THE IMPACTS OF THE $9.50 LIVING WAGE ON THE ECONOMY OF THE CITY OF SANTA FE, PART II

Transcription

1 THE IMPACTS OF THE $9.50 LIVING WAGE ON THE ECONOMY OF THE CITY OF SANTA FE, PART II Report to the City of Santa Fe November 26, 2007 UNIVERSITY OF NEW MEXICO BUREAU OF BUSINESS AND ECONOMIC RESEARCH

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3 THE IMPACTS OF THE $9.50 LIVING WAGE ON THE ECONOMY OF THE CITY OF SANTA FE, PART II Report to the City of Santa Fe Nicholas Potter, MA Billy James Ulibarrí, MA Joshua Akers, BA Myra Segal, MA, consultant Molly Bleecker, MA November 26, 2007 UNIVERSITY OF NEW MEXICO BUREAU OF BUSINESS AND ECONOMIC RESEARCH

4 ACKNOWLEDGEMENTS This report has several authors and contributors and would not have been possible without the invaluable assistance of several Bureau of Business and Economic Research (BBER) staff. First and foremost, the authors would like to thank Dr. Lee Reynis, director of our organization and manager of this project, for providing leadership, guidance, and support throughout all phases of this project. In addition, BBER administrator Elizabeth Eklund was instrumental in managing contracts, hiring contractors, enabling access to data, and ensuring the project s ongoing success. She was supported by student Alvena Largo. Nick Potter is responsible for the chapter on wage impacts. His work built on the efforts of a number of people over several years. Lucinda Sydow was instrumental in producing and cleaning a consistent time series of workers and employers. Lee Reynis and Melissa Binder provided a literature review and methodology from which this work is derived. Daren Ruiz served as a statistical and methodological sounding board. Molly Bleecker served a number of functions, including reviewing and editing this document and coordinating the work of several people to produce a coherent final report. Thanks to the City of Santa Fe for funding this work and being committed to making policy decisions based on analytical work. Billy Ulibarrí orchestrated the business survey s implementation and wrote the accompanying chapter. BBER students Emily Lappin and Micah Le Lugas carefully entered survey data and tracked survey responses. The sample methodology and sampling frame were assembled by BBER student Lucinda Sydow. The Herculean task of stuffing envelopes for the survey mailing was easily managed by BBER staff Betty Lujan, Guy Dameron, and others. Thanks to Guy for ensuring the survey was mailed out on time. Joshua Akers conducted interviews and other research in support of the Unintended Consequences chapter. His exploration is illustrated in his chapter. He would like to thank the NM Public Education Department s Data Collection and Reporting Unit, Santa Fe Public Schools, NM Grantmakers Association, United Way of Santa Fe, Santa Fe Chamber of Commerce, and other non-profits that were willing to be interviewed. Dely Alcántara and Jack Baker of BBER provided population estimates. Myra Segal (under contract with BBER) joined us for the third Living Wage study and was skillfully in charge of the focus groups. Myra facilitated four of the five focus groups. Myra, along with Billy Ulibarrí, Molly Bleecker, and BBER student Emily Lappin, formulated the questions and maintained contact with participants. Contractor Elvira López facilitated the Spanish focus group, translated project materials, and assisted in recruitment. Special thanks to contractors Mary Bellman and Rolando Simon-Gómez who pounded the UNM-Bureau of Business and Economic Research i

5 pavement to recruit Spanish speakers. They also transcribed the Spanishspeaking session, which provided the data on this focus group used in this report. BBER scientist Jack Baker also provided translation support. Collectively, they spent numerous hours on the phone recruiting and confirming participants. Myra, Billy, and Molly wrote the sections of this report that pertain to the focus groups. The authors also wish to thank the many members of the Santa Fe community who participated in this study by responding to the business survey and/or attending focus groups. We also received invaluable support from many people who patiently answered our questions, who made data available, and who agreed to be interviewed. We wish to thank Simon Brackley of the Santa Fe Chamber of Commerce, David Kaseman from the Santa Fe Business Alliance, and Carol Oppenheimer and Morty Simon from the Santa Fe Living Wage Network for the assistance they provided at many stages in our research. From Somos Pueblos Unidos, we would like to thank Marcella Diaz and Adda Garcia for allowing us to use their space for a focus group and for their help in recruiting participants. We are grateful for the support of Los Alamos National Bank Senior Vice President Fidel Gutierrez and his staff who graciously hosting numerous BBER focus groups in their beautiful downtown branch. The staff at Santa Fe Community College and La Familia Medical Center supported our efforts by allowing BBER staff to recruit focus group participants at their facilities. Finally, the authors wish to thank the City of Santa Fe for providing funding for this study and the City of Santa Fe staff for handling all arrangements so that we could do this work and report our findings to date. UNM-Bureau of Business and Economic Research ii

