Cost of hiking wages: It???s not just hiring wage cops

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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.???