Aaron Yelowitz and Jeannette Wicks-Lim presented differing assessments of the proposed Louisville Metro minimum-wage ordinance, O-470-14. Their testimony addressed evidence from Santa Fe and other local minimum-wage laws, potential employment and earnings effects, business and consumer responses near city boundaries, cost-of-living differences, and the limits of causal inference from observational data. Council members then questioned the witnesses.
Participants
- David Tandy: Chair, Louisville Metro Council Labor & Economic Development Committee
- Aaron Yelowitz: Associate Professor of Economics, University of Kentucky; invited witness
- Jeannette Wicks-Lim: Assistant Research Professor, Political Economy Research Institute, University of Massachusetts Amherst; invited witness
- Jim King: President, Louisville Metro Council
- Marilyn Parker: Louisville Metro Council member
- Additional council and staff voices: Not reliably distinguishable throughout the supplied transcript
Authored written testimony and responses
These authored documents are separate from the generated transcript of the recording below.
Official record
The official action summary identifies Kathy Donahue and Aaron Yelowitz as speaking against the ordinance and Congressman John Yarmuth and Jeannette Wicks-Lim as speaking in favor. The supplied media asset begins with the introduction of Yelowitz and Wicks-Lim and does not contain the other two presentations.
Related research
- Aaron S. Yelowitz, Santa Fe's Living Wage Ordinance and the Labor Market, Employment Policies Institute, September 2005.
- Aaron Yelowitz, How Did the $8.50 Citywide Minimum Wage Affect the Santa Fe Labor Market? A Comprehensive Examination, Employment Policies Institute, December 2005.
Generated spoken-word transcript
00:00:00 — David Tandy: And we can see her there. Look, we are a 21st-century council. Let the record show. All right, so there we go.
Professor Yelowitz, if you wouldn't mind introducing yourself formally for us for the record and then, like I said, giving us a brief overview. What we brought you here for, as well as Professor Wicks-Lim, is to give us an understanding. Everybody is talking about Santa Fe, New Mexico. You've done extensive research on it, as has Professor Wicks-Lim. So, if you wouldn't mind, from your respective positions, give us your thoughts on Santa Fe and its increase in the minimum wage.
00:00:45 — Aaron Yelowitz: Thank you very much. It's my pleasure to speak to the Louisville City Council today, and I'm grateful you've given me this opportunity to share my thoughts on the proposed minimum-wage ordinance.
I thought I'd start by briefly telling you a little bit about myself. My name is Aaron Yelowitz, and I'm an associate professor in the Department of Economics at the Gatton College of Business at the University of Kentucky. I also have a joint appointment in UK's policy school, the Martin School of Public Policy, and serve as an adjunct scholar at the Cato Institute. I am also the director of graduate studies for the Ph.D. program in economics at UK and have guided the professional growth of many students over the last 13 years that I've lived in the Commonwealth.
I have a great affinity for Louisville and a great concern for the Commonwealth. I got married just down the street here at a bed-and-breakfast on Fourth Street, and my in-laws live a few blocks away from here. My three kids were all born in Lexington, and my wife, Beth, is a native Kentuckian.
Before coming to Kentucky in 2001, I worked as an assistant professor at UCLA. Before that, I received my Ph.D. in economics from MIT in 1994. My work on minimum wages goes back more than a decade, and in particular I have focused on the impact of citywide minimum wages, like what we're considering today. I testified as an expert witness on the minimum-wage ordinance in Santa Fe. I've also published peer-reviewed papers and policy-oriented papers on minimum wages. I've served as a referee in the peer-review process on these kinds of issues in academic journals, and I come at them through the lens of an economist, not an advocate.
My assessment of Louisville's minimum-wage ordinance relies deeply on my own academic research. I've studied how citywide minimum wages have played out in both Santa Fe and San Francisco. I've also studied the effects of statewide minimum wages in Kentucky and Missouri.
Based on my work, there are a number of issues I'd like to discuss today. First, citywide minimum wages are fundamentally different from federal or statewide minimum wages because of the ability of businesses to move across city borders. Second, there is consistent and compelling evidence that raising the citywide minimum wage increases unemployment and harms the labor market. Third, the concerns about businesses relocating and unemployment rising are amplified in Louisville. Finally, if your goal is really to improve the lives of working families, a citywide minimum wage doesn't solve that problem.
