Bluegrass Institute statement on proposal to raise Lexington's minimum wage

Minimum Wage Report Cover

Bluegrass Institute president Jim Waters made the following statement at a special-called meeting of the Lexington-Fayette Urban County Government Council meeting on Monday, June 8, to take public comment regarding a proposal to raise Lexington’s minimum wage to $10.10 an hour.

Good afternoon ladies and gentlemen.

My name is Jim Waters and I’m the president and CEO of the Bluegrass Institute for Public Policy Solutions based here in Lexington. We are a state-based public policy think tank offering free-market solutions to the pressing challenges faced by Kentucky and its communities.

I wanted to thank the council for holding this hearing today and giving us a few minutes to express our concern about a government-mandated minimum-wage increase being proposed for the City of Lexington.

I do not at all question the motives or intentions of council members who support such an edict forcing Lexington’s businesses to raise their wages. You, no doubt, are acting out of compassion and concern for young, unskilled and lower-income constituents.

Yet while increasing the minimum-wage rate sounds like a noble thing to do for all employees, it’s actually just the opposite.

Just ask Devin Jeran, who was happy to get a raise when the city of Seattle’s government mandated that businesses raise their minimum wage to $11 an hour at the beginning of April. But imagine how Devin felt when Ritu Shah Burnham – the owner of Z Pizza – told him she was going to go out of business in August. Despite cutting hours, raising prices and laying one person off already, Burnham simply cannot afford to keep the business going.

As an example of how government often mandates such policies without really knowing, understanding or considering the consequences of what it’s doing – even though Ritu had a small business that employed only 11 people, hers is considered a “big business” because her store happens to be part of the Z Pizza franchise.

While Seattle’s small businesses have several more years to raise their wage rates to the mandated $15 an hour, because Ritu’s store is part of a franchise, the city is requiring her, like big businesses, to raise her minimum wage much sooner – even though she had only one store with 12 employees.

Devin, her employee, wonders what happens to all those promises made when politicians, bureaucrats and community organizers pledged that forcing businesses to pay employees more than they were producing or were worth to the operation as a whole would make life better for people like him.

“If that’s the truth, I don’t think that’s very apparent,” he said. “People like me are finding themselves in a tougher situation than ever.

Ritu Burnham says she is – and I quote – “terrified” for her employees.

“I have no idea where they’re going to find jobs because if I’m cutting hours, I imagine everyone is across the board.”

It’s not hard for anyone who’s economically literate to imagine a similar situation occurring in Lexington, where a government-mandated wage increase would cause even more harm, especially in a lower-income state where 9.4 percent of the workforce is employed by food-preparation and serving-related industries – significantly higher than the national average.

In a Bluegrass Institute *report earlier this year, Western Kentucky University economist and former Bowling Green City Commissioner Brian Strow, Ph.D., reported concerning Louisville Metro Council’s decision to increase its minimum wage: “The person whose skill set combined with the circumstances of time and place allows them to bring in $8 an hour of extra revenue to a firm will be hired if the minimum wage is $7.25 an hour but will lose said job in many businesses if the minimum wage is increased above $8 an hour.”

And that’s especially true in Kentucky, where Strow says the average mean hourly wage rate in the food service and preparation industries is $8.79 an hour.Dr. Strow also notes that between 1990 and 2015 – when the federal minimum wage was increased several times from $3.35 to eventually its current $7.25 – the youth-employment rate fell from 47 percent to 27 percent. That is, nearly 45 percent of teenagers who had a job in 1990 no longer held one in 2014. Youth employment is almost half of what it was 25 years ago.

Do we really want our high-school and college students – of which Lexington has a multitude – struggling with bigger-than-needed student loans and not being able to go to college because they couldn’t find a summer job?

Do we really want to cut the bottom rung off the employment ladder so that our young people who don’t have the experience in many cases to be highly productive to employers don’t get the valuable experience and self-esteem that comes with having a job?

As Dr. Strow states: “A climb up the income ladder begins by placing one’s foot on the lowest bar. More important than the wage young workers earn is the experience, on-the-job training and self-respect gained from being employed. If society truly wants more people moving up the income ladder, it must stop removing the lowest rungs of that ladder.”

Finally, with all due respect, it became very apparent to me with a council member's answers to my questions at a Lexington Forum event held on this issue that this council is far away indeed from making a reasoned and informed decision about the city’s minimum wage.

First, the council member brushed aside – without much apparent seriousness – my concern about the impact a government-mandated minimum-wage increase would have on Lexington’s businesses and its economy. Second, when I mentioned that even the nation of Australia, though it has a fairly high minimum wage nevertheless exempts young people, allowing them to work for less, the council member apparently knew nothing about that and said she had not even considered any exemptions.

At the very least, there needs to be much more deliberation and consideration of the options before subjecting owners of Lexington’s small businesses and restaurants to this ill-advised and potentially harmful government-mandated wage hike.

Thank you for your consideration of these remarks.*Minimum Wage and its effect on Kentucky’s Economy by Brian Strow, Ph.D.