Santa Fe News

ARTICLE

Date ArticleType
1/24/2013
White Paper on Local Minimum Wage

The mandated minimum wage in Santa Fe

Santa Fe Chamber of Commerce

January 23, 2013

The City of Santa Fe’s locally mandated minimum wage law is nine years old.  Enacted in 2004, the ordinance raised the wage floor from $5.15 per hour to $8.50, a 65% increase.  The mandated wage can rise every year in January and it grew to $10.29 in 2012.  The Santa Fe Chamber of Commerce has been opposed to the wage law since it was first adopted. 

Despite the long recession, the minimum wage has not declined since it was mandated.  The wage is tied to a cost-of-living index, yet even if the index declines, as it did during the recession in 2008 and 2009, it does not decrease.  If the cost of living goes up, the wage goes up.  If it goes down, the wage stays the same.  The minimum wage never goes down, regardless of economic conditions or consequences.  The consequences have been most harmful on those who should be able to enter the labor force.  

The Santa Fe New Mexican has asked for a freeze in the wage in two editorials. “To ensure that the living wage is helping those it is designed to help and that small businesses are not suffering, the city of Santa Fe should take wages off automatic pilot.”[1]  “During this recession, business profits have stagnated while business expenses keep going up. It does little good for a worker to earn more but work fewer hours — or worse, to be out of a job because his or her boss closed or laid off workers.” The Santa Fe Chamber of Commerce supports this position and believes that the City Council should disconnect the wage from the automatic annual increase for three years, and review the consequences of the ordinance. 

Santa Fe’s minimum wage is the highest wage in the nation, 27% above the rest of New Mexico, where it is $7.50, and 18% above the national average. 

Proponents of the mandated wage often point to Santa Fe’s high cost of living. In fact, according to Kiplinger’s, Santa Fe is not even in the top ten highest ranked cities.

COL Index National Average = 100

Minimum Wage

1. Manhattan, NY

228.3

7.25

2. San Francisco, CA

166.5

10.24

3. Honolulu, HI

165.8

7.25

4. San Jose, CA

154.3

10

5. Stamford, CT

147.4

8.25

6. Santa Ana, CA

144.7

8

7. Washington, DC

144.6

8.25

8. Boston, MA

139.4

8

9. Oakland, CA

137.4

8

10. Anchorage, AK

134.9

7.75

Average

100 

$8.30

 

 

 

Santa Fe, NM

108 (Estimate)

$10.29

 

 

 

Negative Impacts

The unemployment rate for young people (ages 16 to 19) in Santa Fe is three times higher than for Albuquerque’s youth.  In this tight economy the hardest hit are people seeking their first job.  With more and more mature people re-entering the workforce, it becomes even more of a challenge for a young person to find work.  Younger people and those with less education are the most negatively impacted by minimum wage laws.  

The living wage ordinance was responsible for a 3.2 percentage point increase in the city’s unemployment rate in its first year, according to an analysis by Dr. Aaron Yelowitz.  Two other important details were revealed in his study.  

  1. “Nearly the entire negative effect in terms of unemployment was felt by Santa Fe’s least educated residents. Those with 12 years of education or fewer suffered an extremely large and negative effect.”  Economic research into the minimum wage has long found that the economy’s least-skilled and most vulnerable populations suffer the most under a minimum wage increase.  The end result is that the least skilled—people these ordinances are purportedly attempting to help—end up left out of the labor force.
  2. “For those that do keep their jobs, employees worked fewer hours than before.  On the whole, the living wage ordinance reduced hours worked by 1.6 hours per week.”  Time reductions were felt most by the least-educated employees: those with 12 years or fewer of education saw their hours reduced by 3.5 hours per week.[2]

Yelowitz found similar results in his recent analysis of the minimum wage mandate in San Francisco, which was enacted in 2004.  Younger employees have been the most negatively impacted.[3]  On the national level, Aspen Gorry notes that youth are having a hard time reaching the first rung on their career ladders, and, “With youth unemployment topping 20%, it has become clear that employers are not willing to hire young workers at the current minimum wage, much less at an even higher one.”[4]

Our high school drop-out rate is over 50% and the mandated wage acts as an incentive to forgo education, but local employers are not inclined to hire un-skilled labor as the minimum wage increases.  Small businesses confront many challenges, including new additional expenses to pay for employee health insurance as mandated by the Affordable Healthcare Act in 2014.  A report on National Public Radio reveals that it is causing a great deal of concern among local small businesses.[5]

Responses by Local Businesses

Santa Fe businesses have cited the minimum wage law among their reasons for closing, downsizing staff or hiring fewer part-timers.   