Now I'll go into these points in more detail. First, it is extremely uncommon for cities to enact minimum wages. When I originally studied this issue in 2004, the only cities with minimum wages were Santa Fe, San Francisco, and Washington, D.C. March forward 10 years, and you can add Seattle to the list, along with a handful of other localities in California, New Mexico, and around D.C. Voters have explicitly rejected minimum-wage ordinances at times.
Why are citywide minimum wages uncommon? The answer is that some businesses can escape the minimum wage by moving outside city lines. In Santa Fe, for example, a business at the center of the city could have relocated less than four miles away to avoid the ordinance, at least at the time I was studying it. Even if businesses don't relocate, customers do by shopping elsewhere. In Santa Fe, less than half the residents in the metro area live in the city proper.
If people can do their shopping outside city lines, it restricts the ability of businesses to pass along the higher labor costs of the minimum wage through higher consumer prices. In turn, that means businesses adjust in other ways—like cutting hours, laying off workers, or not hiring when someone leaves—in order to maintain their bottom line. Citywide minimum wages put those businesses operating within city limits at a competitive disadvantage compared with businesses outside city lines that don't have to play by the same rules.
Second, the evidence shows these labor-market effects are substantively important. Dr. Robert Pollin of the University of Massachusetts has stated about citywide minimum wages that, quote, “A rise in unemployment or business flight from the city would obviously be unintended and undesirable consequences of passing such a measure into law,” unquote.
My work convincingly illustrates these negative labor-market consequences. In my September 2005 study for the Employment Policies Institute, I found that Santa Fe's ordinance, which increased the minimum wage from $5.15 to $8.50 per hour, was responsible for a 3.2-percentage-point increase in the city's unemployment rate. The adverse effects were extremely large and entirely concentrated among those with a high school education or less. Among this group, usual hours of work fell by three and a half hours per week—an important reduction in full-time-equivalent employment.
Third, this research suggests these labor-market effects would ultimately be more dramatic in Louisville. Although the proposed minimum-wage hike from $7.25 to ultimately $10.10 per hour—a 39 percent increase—is less than Santa Fe's increase was, Louisville has three key disadvantages.
First, Louisville is fairly small in geography, and therefore the ability of customers to shop elsewhere is more pronounced. Shopping around makes it difficult for businesses to raise their prices. Thus, the main avenue of adjustment will be through the labor market rather than consumer prices.
Second, the cost of living in Louisville is much different from these other cities. Hiking the minimum wage in San Francisco to $10.74 per hour isn't that traumatic because the cost of living is so high. Hiking it to $10.10 per hour in Louisville has a real impact on a business's operating costs, however.
Finally, San Francisco, Seattle, and Santa Fe all have citywide minimum wages in states where the surrounding areas have higher minimum wages too. In contrast, the rest of Kentucky, as well as Indiana, had the federal minimum wage of $7.25 per hour.
The final issue to consider is whether minimum wages improve the lives of working families. The answer is no. In an analysis of Kentucky, I found two important things that matter for today's discussion. First, just 12 percent of low earners are single earners with children. The largest group, 28 percent, live with parents or relatives. Second, poverty among the working poor is really about hours of work, not wages. Full-time, full-year work leads to greater reductions in poverty than raising the minimum wage. It's about hours; it's not about wages.
In summary, I've carefully evaluated the evidence, and based on this evidence, enacting a minimum wage in Louisville will do more harm than good. Thank you for listening, and I look forward to your questions.
00:07:30 — David Tandy: All right. Thank you, Professor. Professor Wicks-Lim?
00:07:33 — Jeannette Wicks-Lim: Thank you.
00:07:37 — David Tandy: She has a five-second delay. Professor Wicks-Lim? Yes. Okay. All right. So, if you wouldn't mind, go ahead and proceed with your presentation.
00:07:56 — David Tandy: If you wouldn't mind, go ahead and proceed with your presentation.
00:08:02 — Jeannette Wicks-Lim: Sure. I also want to introduce myself. I am an assistant research professor at the University of Massachusetts in the Department of Economics. I've been studying labor laws for more than 10 years now, studying the impact of [unclear] laws across the country. I was asked to come [unclear].
