By Jim Cavanaugh, SCFL President
Whenever the business community is faced with possible legislation that will regulate business or provide a benefit to employees, business representatives respond like Chicken Little.
We just had such an example of this type of response in Madison when the Chamber of Commerce responded to the Common Council’s proposed sick leave ordinance by purchasing a study from a for-profit firm of economists.
At about the same time that the Chamber’s study came out, a independent study was released by economists at the University of California which showed that the minimum wage law passed by San Francisco a couple years ago, the type of local ordinance the Chamber is so worked up about, did not, in fact, cause the sky to fall.
Madison’s Chamber of Commerce, which has been up in arms about the proposed sick leave ordinance since the idea was first floated, hired Northstar Economics to produce a study that would show how requiring employers to provide sick leave would be a bad thing for Madison businesses and Madison workers. Northstar’s website proclaims “We pride ourselves on tailoring our services to the needs of each client.“.
The study was unveiled with much fanfare on January 12. The Chamber certainly got the tailored services it was buying, and the media hit it was looking for. However, before the end of that day a serious mathematical error in the study was uncovered and it had to be pulled from the Chamber’s website. Once the bad math was revealed, people started looking more closely at the whole study and found its methodology and many of its assumptions to be seriously flawed. UW business professor Chip Hunter simply concluded that the study had so many flaws that people "should not really pay any attention to it."
I’m not an economist, but even my untrained reading of the Northstar document caused me not only to raise my eyebrows, but a couple times to laugh out loud.
Much of this document is based on a non-random survey that the Chamber itself conducted. Northstar says there are nearly 4600 Madison businesses with five or more employees, the number required to trigger application of the ordinance. Less than one hundred of these 4600 were motivated to respond to the Chamber’s repeated pleas to fill out its survey. Of these motivated responders, 37 said they would “consider leaving Madison” if the ordinance passed. Working from this small number of motivated responders, Northstar extrapolated its way to millions of dollars of problems and multiple ancillary concerns.
The author of this report, who has the title of vice president and director of research, complains in the introductory paragraphs that “Many social policy initiatives are promoted with less than perfect information, or worse, are based on biased or selectively supportive information bits.” He then proceeds to produce a report on “biased or selectively supportive information bits.”
Indeed, in the course of the report, he often veers off on ideological rants and charged rhetoric that don’t even bother to use his flawed data. In a section entitled “Other Externalities” he speculates that the sick leave law could lead to urban sprawl, an increase in smog, traffic congestion, more traffic accidents, and increased fuel taxes, insurance costs, and vehicle speeds. All of this because of a proposed ordinance that both sides agree would, at most, cost employers less than last year’s inflation.
And this is the same guy who states earlier in his report that “implementing social policies based on nothing more than selected economic rhetoric is not sound public policy.” Let’s be thankful that he’s not in charge of “implementing social policies.”
The public position of the Chamber is that laws like the sick leave ordinance and minimum wage ordinances should not be passed by municipalities, but rather should be handled only at the state and federal level. With a state legislature that refused to approve a minimum wage package that even business endorsed and with a federal government that currently would get rid of all employee protections if it could get away with it, this is an easy position for the Chamber to assume.
The Northstar study attempts to support the Chamber’s no municipal employment laws position. The assumption is that any such laws will cause employers to leave the municipality, or at least cut back on employment and employee benefits and raise prices to the point where customers will take their business outside that municipality.
All of these assumptions, however, are just that – assumptions based on theory or ideology. Actual studies, based on real data, as opposed to “selected economic rhetoric” and “biased information bits” do not bear out these Sky is Falling predictions.
As a case in point, just days before the Chamber’s study was released, economists at the University of California put out an extensive study of the impact of San Francisco’s minimum wage law and found that none of these fears are justified (www.iir.berkeley.edu/).
In November 2003 San Francisco voters passed a referendum that increased the minimum wage in that city to $8.50, beginning in February 2004. After a phase in period, the wage now covers all San Francisco employees, including tipped employees. Indexed to inflation, the wage went to $8.82 on January 1 of this year, compared to the federal minimum of $5.15.
The UC study concentrates on restaurant workers, arguably the most affected group. The study found that employment in this industry in San Francisco actually increased slightly. There was no decrease in employer provided health insurance. The rate of restaurant closures was actually lower than that of the control group – unaffected restaurants across the Bay. Employee retention, especially in limited-service restaurants, was improved. And, menu prices increased a “statistically insignificant” 2.8 percent compared to the control group.
In short, the researchers concluded “that the San Francisco citywide minimum wage policy substantially increased pay for low-wage workers without leading to job loss, while improving job quality and having a small impact on restaurant prices.”
The Chamber’s study produced lots of wild headlines and lead-ins by the Madison media. A day later much of this same media was eating crow. Perhaps next time they’ll look at little more closely at releases from the Greater Madison Chamber of Commerce.