6 EXECUTIVE SUMMARY This work is part of a body of analysis provided by the Bureau of Business and Economic Research (BBER) at the University of New Mexico over the past four years. The approach is designed to provide a variety of views on the impacts of the living wage. To that end, BBER conducted a baseline study of the Santa Fe economy in In 2005 and 2007, BBER provided an analysis of the general economic status of Santa Fe and employment and wage impacts of the $8.50 living wage, as well as results from surveys and focus groups that took place in A report on the economic state of Santa Fe and the employment impacts of the $9.50 living wage was issued in August of this year. This report closes the analysis with a look at earnings impacts and the results of surveys and focus groups completed after implementation of the $9.50 living wage. In terms of earnings, employees of large Santa Fe businesses experienced a small positive change relative to the control regions (employees of large Albuquerque businesses, large Santa Fe County businesses, and small Santa Fe city businesses) after the $9.50 living wage. This increase varied between $30 and $48 per quarter on average. These differences were generally smaller than the changes after the $8.50 living wage. Earnings in different industries behaved differently, but no particular industry exhibited overwhelming gains that would result from a large wage increase for a majority of workers. A variety of sectors show major changes in earnings relative to the control group, but not consistently across different control groups or through both living wage rates. There is some suggestion that earnings in the information, health care, accommodations, and food services sectors increased substantially, but not against every control group. Many industries showed no significant difference in earnings changes, while a few industries, most notably professional and technical services, had negative earnings relative to most control groups. Earnings for female, college, and high school age workers overall were similar to the general workforce, exhibiting small positive relative changes in earnings after the $8.50 living wage and no significant difference after the $9.50 living wage. Increases in earnings become more substantial when we focus on those workers and industries that typically have lower wages (and are working for businesses subject to the living wage). Workers for chains stores also seem to have more substantial earnings gains. The overall pattern of earnings changes suggests that the living wage affects only a small portion of the workforce, and so corresponding earnings gains are minor for the workforce as a whole. For specific groups, earnings are more pronounced, but even in these cases few workers appear to have been affected by the living wage, either because their wage was already higher or because their employers are not complying with the ordinance. UNM-Bureau of Business and Economic Research iii

7 On the other hand, focus groups and surveys indicate that the living wage has had substantially positive effects for some individuals and presented significant hardships for some businesses. The survey shows that most businesses (large and small) were already paying $9.50 before the rate was mandatory. Firms that had employees below the $9.50 rate are primarily large employers (20+ employees) from the hospitality industry. However, businesses often raised the wages of employees earning at or slightly above the living wage level. It was less common for employers to raise wages for workers at higher wage levels. Further, the size of the wage increases was typically higher for lower wage earners than for those with higher earnings. Business operators describe situations in which new employees (often unskilled) are making only slightly less than established employees. Changes in workplace morale and management s ability to use pay increases as an incentive were noted as two implications of this wage compaction situation. Overall, at least half of the survey sample reported that the $9.50 mandated wage resulted in no impact on various business operations. However, some adjustments were made. In addition to raising pay for low wage earners, common changes include cutting overtime and changing the way in which businesses handle seasonal demands. The largest concentrations of firms that made adjustments in wage structures and employment practices were firms with more than 25 employees. While larger employers more often had to make changes to become compliant with the ordinance, smaller employers had to make changes in order to remain competitive. Some feared that small businesses are more vulnerable and are less able to absorb increasing costs. Respondents also expressed concern over the pending wage increase to $10.50 an hour. Many thought it was too much, too fast and it would cause too strong an interference in local market forces and would erode the attractiveness of Santa Fe to outside businesses. A disconnect between the local government and the business community was cited as a reason for the premature increase. Some respondents suggested that the true impacts of the ordinance have yet to be realized, since the local economy has been performing well over the past few years. They fear that a combination of a downturn in the economy and increased labor costs would be the straw that broke the small businesses back. Several trends appear when comparing focus group findings from the current study to those of previous studies in 2004 and Workers are expected to get more work done and to be able to do more tasks. There is less tolerance for unreliability and employers have made careful screening of new employees a greater priority. For workers, while they have enjoyed a slight increase in their quality of life at home and at work, they are still having a difficult time making ends meet. Most participants rely on informal or cash jobs in addition to their regular jobs to UNM-Bureau of Business and Economic Research iv

8 cover their expenses. Individual workers often face the same rising costs as businesses, especially in real estate (housing), food and healthcare. A pervasive opinion among employers is that the local public schools do not produce workers that are reliable or motivated and do not have critical thinking, math and reading skills. While this is not a new concern, it is one that is aggravated as employers are required to pay an increasingly higher minimum wage to unskilled workers. Many employers are resentful that unskilled workers are able to easily get the same wage level that other workers have reached after years of service. Participants in the focus groups recognized that the costs pressures on both employers and workers go beyond the reach of wage issues and that increasing the minimum wage is not the end-all solution. Other costs continue to rise and are not necessarily subject to local policy, as is the minimum wage. For many businesses, raising prices to keep up with other rising costs is a difficult proposition. They fear that if prices go up any higher, the market will vanish and Santa Fe will be a less desirable place to conduct business, visit, or live. Many employers consider the living wage ordinance too great an interference of the government in the marketplace and will result in inflation and an even higher cost of living. There are a few major concerns that are addressed in the unintended consequences chapter of this report. First and foremost, there is concern in the community and from some businesses that students are dropping out of high school to work because the living wage makes working a more appealing alternative to school. At the same time, and in stark contrast, several businesses mentioned actively preferring older workers in their hiring practices, suggesting that high school-age workers are having a harder time getting jobs. Data on dropout rates is notoriously unreliable, but the best estimates suggest that dropout rates were flat in the school year following the $8.50 living wage ( ) and declined by half in the year after that ( ). The number of high school-age workers who are employed has risen significantly beginning in 2004, but at the same pace as national and state trends, suggesting that the living wage itself is not the reason for the increased trend in working for high school-age residents. At the same time, the increase in high school-age workers suggests that any active discrimination against high school-age workers is not pervasive enough to appear in the aggregated data. A second unintended consequence is the effect of the living wage on nonprofits, particularly those that provide services to disabled and otherwise disenfranchised residents. One specific issue is that state and federal compensation to non-profits does not provide for the increased wage rate; as a result, some organizations have reduced staff and services or left Santa Fe UNM-Bureau of Business and Economic Research v