00:08:39 — Jeannette Wicks-Lim: [Regarding the study] that my colleague Robert Pollin mentioned, I actually reviewed it years ago when it first came out. First, I want to raise the issue of the negative effect on employment that Professor Pollin raised. I'm sorry, I seem a little distracted.
00:09:06 — Unidentified council speaker: Can you put your live stream on mute? Yes, perfect, because we can hear all the feedback.
00:09:19 — Jeannette Wicks-Lim: I have to assume that this is going well because I can't hear anything you're saying now. So let me proceed unless the chair lets me know that I shouldn't.
Let me back up a little bit. I'm sorry I was distracted. A few things I want to say about the Santa Fe case, because I think it has been raised over and over again in the discussions around Louisville's proposal, are key ways the Santa Fe minimum wage differs from what Louisville is considering.
First is the issue of what kinds of businesses will likely relocate. I just want to point out that the situation in Santa Fe is quite different from Louisville. If you look at the size of Santa Fe relative to Louisville, Santa Fe is one-tenth the size of Louisville when you're looking at area. So you're actually talking about a very small city embedded within a larger economy, relative to the situation that exists in Louisville.
Another feature that existed with the Santa Fe minimum-wage law is that there was a small-business clause. That is, small businesses with 25—I think it was 25—employees or fewer were exempt. There was some concern about whether businesses right above or right below that threshold would then be on an unfair playing field, and whether that would cause a problem with the larger-sized businesses not being able to compete well. That doesn't seem to exist, from what I understand, in the Louisville proposal.
Finally, the minimum-wage hike that was considered in Santa Fe and then adopted was a 65 percent minimum-wage hike from what existed. It went from $5.15 to $8.50, a 65 percent increase in the minimum-wage floor, whereas what Louisville is considering is a 40 percent minimum-wage increase, so it's substantially smaller.
First, on the evidence of a negative employment effect in Santa Fe that Professor Yelowitz talks about, I think what is really important to understand is that there are different ways to measure the employment impact, or what's happening in the employment picture. For any of you who follow the unemployment statistics announced by the Bureau of Labor Statistics every month, whether the unemployment rate has gone up or down doesn't tell us the full picture about whether the economy is doing well or poorly. It has to do with whether more jobs are being created or whether more workers are joining the workforce.
What you can find is that when the job opportunities are the same, but people are entering the labor force in greater numbers, you can actually have the unemployment rate go up. The reason is that more people are feeling confident about their prospects in the labor market. They join the labor force, and the unemployment rate will go up because of that. But that isn't a sign that the economy is doing poorly; it's actually a sign that the economy is doing well.
I talk about that because, in the instance of Professor Yelowitz's study, what he found was an increase in the unemployment rate, but he found no change in the employment-to-population ratio. What that means is that the number of jobs available for people of working age had not changed. Job opportunities had not changed. What did happen—and he measures and reports this in his research—is that the number of people seeking jobs, the labor force, had actually gone up. The labor-force-participation rate had gone up, and that accounts fully for the rise in the unemployment rate.
In that situation, I think a more plausible story, rather than that employment opportunities had fallen, was that people were seeing their employment prospects as improving and therefore more people were joining the labor force. The unemployment rate therefore went up even while the employment opportunities per person of working age—the employment-to-population ratio—remained unchanged as far as we could observe in the data.
I just wanted to make sure that was clear in his findings. Yes, he found a higher unemployment rate after the Santa Fe minimum wage passed, but that was a reflection of a higher labor-force-participation rate, not because employment opportunities had fallen away.
Another issue that is brought up is the question about the impact on workers' hours, because there is this question of whether employers may cut back on workers' hours and whether that is a sign of a negative employment effect. If you take the statistic or finding that Professor Yelowitz reports, he finds about a three-hour decline in workers' hours. But if you put that into the context that the number of jobs available had not gone down, then the workers who had jobs may have seen a decline in their hours. Whether that's a net gain or a net loss really depends on what their overall earnings look like.
