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WatchDog.org
Cost of hiking
wages: It’s not just hiring wage cops
By Bre Payton
August 14, 2014
What is the cost to enforce wage hikes in cities across the Golden
State?
Economists say it goes beyond the expense of hiring a team of “wage
cops” to police employers.
It gives third-party groups a mechanism to levy financial information
from private companies, while potentially harming family owned
businesses, said Sean Mulholland, an associate professor of economics
at Stonehill College in Easton, Mass.
Looking at cities that have aggressively enforced wage laws gives a
case study to cities such as Oakland and San Diego, which are still
grappling with the decision of whether to raise the minimum wage.
Two pro-active cities to enforce a city wage hike — San Francisco and
Washington, D.C. — have spent millions and hired a group of full-time
employees to investigate claims of wage theft.
San Francisco contracts with workers’ rights groups to ensure timid
employees can blow the whistle on their underpaying bosses without fear
of retribution.
Ironically, both of these cities collect an income tax on workers who
earn money within city borders, a policy that’s unusual for the most
part.
Because these cities stand to benefit from a higher minimum wage, it’s
no surprise to Mulholland these cities would actively enforce their
minimum wage policies.
“It’s a way to get employers to compensate their employees in a way
that is taxable. They get their tax revenue from income, which is
something that most cities don’t,” Mulholland said.
Here are some quick facts about the two cities’ wage enforcement
agencies:
Washington, D.C.
Spends $1.5 million a year enforcing its wage policy
of $9.50 an hour.
There are 11 full-time employees working for the
city’s Office of Wage and Hour.
Last year, OWH conducted 2,326 employee audits to
recover $577,154 in back pay, but the city did not recover any income
from penalties.
San Francisco
Spends $1.4 million a year enforcing its wage policy
of $10.74 an hour.
There are 5 1/2 full-time employees working
for the city’s Office of Labor Standards Enforcement.
Last year, the city’s investigated 60 complaints,
recovered nearly $1.5 million in back pay for underpaid employees, and
received $153,828 in penalties.
Part of OLSE’s budget — $482,125 — is dedicated to contracting with
workers’ rights groups to reach “workers who might be fearful about
approaching a government agency directly and educate them about their
legal rights.”
When a complaint is filed by an employee or a third-party organization
against a business in San Francisco, the city auditors can review
financial data of that business for several years prior to assess fines
and determine if back pay is owed.
The prime recipients of the San Francisco’s contract are La Raza Centro
Legal, a legal organization “dedicated to empowering Latino, immigrant
and low-income communities of San Francisco.” The Chinese Progressive
Association, a political activist group with similar aims but focuses
on Chinese immigrants within the city, gets a large portion of
contractual funds as well.
La Raza’s website features success stories of collecting million in
back pay for workers.
Recently, the legal organization filed a joint complaint with the city
of San Francisco against Tower Car Wash, which allegedly forced
employees to arrive at a pre-scheduled time, while not allowing them to
clock in until it got busy.
La Raza and the city are seeking to collect $3 million in taxable back
pay for potentially underpaid employees, according to La Raza’s site.
Mulholland said he is concerned cities with higher wage requirements
are giving nongovernmental third-party groups a mechanism to access
local business’ financial information.
“It’s deputizing people to go and look for these violations,”
Mulholland said.“This is a mechanism by which to threaten (business) to
get information.
“Outside groups can now reach into firms and get information about
their employment and pay. That’s really powerful,” he said.
Another unforeseen consequence of proactive wage enforcement is the
potential effect on family owned businesses.
“How do you define compensation?” he asked. “You’re taking away other
forms of compensation that other people may value (by raising the wage
within a city).”
Additionally, cities can anticipate a serious uptick in the number of
people looking for public assistance, said Antony Davies, a Mercatus
Center–affiliated senior scholar at George Mason University and
associate professor of economics at Duquesne University.
Those affected the most by minimum-wage increases are largely less
educated, Davies said.
Citing a recent study he authored for the Mercatus Center, Davies said
that raising the minimum wage has no effect on unemployment for college
graduates.
However, the effects were more significant for those with only a high
school diploma, and even tremendous among those who do not complete
high school.
Because of the effect on employment among those who are less educated,
the opportunity to be employed diminishes for those seeking a first job.
Wage increases “prevent them from getting that first job that enables
them to get experience, and get their next job,” Davies said.
“Wages don’t set the value of the worker, they reflect it. You don’t
make them more valuable, you only make them more expensive.”
Read this and other articles at WatchDog.org
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