherwise-valuable city space for parking) is exactly the wrong way to go.

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