9 entirely. Non-profits are also reporting greater difficulty in finding employment for workers in training programs, assisted living situations, and vocational programs. With respect to the effect of the living wage on health benefits, roughly 13% of businesses that responded to the survey choose to cut benefits in response to the living wage. Employers discussed health benefits in focus groups as well, and the general trend seems to be one of reducing benefits. However, this reduction was not specifically linked to the living wage, but rather the result of rising costs for a variety of things, most importantly health insurance itself. The decline in health benefits offered by employers is a national trend, and as such it is likely that most of the decline has to do with other pressures (with the exception of the 13% indicated above). Finally, some businesses expressed concern that the living wage was inducing people living outside of Santa Fe to seek employment in Santa Fe. Looking at the percent of workers who list their address city as Santa Fe, this does not appear to be the case. Roughly 35% of workers at both chain and nonchain employers have an address with a city that is not Santa Fe, but this value has not changed significantly over the past four years. UNM-Bureau of Business and Economic Research vi

10 TABLE OF CONTENTS Acknowledgements...i Executive Summary... iii Table of Contents... vii Table of Tables... ix Table of Figures... x Table of Figures... x Chapter 1: Introduction...1 Chapter 2: Quarterly Earnings and the $9.50 Living Wage...3 Introduction...3 Data...4 Method...5 Results...6 General Employee Earnings Statistics...7 Difference Analysis of Changes in Quarterly Earnings in Santa Fe, Santa Fe County and Albuquerque...8 Industry Comparison by Location...9 Female Workers...11 Young Workers...15 Low Wage Workers...20 Workers at Businesses with Multiple Locations...25 Discussion...30 References...32 Chapter 3: Santa Fe living Wage 2007 Business Survey...33 Purpose/ Objective...33 Method/ Sampling Procedure...34 Implementation/ Data Collection Process...35 Survey Coverage/ Representation...35 Findings Regarding Impacts of the $9.50 Minimum Wage...39 Business Climate...39 Compensation (Pay and Benefits)...41 Employment Practices...45 Prices of Goods and Services...46 Capital Investments and Business Expansions...48 Hopes and Concerns Regarding the Current LWO and the Pending Increase to $ Quality of the local workforce...49 Criticism of Local Government and an Unfriendly Business Environment...50 Support for the Living Wage...52 Conclusion...53 Chapter 4: Santa Fe Living Wage 2007 Employer and Worker Focus Groups...55 Purpose/ Objective...55 Participant Selection...55 Employers...56 Workers...57 UNM-Bureau of Business and Economic Research vii

11 Focus Group Data Collection...58 Employer Focus Group Findings...59 Business Climate in Santa Fe...59 Recent Business Activity...59 Competitive and Cost Pressures...61 General Perceptions of the Local Business Climate...62 Business Adaptations to the Living Wage...63 Impacts on Business Operations...63 Adjustments in Operations...65 Feelings about the Proposed Amendment...67 Other Consequences...69 Worker focus Group Findings...70 Quality of Life...70 Improvements Reported...70 Making Ends Meet Still a Major Challenge...71 Health Benefits are Very Scarce...72 Survival Strategies...73 Conditions at the Workplace...74 Improved Job Satisfaction...74 Job Loyalty Varies...74 Increased Job Responsibilities...75 Wage Compaction...76 Other Concerns...77 Education in Santa Fe Needs Improvement...77 Feelings about the Amendment...77 Conclusion...78 Chapter 5: Potential Unintended Consequences of the Living Wage (Revised).79 Negative Effects on High School Students...79 Reduced Employment Opportunities...80 Increased Number of High School Dropouts...82 Workers with Disabilities...85 Health Insurance Benefits...88 Exemption of Businesses with FEWER THAN 25 Employees...89 Influx of Non-local Workers and Leakage of Wage Revenues...89 Appendices...91 Appedix 1A: Statistical Data for Tables and Figures...92 Appendix 1B: Supplemental Figures and Data UNM-Bureau of Business and Economic Research viii