What Professor Pollin and I did, back when we reviewed Professor Yelowitz's work, was to estimate, based on what the average wages were in Santa Fe, the hours lost, and the raises that workers would be expected to get, whether their earnings would have risen on net despite having a few fewer hours per week. In fact, they did. They saw a 10 percent increase in their earnings even while assuming that they lost a few hours per week.
Finally, there is some discussion that I didn't hear him bring up but that I think is important because somebody raised the issue of youth workers. I know there is some concern that workers who have jobs now may be substituted out and replaced by other workers, and what the impact will be for workers who lose their jobs. The most important point I want to make—and I realize I'm probably running out of time—is, first of all, that the opportunities per working-age person have not fallen away. Job opportunities were not fewer after the Santa Fe minimum wage was passed compared with before. That has not changed.
There may be some adjustments that employers make on the margins, which is to say perhaps there are some reductions in hours. But on net it still appears to be a gain for workers, because they are working fewer hours but still earning more. There might be some adjustment in terms of workers who would be substituted in because employers may be looking for higher-skilled workers. But again, I'm running out of time. I just want to mention that I looked at the magnitudes of those estimates, and it is really quite a small amount. Based on the numbers Professor Yelowitz has reported and what I can gather from the Louisville labor force, perhaps one in 10 affected workers—workers who would receive a raise from the minimum-wage hike—might be affected by this kind of substitution.
00:16:26 — Jeannette Wicks-Lim: Thank you, and thank you for inviting me. I hope the technology worked and you were able to hear my statement.
00:16:35 — David Tandy: All right. Thank you. Do you have any questions, Mr. President?
00:16:45 — Jim King: Thank you. I guess just kind of on a global basis, I wonder if you could comment on what you heard from Dr. Wicks-Lim, if you had any thoughts on that. Then I have another question for you.
00:17:00 — Aaron Yelowitz: Absolutely. First off, Jeannette, it's nice to meet you, at least by Skype. I don't know that I've met you in person, but nice to meet you.
I don't know that there's all that much to refute. I agree with a lot of what Jeannette said. We can go through it in turn, and I took some notes, so if I could, for just a moment, go point by point through some of those things. Is that okay?
Jim King: Quickly.
Aaron Yelowitz: Okay. The first thing is, with respect to size, Santa Fe is a small city within a vast county. I'm not sure I would consider Louisville not to be very close to its neighbors; I actually would very much disagree with that.
Jeannette brings up an excellent point about the fact that Santa Fe's law is quite different from Louisville's with respect to the targeting by firm size. What that means, among other things, is that if you're a firm with 24 employees in Santa Fe, imagine you wanted to hire the 25th employee. How much does that actually cost you? Imagine they were all low-wage employees, earning at the time $5.15 per hour and working full time, full year—so 2,000 hours per year. Basically, you'd have to raise each of their wages by $3.35 times 2,000 hours, plus the last employee you hire as well. On my calculator, that seemed like it was about $160,000 or so.
Santa Fe created various cliffs that Louisville, at least thankfully, is not considering here, from what I can tell. Santa Fe recognized that a few years later. They actually undid that part of their law, and I think it was probably some kind of recognition that there was real harm in the labor market.
Another thing Santa Fe did was scale back the ambitiousness of the minimum-wage ordinance. When I was testifying, the plan was to go from $8.50 to $9.50 to $10.50. So $9.50 happened in 2006. $10.50 was about to happen in 2008. We can remember 2008; it was not a wonderful time for the economy. They slowed it down. I believe it's around $10.66 now. What they did was take the $9.50 and scale it up with inflation. Had it kept going the way it was supposed to, it would have been perhaps a dollar higher than it was then.
At least part of the reason why things look different now in Santa Fe than perhaps they did back when I was looking at the real short-term impacts is that they slowed it down quite a bit. I know I've gone on too long, so let me stop there. I'll get to that other stuff.
00:19:31 — Jim King: That's fine. Just one other question, if I could. You made a comment about Louisville's cost of living being much lower than other areas to which you've been comparing us. Congressman Yarmuth talked about $10.10 being somewhat of a symbolic rate. Did you hear me okay on that?
Aaron Yelowitz: Yes, I did.
Jim King: I wondered if you had a thought on what the equivalent rate would be for Louisville if it's not $10.10. Is there another rate in mind? Have you thought about that?
