Public Comments | Wages, Incomes, and Wealth

EPI comments on Minimum Wage Policy for Non-Trade Labor Service Contracts at LaGuardia, John F. Kennedy, and Newark Liberty airports

Press release

Submitted via email to wagepolicy@panynj.gov.

Board of Commissioners
The Port Authority of New York and New Jersey
4 World Trade Center
150 Greenwich Street
New York, NY 10007

Re: Rules for Implementation of Minimum Wage Policy for Non-Trade Labor Service Contracts – LaGuardia Airport, John F. Kennedy Airport, and Newark Liberty International Airport

Dear Members of the Board of Commissioners of the Port Authority of New York and New Jersey,

The Economic Policy Institute (EPI) submits these comments in support of the Port Authority’s Rules for Implementation of Minimum Wage Policy for Non-Trade Labor Service Contracts at LaGuardia, John F. Kennedy, and Newark Liberty airports. EPI is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes public policies that protect and improve the economic conditions of low- and middle-income workers, and assesses policies with respect to how well they further those goals.

The Port Authority’s minimum wage policy is a well-designed and important policy for maintaining the safe and effective operation of the New York metropolitan region’s airports. By establishing a gradually rising wage floor for contracted airport workers that will reach $19.00 an hour in 2023, the Port Authority is setting a standard that will help the airports’ contracted service providers to attract and retain a skilled workforce, cut down on costly and potentially dangerous turnover, and help ensure the smooth operation of critical pieces of regional and national infrastructure. Strong wage standards, such as those adopted by the Port Authority, will be increasingly important as the health of the labor market continues to improve and employers face fiercer competition to recruit and retain staff.

A large body of research has shown that raising wages generally, and setting high minimum wage standards specifically, leads to meaningful reductions in employee turnover or “churn” among affected workers. Extensive additional research documents the links between higher wages and improved productivity.

One reason higher minimum wages reduce turnover is that, after a raise, workers stay at their current job longer, as they are less likely to search and find even higher paying jobs. A second reason is that, after a minimum wage increase, it becomes more cost-effective for employers to invest in their current employees rather than lay them off and hire new, untrained workers.

The most comprehensive analysis of the turnover-reducing effects of higher minimum wages—by professors Arindrajit Dube, T. William Lester, and Michael Reich, published in the Journal of Labor Economics in 2016—finds strong evidence for both of these channels (Dube, Lester, and Reich 2016). Using nearly 200 minimum wage changes resulting from state-level and federal minimum wage increases, the study finds that raising the minimum wage significantly reduces worker turnover. Employees with the sharpest reductions in turnover are those who would otherwise stay employed at their workplace for only a short amount of time. As a result of reduced worker turnover, wage increases cause the workforce to become more experienced at their jobs, the study also finds.

These findings have been confirmed by other studies on the minimum wage in the U.S. and elsewhere. For example, San Francisco’s adoption of a citywide minimum wage in 2004 led to “substantial increases in job tenure and in the proportion of full-time workers among fast-food restaurants” (Dube, Naidu, and Reich 2007). In their 2015 study of federal minimum wage increases in Georgia and Alabama, Barry T. Hirsch, Bruce E. Kaufman, and Tetyana Zelenska found that one “channel of adjustment” to higher wages is reduced worker turnover (Hirsch, Kaufman, and Zelenska 2015).

These findings regarding reduced turnover and minimum wage increases have been also been confirmed by studies of the effect of living wage policies that govern the pay of local government contractors, and specifically studies of the effects of wage standards at airports. The Los Angeles Living Wage Ordinance, which covers contractors and other companies receiving subsidies or permits through the city, reduced low-wage worker turnover and absenteeism (Fairris 2005). A comprehensive study of the San Francisco Airport living wage found “dramatically reduced turnover,” with the strongest reductions experienced by the firms that raised wages the most to comply with the policy (Reich, Hall, and Jacobs 2005).

Airports have a particular interest in reducing turnover, as airport staff face heightened responsibility to ensure safety, security, and efficiency in their work. Studies of airport security have noted that high turnover rates are a significant contributor to poor performance by airport security screeners. Two such studies come from the U.S. Government Accountability Office (GAO), formerly the General Accounting Office. In the earlier study, GAO concluded that high turnover among airport screeners has been a long-standing and growing problem that negatively affects performance, and that “a key factor in the rapid turnover is the low wages screeners receive” (GAO 2000). In a later audit of safety on airport runways and ramps, GAO surveyed aviation experts who noted that “high job turnover among ramp employees is also part of the problem” in reducing ramp accidents, and that “poor pay attracts a group of ramp workers that exhibit high turnover rates” (GAO 2007).