12 TABLE OF TABLES Table 2.1: Difference-in-Differences in Mean Quarterly Earnings by Job...9 Table 2.2: Difference in Differences in Mean Quarterly Earnings by Job, Female Workers...12 Table 2.3: Difference in Differences in Mean Quarterly Earnings by Job, Worker Age Table 2.4: Difference in Differences in Mean Quarterly Earnings by Job, Worker Age Table 2.5: Difference-in-Differences in Mean Quarterly Earnings by Industry, Worker Age Table 3.1: Business Survey Response...36 Table 3.2: Industry Type and Number of Employees of Survey Respondents...37 Table 3.3: Sample Representation by Proportion of Workforce in Each Industry...38 Table 3.4: Primary Customer Base of Survey Respondents...38 Table 3.5: Top Three Challenges Facing Santa Fe Businesses...40 Table 3.6: Changes in Sales Activity over the Past Year...41 Table 3.7: Changes in Employee Compensation...42 Table 3.8: Employers that Contribute to Healthcare Plans...44 Table 3.9: Proportion of Employees Participating in Healthcare Plans...44 Table 3.10: Changes in Employment Practices...45 Table 3.11: Changes in Prices of Goods and Services...46 Table 3.12: Changes in Business Plans...48 Table 4.1: Focus Group Profile: Representation of Santa Fe Labor Force and Industry...56 UNM-Bureau of Business and Economic Research ix

13 TABLE OF FIGURES Figure 2.1: Year-over-Year Percent Change in Quarterly Earnings of Non-Chain Employees by City of Residence...8 Figure 2.2: Difference-in-Differences of Quarterly Earnings of Employees of Large Non-Chain Businesses, $8.50 Living Wage...10 Figure 2.3: Difference-in-Differences of Quarterly Earnings of Employees of Large Non-Chain Businesses, $9.50 Living Wage...11 Figure 2.4: Difference-in-Differences of Quarterly Earnings of Female Employees in the Manufacturing Industry...12 Figure 2.5: Difference-in-Differences of Quarterly Earnings of Female Employees in the Health Care Industry...13 Figure 2.6: Difference-in-Differences of Quarterly Earnings of Female Employees in the Accommodations Industry...14 Figure 2.7: Difference-in-Differences of Quarterly Earnings of Female Employees in the Food Services Industry...14 Figure 2.8: Difference-in-Differences of Quarterly Earnings of Employees Age in the Manufacturing Industry...16 Figure 2.9: Difference-in-Differences of Quarterly Earnings of Employees Age in the Arts and Entertainment Industry...17 Figure 2.10: Difference-in-Differences of Quarterly Earnings of Employees Age in the Accommodations Industry...18 Figure 2.11: Difference-in-Differences of Quarterly Earnings of Employees Age in the Food Services Industry...19 Figure 2.12: Difference-in-Differences for Low Earning Employees of Living Wage Businesses Relative to Control Groups...21 Figure 2.13: Difference-in-Differences for Low Earning Employees of Living Wage Businesses Relative to Control Groups in the Food Services Industry...22 Figure 2.14: Earnings Differences for Low Earning Employees of Large Multiple Location Businesses by City of Residence...23 Figure 2.15: Frequency of Jobs at Santa Fe Businesses by Earnings Category 24 Figure 2.16: Frequency of Jobs at Large Santa Fe Businesses by Earnings Category...24 Figure 2.17: Difference in Mean Quarterly Earnings of Employees at Multiple Location Businesses after the $8.50 Living Wage by Worker Category...26 Figure 2.18: Difference in Mean Quarterly Earnings of Employees at Multiple Location Businesses after the $9.50 Living Wage by Worker Category...27 Figure 2.19: Difference in Mean Quarterly Earnings for Employees of Multiple Location Businesses after the $8.50 Living Wage by Industry...28 Figure 2.20: Difference in Mean Quarterly Earnings of Multiple Location Businesses after the $9.50 Living Wage by Industry...28 Figure 2.21: Frequency of Jobs at Multiple Location Businesses with Worker s Residence in Santa Fe By Earnings Category...29 UNM-Bureau of Business and Economic Research x

14 Figure 5.1: Santa Fe City Employment Quarter over Quarter, Second Quarter 1996 through Figure 5.2: New Mexico and Santa Fe High School Age Cohort Normalized to UNM-Bureau of Business and Economic Research xi