00:20:03 — Aaron Yelowitz: I haven't given it much thought. What I was mostly thinking about was Louisville's citywide minimum wage and how that is similar to or different from Santa Fe and a handful of other cities where we now have some experience with these minimum wages. The other ones are basically Washington, D.C., and San Francisco, and then Seattle is so recent that I think it's pretty hard to make any assessment. At least from the times I've been in D.C.—and my parents live close to San Francisco—those are worlds apart in terms of cost of living. But no, I have not really done that comparison.
00:20:35 — Jim King: If you haven't, you haven't. Your focus is on cities, and you're aware, I think—at least my records show—that something like another 20 or 24 states have their own minimum wage, and those look to me to be in the $8.00-to-$8.25 range. Have you given any thought to that in terms of Louisville's thought process here?
00:20:53 — Aaron Yelowitz: Louisville is kind of unique in some sense. Louisville, of course, is a city, and we have to worry—well, it's unique in that unless you're going to get Mike Pence also to agree to raising Indiana's minimum wage, then one concern would be about the fact that, even if Kentucky as a Commonwealth decided to raise its minimum wage, we still perhaps have counties to the south and east where businesses wouldn't then migrate. We still have to worry about them going over the bridge and things like that. It would be a smaller issue, for sure, but the relocation issue would still be there for both Louisville and Northern Kentucky. It wouldn't be there for Lexington, of course.
00:21:31 — Jim King: My understanding is Ohio has its own minimum wage. It's $7.95 an hour.
00:21:36 — Aaron Yelowitz: Okay. I haven't looked that up, but I'm sure you're right. Yes.
00:21:39 — Jim King: Okay. Thank you, Mr. Chair.
00:21:41 — David Tandy: All right. Thank you. With regard to those—well, actually, Professor Wicks-Lim, did you want to? The question that was posed was: the cost of living here in Jefferson County is different from other parts of the country. I don't know if you've had any opportunity to think about what an increase in the minimum wage would look like for Jefferson County. If you're able to comment on that, fine. If not, then you and Professor Yelowitz can think about it and respond back to us in an email or a memo to that extent.
00:22:31 — David Tandy: Turn your microphone—the speaker—down.
00:22:34 — Jeannette Wicks-Lim: I'm sorry. Okay, is that better?
David Tandy: Yes.
Jeannette Wicks-Lim: Okay. Sorry about that. A couple of things. One is, when you look at the economic research that's been done recently that has done a really careful job—I think you could describe it as one of the most rigorous studies that's out there now—there has been a comparison between the employment impact on counties that are side by side along a state border, where one state raises its minimum wage and the other state does not. What is the impact? I know this study has been discussed among the committee members in previous hearings. There was no negative employment effect discernible from this analysis.
You've got two counties side by side on a state border that are experiencing different minimum-wage increases, and you don't see a negative employment effect. Take that as my first observation.
Second, when you look at the minimum-wage increase that Louisville is considering, it is going up about 40 percent over three years. That size minimum-wage hike is not an unusual size when you look at it relative to what states have done in the past and what the federal government has done in the past.
If you piece those two things together, I think that at minimum you could say that, based on empirical research, it seems unlikely that Louisville increasing its minimum wage by the magnitude being proposed and debated right now would have a negative employment effect. At least we could say that, based on what we know about how minimum wages operate, even between counties that are side by side and operate with different minimum wages, it is unlikely to have a negative employment effect. In that sense, I think you can say that it seems like a reasonable minimum-wage hike to consider.
00:24:37 — David Tandy: All right. Thank you. The last question I'm going to give to Councilwoman Parker, and this will be our last question. Councilwoman Parker?
00:24:48 — Marilyn Parker: Thank you, Mr. Chair. This question is for Professor Yelowitz. This study was done in 2005 after the very first minimum-wage increase, and then there have been two subsequent minimum-wage increases. But we haven't had a study on the effect of unemployment after the last two subsequent increases. You stated in your study that your research found there was an 8.3 increase in unemployment for less-educated employees. That's a pretty significant jump. Given that there have since been two subsequent increases, would it be safe to surmise that this number has actually increased?