  • The Wing Basket closed 17 months after it opened its doors.  The owners pointed directly to the high mandated minimum wage.
  • Hastings Books, Music and Video cited Santa Fe’s high wage requirements and the resulting decline in profits as reasons for closing its doors.
  • In 2008, the owner of Cloud Cliff Bakery and Cafe said that Santa Fe's living wage law, coupled with soaring wheat prices, forced him to close.  The wage, then set at $9.50 an hour, made the wholesale bread business less competitive around New Mexico and eroded its profit margin.
  • Matt Hannifin reported that his store, Science Toy Magic, “closed because our business model was no longer profitable once the so-called Santa Fe Living Wage Ordinance went into effect.”[6]  
  • Mark Kiffin, owner of The Compound restaurant, said that higher minimum wages escalated his costs as higher-skilled people demanded more money when minimum-wage workers got a raise.  He had to lay off some people.  The New Mexico Business Weekly also reported that Kiffin said he knew of other businesses that cut jobs to get below the initial 25-employee threshold.
  • Yashoda Naidoo of Annapurna’s World Vegetarian Cafe struggles to retain staff in her Santa Fe restaurant because she can’t pay more than the minimum $10.29, which troubles her.  She doesn’t want to raise prices because her mission is to make healthy food affordable to all.[7]
  • The owner of Santa Fe’s Village Inn franchise said he closed the Cerrillos Road restaurant at the end of last year partly because of the city’s minimum-wage law. “We closed down because the lease was up for renewal, and we didn’t want to renew the lease,” said John Hoyt of Tulsa, Okla. “One reason was the labor. Santa Fe is not pro-business, in my opinion. When they charge $10.29 for minimum wage — $3 over the national limit — that’s enough for us.” 15 jobs lost.

Other companies have not relocated to Santa Fe because of the additional mandated expense. Carol Wight, chief executive of the New Mexico Restaurant Association, said businesses such as the Chili's restaurant chain decided against opening Santa Fe locations because of the wages.  Another major national restaurant chain has decided against expanding in Santa Fe because the wage mandate makes it impossible to operate at a profit.  Thirty-five jobs lost. 

Non-profit organizations have had to change their hiring practices as well.  In 2004, The Salvation Army had “been hit hard by the city requirement to pay a minimum hourly rate of $8.50.”[8]  Volunteers were needed to fill bell-ringer positions during the holidays when the charity conducted its main fund-raising activity, while it had previously hired up to 25 part-time workers.  The Santa Fe Boys and Girls Club was struggling and reduced teen-age worker positions from 30 in 2003 to six the following year.    

A policy brief from the Rio Grande Foundation on Albuquerque’s wage hike from $7.50 to $8.50 estimates that it could eliminate up to 1,300 jobs.[9]    

Conclusion

There are several questions the Santa Fe business community is grappling with.  

  • How many layoffs have occurred because of the mandated wage?
  • How many working people have their hours cut?
  • How many businesses have cut their charitable contributions?
  • How many businesses have cut employee benefits?
  • How many businesses have canceled plans to expand or relocate to the community?
  • How many programs that employ interns or students have discontinued these efforts or cut back? 
  • What has been the effect on youth employment?

 

The Santa Fe Chamber believes that the minimum wage should be dis-connected from the cost-of-living index for three years while the effects are properly studied. We also believe that the City Council should review relevant statistics each year to determine the economic climate and consequences of the mandated wage.

The only way businesses can survive an annual wage hike is by raising prices, which ultimately leads to a higher cost of living.  The living wage in Santa Fe has significantly increased unemployment while it decreasing hours for those who were able to keep their job.  Even more troubling, the most negative effects have been on the youth who need entry-level jobs to gain necessary work experience.  

The minimum wage is effectively a constantly increasing tax on businesses that create entry-level jobs.  The best way to increase wages is to focus on job creation and prepare the workforce to fill the positions that are available, not to impose additional mandates on companies that are struggling to survive.   At this time, a minimum wage freeze would help the young workers and our local employers.



[2] Aaron Yelowitz, Employment Policies Institute, http://epionline.org/studies/yelowitz_09-2005.pdf

[3] Aaron Yelowitz, Employment Policies Institute, http://epionline.org/downloads/EPI_SanFrancisco_Studyv4.pdf

[8] Bob Steiner, from Albuquerque Journal, Salvation Army Hit Hard by SF Minimum-Wage Law, December 7, 2004

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Santa Fe Chamber of Commerce