15 CHAPTER 1: INTRODUCTION This document reports the findings of Part II of BBER s study of the impacts of the $9.50 living wage on the economy of Santa Fe. Part I, which was completed in August of this year, presented and analyzed the accumulating evidence from a variety of secondary data sources and included a statistical analysis of employment data from individual employers collected by the New Mexico Department of Labor (now called the New Mexico Department of Workforce Solutions) in administering the unemployment insurance program. Part II serves as a complement to Part I with the introduction of new data collected by the BBER from a survey of City of Santa Fe employers and from a series of focus groups conducted separately with city businesses and low wage employees. The report also includes an analysis of wage record data on individual employees (also from the NM Dept. of Workforce Solutions) and updates the findings in the first report on unintended consequences. The living wage ordinance (LWO), which went into effect June 24, 2004, mandated a minimum hourly wage of $8.50 for all private businesses operating within the city limits that have 25 or more employees. The law applied to all employees, including part-time, full-time, and contractors. 1 As originally drafted, the ordinance anticipated two further wage increases, an increase to $9.50/ hour on January 1, 2006 and an increase to $10.50/ hour on January 1, 2008, with annual increases tied to the cost of living thereafter. The $9.50 increase was implemented. A proposed amendment to the LWO, which has the support of the Mayor, some members of City Council and other key stakeholders, would expand coverage to all employers, eliminate the 25 employee threshold, and would, in lieu of the slated increase to $10.50, institute the annual cost of living increase beginning in 2008, so that Santa Fe s minimum wage will rise with inflation. The implementation of the LWO in 2004 set in motion a series of adaptive behaviors on the part of both employers and workers. Many of these changes are still playing out, making it exceptionally difficult to tease out impacts of the ordinance s initial implementation from impacts of the increase to $9.50. Additionally, the mandated wage increases are occurring in a dynamic economy where businesses and consumers have been affected by rising costs for energy, food, healthcare and health insurance, a falling dollar, and a prolonged and dramatic housing boom that has been followed by a bust, creating considerable turmoil in financial markets. As a result, it is difficult to determine if any reported impacts are directly linked to the increased minimum wage, to other factors, or to a combination of factors. The chapters which follow examine the evidence achieved through a variety of research methods to evaluate the impacts of the increase to $9.50 on the Santa Fe economy. Starting at a general level, the report uses data at 1 With the exception of nonprofit organizations that provide home healthcare services with Medicaid reimbursement. UNM-Bureau of Business and Economic Research 1

16 different levels of analysis and continues to the most micro-level, the daily experiences of individuals. Chapter 2, using individual wage record data, examines the statistical evidence regarding earnings. In particular, earnings of workers of businesses subject to the living wage were compared to earnings of workers for businesses in Santa Fe County, Albuquerque, and Santa Fe city that were not subject to the living wage. Special attention was paid to earnings of female workers, high school and college aged workers, and workers with low earnings. Due to the limitations of the data, workers at businesses with multiple location businesses were treated separately from workers at single establishment businesses. Chapter 3 presents the findings of a survey administered to City of Santa Fe employers. In general, the survey s objective was to capture how Santa Fe businesses are modifying their operations in response to the mandated $9.50, but the survey also considers the general environment in which particular businesses are operating and attempts to identify challenges as well as opportunities. The purpose of the survey is to provide a more comprehensive representation of the city s labor market and wage and benefit structure than what could be achieved using information from secondary data sources. Chapter 4 presents the findings of focus groups that were conducted separately with employers and employees. The purpose of the focus groups was to solicit the stories that tell how the LWO has impacted these principal actors in the Santa Fe economy. Unlike other research methods, focus groups offer the benefit of conversation between individuals as they respond to each other s experiences. The sessions allowed participants to describe how the LWO impacts their day-to-day decision-making. Chapter 5 takes a closer look at possible unintended consequences of the LWO. Among other issues, the chapter addresses the concerns over an increased high school drop out rate, as well as those regarding limitations on youth employment opportunities. UNM-Bureau of Business and Economic Research 2

17 INTRODUCTION CHAPTER 2: QUARTERLY EARNINGS AND THE $9.50 LIVING WAGE The Bureau of Business and Economic Research (BBER) has examined a number of aspects of the Living Wage Ordinance (LWO) in Santa Fe, beginning with a baseline analysis of the Santa Fe economy 2 and following with analysis based on overall economic trends 3, a wage analysis based on a survey of businesses, and an analysis of employment impacts using ES-202 micro data. 4 In August 2007 a report on the employment impacts of the $9.50 living wage was completed. 5 This report is the last statistical analysis and focuses on the changes in earnings after the $9.50 living wage. The methods used in the analysis of wage impacts are quite similar to those used in previous studies 3 to examine the effects of the LWO on employment in Santa Fe. To estimate the impacts of the LWO on quarterly earnings, we look at the difference in earnings at each job before and after the LWO by industry. Earnings for women and youth workers are also examined, as well as for workers of chain stores, and low earnings jobs. This report differs from the earnings analysis of the $8.50 living wage in that it considers total earnings per person in addition to the standard analysis of earnings per job. It also attempts to examine earnings changes for employees of businesses with multiple locations, which are typically left out due to data limitations. The final difference is that business locations in this study are determined by latitude and longitude rather than geo-coded address, and so are much more exact. This allows for the comparisons of the earnings of employees of businesses in Santa Fe to those in Santa Fe County and Albuquerque, whereas previously only comparisons between Santa Fe and Albuquerque were possible. As noted in earlier reports, determining the impacts of the LWO is difficult at best. Apart from the usual difficulties (isolation of influences, reliability of data, etc.) in determining the impacts of a policy change, the case of the Santa Fe living wage is unique in that the small geographical region is less balanced and more subject to seasonality and other economic fluctuation, which increases the 2 Reynis, Lee. Santa Fe Living Wage Baseline Study. March Reynis, Lee et al. Preliminary Analysis: Impacts of the $8.50 Minimum Wage on Santa Fe Businesses, Workers, and the Santa Fe Economy. December Potter, Nicholas. Measuring the Employment Impacts of the Living Wage Ordinance in Santa Fe, New Mexico. June and Potter, Nicholas. Earnings and Employment: The Effects of the Living Wage Ordinance in Santa Fe, New Mexico. August These reports were previously issued to the City of Santa Fe, and with the City of Santa Fe s permission, will be posted on the BBER website at UNM-Bureau of Business and Economic Research 3