00:25:40 — Aaron Yelowitz: Let's see. First, there were two planned increases, going to $9.50 in 2006 and then going to $10.50 in 2008. The $10.50 never happened—or it went to $9.50 and then increased at the rate of inflation. So we got to $10.50 perhaps a year or two ago, something like that. There was really one sort of jump up and then a smooth, steady change.
The real problem with trying to learn about the world is that other things were also changing after this really dramatic shock, going from before June 2004 to after June 2004. Albuquerque, which was one of the control cities—one of the comparison cities—also at some point implemented its own minimum wage. New Mexico did as well. The county of Santa Fe expanded coverage, so, as Jeannette mentioned, there is a small city and then a much larger county land mass. They also took away the 25-employee limit.
The hard part as a researcher is that I would love to continue to look at those steps up. The concern you have is that other things are also going on. There is a sort of beauty—not beauty in terms of job loss, but beauty from an academic sense of trying to learn about the world—from a very sharp change where we think we can isolate the minimum-wage ordinance from everything else.
Theory would suggest that the higher the wage, the more dramatic the impact would be, but it would be harder to tease that out given these other confounding factors.
00:27:16 — Marilyn Parker: Sure. Thank you. I did notice that they actually had a limit of 25 people. So, if they hadn't limited it at 25, looking at unemployment, that number could have actually been even higher.
00:27:29 — Aaron Yelowitz: Yes. So it's an interesting academic exercise, but of course it's also a huge policy concern.
00:27:35 — David Tandy: Right. Again, I thank all my colleagues for their participation. I just had one question, to make sure that I was clear on things. One was, I think, Professor Yelowitz, that you acknowledged the dilemma whenever you're studying social phenomena in society: there is no such thing as a controlled environment like we would have in a laboratory where you're trying to do an experiment, because there are always other variables going on. Is that a fair way of looking at it?
00:28:08 — Aaron Yelowitz: Right. It's the fun part of trying to be a researcher: to try, as best you can, to make parallel comparisons. But absolutely, we're not running a randomized controlled trial the way we would in, say, the medical sciences. It makes it fun. It makes for lively debate. But we try our best, I'd say.
00:28:25 — David Tandy: Right. The other thing I'm trying to wrap my head around—and I think this was some of the testimony from Professor Wicks-Lim—is that whenever you see an economy improving, you're going to have an increase in unemployment because there are now new people jumping into the market who are searching for and reporting that they're looking for employment, who weren't reporting before because they had simply decided not to. Is that right, or am I reading that wrong?
00:28:59 — Aaron Yelowitz: It's part of the story, for sure. Now, let me be clear: rising unemployment isn't a good thing. Dr. Pollin made that point in his testimony in Santa Fe, way before the ordinance was ever enacted. Jeannette, in some of her YouTube testimony, has used unemployment as a measure of economic health and so forth. So it's really quite a nuanced argument.
The key point, though, would be this: even if unemployment goes up, perhaps there is displacement. I remember when I was here a few weeks ago, one of the council people mentioned a woman in her district who was working two jobs and earning minimum wage. The concern I would have is: imagine we raise it to $10.10 and some kid from U of L basically takes that person's job. There's no job loss per se, but there clearly is a changing distribution of who has that job. In the December 2005 study, which you guys may have, I found some evidence of that. So there are real concerns, even if there isn't employment loss, about who has the jobs as well. It's a fair point.
00:30:04 — David Tandy: Okay. Thank you. Colleagues, thank you so much. Without objection, we're going to table this ordinance until our next committee meeting, which will take place on November 13. In the interim, on November 10 in the evening—I believe we scheduled that for 6:00—we will be having public comment from the community at large. There will be 10 slots at three minutes each in the pro position—those in favor of the ordinance—and 10 slots at three minutes each for those in opposition to the ordinance. All those interested in speaking, please contact the clerk's office so that we can keep track of that and set a schedule for who would be able to speak.
00:30:53 — David Tandy: Those persons will be speaking on a first-come, first-served basis, and we will try to accommodate everybody accordingly. Additionally, I've received a memo from Ms. McKenzie Cantrell from the Kentucky Equal Justice Center responding to, I think, some questions that we had at our last committee meeting. We'll distribute that to everybody as well.
With that, without objection, we stand adjourned. Thank you so much for your time.