18 variability of employment and earnings and leads to exaggerated estimates of the impacts of any time-based policy such as the LWO. In the next section, we discuss data sources and adjustments, corrections and other processes used to create the final data sets used in the analysis. Following that, we discuss the methods used in the analysis and finish with a presentation and discussion of the results. DATA The analysis makes use of the same data sets that were used in the previous studies. The first data set is comprised of all firms paying unemployment insurance and is compiled by the New Mexico Department of Workforce Solutions. Data is collected on the number of employees receiving pay during the pay period including the 12 th of each month. The second data set is similar, but consists of data on each worker for businesses that pay unemployment insurance. Employer data begins as quarterly reports, each of which was merged according to the employer ID to create a single file comprising employers from 1996 to The data includes monthly employment and quarterly total wages. Beginning in the third quarter of 2003, the data also includes the latitude and longitude for each business location. The data was geo-coded using latitude and longitude to select those businesses located in Santa Fe City, Santa Fe County, and Albuquerque. Each business was assigned a value indicating in which of these three geographies it belonged during the quarter just before and one year after the living wage took effect (i.e. 2004q2 and 2005q2 for the $8.50 living wage and 2005q4 and 2006q4 for the $9.50 living wage). People who are selfemployed and businesses with no employees are not included in this data set because they are not subject to the living wage. Only private employers were included. Determining worker wages is a similar process, starting with quarterly data and matching based on worker ID and business ID to create a longitudinal series for each worker at each business. There is naturally a large degree of fluctuation, and it is not uncommon for a worker to change positions after a few quarters. Because the wage data only includes a business ID but not a variable indicating which location the worker works at, it is impossible to determine if workers at businesses with multiple locations are working for the location in Santa Fe or in other locales. To create the best possible population businesses with multiple locations are therefore not included in the generic data file, but are treated separately. UNM-Bureau of Business and Economic Research 4

19 Wage data was adjusted to 4 th quarter 2006 real dollars using the consumer price index. An average of quarterly wages is created for the year before and after each living wage (2003q3-2004q2, 2004q3-2005q2 and 2005q1-2005q4-2006q1-2006q4 respectively). Only those quarters in which a worker was actually working (i.e. earned a wage) are included in the average. Birth date and city entry errors were corrected when possible. Differences are created by subtraction the average after the living wage from the average before the living wage. Several derivative data sets were created based on the wage data. A data set on quarterly earnings by person was created by summing earnings of individuals from multiple jobs, allowing us to examine changes in overall earnings, something that is not possible using the per job earnings data alone. Another data set includes workers for businesses with multiple locations based on the worker s city of residence. While using city to determine which location a worker is employed at is an imperfect measure, it is fair to assume that most workers who have an address in Santa Fe work at a business located in the Santa Fe region. The data is too messy to reliably use for regression modeling of difference-in-differences, but looking at general trends in the earnings data gives additional insight to this important group of workers. It should be noted that these data sets do not include every worker employed at a privately held single location business in Santa Fe or Albuquerque. As with any data set, human error is a significant problem. Matching multiple data sets compounds the problem. Since matches are based on identification numbers, an error in the unemployment insurance identification number results in the worker not being recognized as an employee, while an error in the ID of a worker will result in separate entries and can skew estimates of wage changes. BBER has done its best to account for these errors, but 100 percent accuracy is impossible. If these errors can be assumed to be random, their impact on the analysis can be assumed to be negligible. METHOD The primary method used throughout this analysis is the difference-indifferences method used by Card and Krueger and others. 6 The difference-indifferences analysis compares before and after differences in a given control region to differences in the region in which a minimum wage law was enacted. The results then indicate whether the change in the minimum wage region was positive or negative relative to the change in the control region. This analysis is supplemented by looking at trends in earnings data for a variety of different worker groups. 6 For example, see the debate between Card and Krueger (1994, 1995, 2000) and Neumark and Wascher (1995, 2000). UNM-Bureau of Business and Economic Research 5

20 The difference-in-differences method is used to examine changes in wage earnings that may have resulted from the living wage. In the difference-indifferences analysis, the basic unit of measurement is average quarterly wage earnings for an individual at a specific job taken over the quarters of the year before and after the wage change went into effect. To be included in the difference calculations, a person has to have earned wages in at least one quarter in each of the two years that bookmark the wage change. The difference analysis itself compares the difference between average quarterly earnings for a given worker at a given job in the year after and the year before both the $8.50 and the $9.50 living wages went into effect. The difference-in-differences measure is the result of a regression between the differences for employees of large Santa Fe businesses and a given control group. The three control groups are employees of large Albuquerque businesses, employees of small Santa Fe businesses, and employees of large Santa Fe County businesses. The selection of Albuquerque as the control region is discussed in depth in Measuring the Employment Impacts of the Living Wage Ordinance in Santa Fe, New Mexico (BBER, 2006). To maintain continuity of comparison amongst the analyses, Albuquerque is used as the control region for this analysis as well. However, the greater geographic accuracy in these data sets allows us to compare the city of Santa Fe to Santa Fe County as well. Adding Santa Fe County as a control group gives another dimension of comparison against which to examine earnings changes for significant differences. RESULTS A wide variety of different measures are presented here, and keeping the differences between them straight can be difficult. We begin by looking at the total earnings characteristics of Santa Fe and Albuquerque residents. These measures consider the total earnings per person (i.e., earnings from multiple jobs are summed) rather than the earnings for a given job. This is a useful starting point for developing a general feel for earnings trends for workers in Santa Fe and Albuquerque. However, because we are summing earnings from multiple jobs, we can t differentiate these values by industry, business location or business size. To examine the differences that industry, business location and business size might have on the earnings of employees, we follow with a section that looks at the change in earnings for employees in a variety of different businesses. This is the standard difference-in-differences analysis that compares the change in earnings for employees of large Santa Fe businesses to the control groups. We proceed by further breaking out the earnings results by looking at earnings for women, youth, low income, and workers for businesses with multiple locations. Each of these sections considers earnings on a job basis instead of UNM-Bureau of Business and Economic Research 6

21 the total earnings per person basis so as to examine how specific jobs may be changing. General Employee Earnings Statistics Here we look at total earnings per person. In Figure 2.1, the year over year percent change in earnings for workers living in Santa Fe trends fairly closely with Albuquerque, though Albuquerque has a couple of unusual quarters. The overall trend suggests that earnings in both locations have been increasing at increasingly faster rates since 2004, with some strong growth occurring in Except for the two quarters that are negative for Albuquerque workers, the percent change in earnings for residents of both cities is fairly similar. Whatever gain in earnings, if any, occurred because of either the $8.50 or the $9.50 living wage is small enough to not cause a discernable change in the growth of earnings for Santa Fe residents. This is not to say that there is no effect. The earnings shown in Figure 2.1 include residents who work for a number of businesses that are not subject to the living wage, including small businesses and large businesses in Santa Fe County. The number of employees who saw their hourly wage increase as a result of either living wage change are a relatively small portion of the population. Still, earnings are increasing in real terms (remember these are real th quarter dollars) for residents of both cities. UNM-Bureau of Business and Economic Research 7

22 Figure 2.1: Year-over-Year Percent Change in Quarterly Earnings of Non- Chain Employees by City of Residence Earnings Per Person by City of Residence 10% Year Over Year Percent Change 8% 6% 4% 2% 0% -2% Santa Fe Albuquerque -4% 2004q1 2004q2 2004q3 2004q4 2005q1 2005q2 2005q3 2005q4 2006q1 2006q2 2006q3 2006q4 Quarter Difference Analysis of Changes in Quarterly Earnings in Santa Fe, Santa Fe County and Albuquerque In this section we consider the difference-in-differences in earnings for employees of large Santa Fe businesses as compared to employees of large Santa Fe County or Albuquerque businesses as well as to employees of small businesses within each location. This overall measure captures how the earnings of employees of those businesses directly affected by the living wage, specifically businesses located in Santa Fe with 25 or more employees, have changed with respect to the earnings of employees at other businesses. In Table 2.1 we are shown five difference-in-differences measures for each living wage level ($8.50 and $9.50). The relative change in earnings for employees of large Santa Fe businesses was $34 higher than employees of Santa Fe County businesses and $47 higher than employees of Albuquerque businesses for the $8.50 living wage. By size, employees of large businesses did better than those of small businesses in Santa Fe ($43) and Santa Fe County ($41), but slightly worse in Albuquerque (-$10). UNM-Bureau of Business and Economic Research 8

23 Assuming no other factors affected changes in wages between the different groups (a big assumption), the $8.50 living wage could be responsible for somewhere between $30 and $48 in average quarterly earnings per job. The differences between earnings after the $9.50 living wage are much smaller. Comparing employees of large Santa Fe businesses with those of large Santa Fe County businesses and large Albuquerque businesses, neither difference was significant at the 10% level, and both difference-in-differences were minor ($10.89 and -$5.19 respectively). The same trend is also apparent when comparing by size. Employees of large businesses did better regardless of location and all difference-in-differences were significant, but none of the values was very large. Table 2.1: Difference-in-Differences in Mean Quarterly Earnings by Job Large Santa Fe Businesses Compared to Large Businesses Compared to Small Other Locations: by Location $8.50 Dif $9.50 Dif $8.50 Dif $9.50 Dif Santa Fe Cty Santa Fe Albuquerque Santa Fe Cty Albuquerque Note: Population size and statistical significance are shown in Appendix 1A, Table A1. It is worth noting that employees of large Santa Fe businesses did better against employees of small businesses than their counterparts in Santa Fe County and Albuquerque, though not by much. Since these are differences per quarter, we would expect to see much larger differences if the living wage were causing employers to reduce hours (a negative change) or raise wages (a positive change) significantly. That all measures for both the $8.50 and $9.50 living wage are fairly small suggests that not many businesses had to increase wages or cut back hours (unless some combination of the two occurred such that it roughly balanced out the earnings of employees). Since workers in some industries are paid much higher than others, it is useful to consider the earnings changes by industry, paying special attention to those industries that might see a significant change as a result of either living wage change. Industry Comparison by Location In this section we compare the earnings of employees of large Santa Fe businesses to those of employees of large Santa Fe County and Albuquerque businesses. All businesses included in this section are single-location businesses with 25 or more employees. UNM-Bureau of Business and Economic Research 9

24 The results in Figure 2.2 and Figure 2.3 show the difference-in-differences for earnings of employees of large Santa Fe businesses relative to the three control groups for select industries. Figures and tables of the results for all industries are show in Appendix I B in Tables B1 through B4 and Figures B1 through B4. The results suggest some fairly strong increases in relative earnings in the food services sector after the $8.50 living wage, with less conclusive results in the other sectors. Figure 2.2: Difference-in-Differences of Quarterly Earnings of Employees of Large Non-Chain Businesses, $8.50 Living Wage Difference-in-differences 50 - (50) (100) (150) (200) SF vs SFC SF vs ABQ SF Lg vs Sm (250) Retail Trade Arts & Entertain Accommodations Food Services Industry In Figure 2.3 the change in relative earnings is smaller and less conclusive across the board, though earnings in the retail sector are stronger against all control groups. In the other sectors the results vary by control group and are generally minimal. UNM-Bureau of Business and Economic Research 10

25 Figure 2.3: Difference-in-Differences of Quarterly Earnings of Employees of Large Non-Chain Businesses, $9.50 Living Wage Difference-in-differences 50 - (50) (100) (150) (200) SF vs SFC SF vs ABQ SF Lg vs Sm (250) Retail Trade Arts & Entertain Accommodations Food Services Industry Taken together the results suggest that workers for large Santa Fe businesses in the food services industry may have seen an increase in earnings after the $8.50 living wage, and those in retail may have seen an increase in earnings after the $9.50 living wage, but that these changes were small relative to the control regions, and generally there was enough variance between the results that no real change in earnings was discernable. Female Workers Looking specifically at female workers, we see difference-in-differences measures that are similar to workers at large Santa Fe businesses overall. Female workers at large Santa Fe businesses experienced small positive differences relative to earnings of employees of Santa Fe County, Albuquerque, and small Santa Fe businesses after both the $8.50 living wage and the $9.50 living wage (see Table 2.2). In most cases, the differences for female workers are smaller and less significant. UNM-Bureau of Business and Economic Research 11

26 Table 2.2: Difference in Differences in Mean Quarterly Earnings by Job, Female Workers Large Santa Fe Businesses Compared to Large Businesses Compared to Small by Other Locations: Location $8.50 Dif $9.50 Dif $8.50 Dif $9.50 Dif Santa Fe County Santa Fe Albuquerque Santa Fe County Albuquerque Note: Population size and statistical significance are shown in Appendix 1A, Table A2. As before, that we see such small changes in relative earnings suggests that only a small portion of workers were affected by the living wage or that the living wage did little to increase earnings. A few industries stand out as having substantially different changes in the earnings of female employees of large Santa Fe businesses. As seen in Figure 2.4, earnings in the manufacturing industry increased relative to earnings in each control group after the $8.50 living wage, but decreased after the $9.50 living wage. Figure 2.4: Difference-in-Differences of Quarterly Earnings of Female Employees in the Manufacturing Industry Difference-in-differences $8.50 $ vs Santa Fe County vs Albuquerque Lg vs Small Large Santa Fe vs Control Group UNM-Bureau of Business and Economic Research 12

27 Figure 2.5 shows relative changes in earnings for female workers in the health care industry, which were generally small after both living wage levels, except when compared to earnings of female employees of large businesses in Santa Fe County. Against Santa Fe County, earnings of female employees of businesses subject to the living wage decreased after the $8.50 living wage and increased substantially after the $9.50 living wage. Figure 2.5: Difference-in-Differences of Quarterly Earnings of Female Employees in the Health Care Industry Difference-in-differences $8.50 $ vs Santa Fe County vs Albuquerque Lg vs Small Large Santa Fe vs Control Group Figure 2.6 shows the difference-in-differences in earnings for the accommodations industry. Except for the large negative change in earnings relative to female employees of large Santa Fe County businesses after the $8.50 living wage, other changes in the accommodations industry are relatively small. On the other hand, in Figure2.7 we can see that the food services sector earnings of female employees of businesses subject to the living wage are positive relative to each control group after the $8.50 living wage and negative after the $9.50 living wage, though the differences are relatively small. UNM-Bureau of Business and Economic Research 13

28 Figure 2.6: Difference-in-Differences of Quarterly Earnings of Female Employees in the Accommodations Industry Difference-in-differences $8.50 $ vs Santa Fe County vs Albuquerque Lg vs Small Large Santa Fe vs Control Group Figure 2.7: Difference-in-Differences of Quarterly Earnings of Female Employees in the Food Services Industry Difference-in-differences $8.50 $ vs Santa Fe County vs Albuquerque Lg vs Small Large Santa Fe vs Control Group UNM-Bureau of Business and Economic Research 14