Lowering turnover, and thereby increasing worker tenure on the job, leads to higher productivity as workers have time to develop their skills and become more proficient in their jobs. At the same time, studies have also shown that higher wages can lead to additional improvements in productivity, independent of increased tenure. A large body of scholarly research shows that higher wages reduce absenteeism, attract better-performing workers, and motivate employees to work harder and provide better quality service (Wolfers and Zilinsky 2015). Higher wages also reduce the exposure of workers to financial problems due to poverty and income insecurity that would otherwise depress productivity (Mani et al. 2013). Finally, higher wages can also increase the efficiency of managers or owners of firms by acting as a shock that compels managers to identify cost savings or remedy longer-term problems (Hirsch, Kaufman, and Zelenska 2015).

As the overall labor market continues to improve, there will be fiercer competition among employers to recruit and retain staff, particularly in the low-wage labor market. At the same time, employers are often reluctant to offer wage raises sufficient enough to prevent problems with vacancies or recruitment of high-quality workers (Manning 2003; Naidu, Posner, and Weyl 2018). A stronger minimum wage floor helps to solve this problem. By raising wages at the bottom, the minimum wage policy for nontrade labor service contracts at LaGuardia, John F. Kennedy, and Newark Liberty airports will help airport employers to reduce turnover for these positions and will also make it easier for them to recruit for these jobs when necessary.

Relatedly, the clear phase-in of the airports’ minimum wage policy—a gradual, six-year implementation—may also help reduce churn. Low-wage workers experience significantly higher rates of job churn than higher-wage workers (Cooper, Mishel, and Zipperer 2018). This is not surprising since even small nominal hour wage increases (from switching jobs) can equal meaningful increases in pay for workers with low total earnings. Yet with predictable pay increases scheduled for several years into the future, there is less incentive to seek a different job—certainly within the airport, but potentially elsewhere as well, as future pay increases at other locations would be less certain. Furthermore, the clear, gradual phase-in allows time for employers to adjust to new, higher wages. The phase-in additionally provides more certainty to employers about their labor costs several years into the future, allowing them to make longer-term investment plans that are not subject to unpredictable changes in wages.

Wage standards such as this one are most effective when they are universal and when they provide predictable pay and consistent income. A uniform minimum wage standard across all workers is more transparent for both workers and employers. As a consequence, the standard will be easier to enforce and less prone to lead to wage violations. Were different minimum wage standards applied to different classes of employees, it would be more difficult for employees and regulators to ensure wage payments are correct. It is well known, for example, that lower minimum wage standards for tipped workers increase the difficulty of enforcement and make these workers particularly susceptible to wage theft (Cooper and Kroeger 2017).

The Port Authority’s minimum wage policy will improve the operation of the New York and New Jersey metropolitan region’s airports. The wage increase to $19.00 by 2023 will help to attract and retain a skilled workforce, reducing the costs and dangers associated with high rates of turnover. Ensuring that this policy is applied universally will maximize its positive effects—providing simplicity and predictability for airport service provider workers, the firms that employ them, and the regulators who will enforce this rule.

References

Cooper, David, and Teresa Kroeger. 2017. Employers Steal Billions from Workers’ Paychecks Each Year. Economic Policy Institute, May 2017.

Cooper, David, Lawrence Mishel, and Ben Zipperer. 2018. Bold Increases in the Minimum Wage Should Be Evaluated for the Benefits of Raising Low-wage Workers’ Total Earnings. Economic Policy Institute, April 2018.

Dube, Arindrajit, Suresh Naidu, Michael Reich. 2007. “The Economic Effects of a Citywide Minimum Wage.” ILR Review 60, no. 4: 522–543.

Dube, Arindrajit, T. William Lester, Michael Reich. 2016. “Minimum Wage Shocks, Employment Flows, and Labor Market Frictions.” Journal of Labor Economics 34, no. 3: 663–704.

Fairris, David. 2005. “The Impact of Living Wages on Employers: A Control Group Analysis of the Los Angeles Ordinance.” Industrial Relations 44, no. 1: 84–105.

General Accounting Office (GAO). 2000. Aviation Security. Publication no. 00-75, June 2000.

Government Accountability Office (GAO). 2007. Aviation Runway and Ramp Safety. Publication no. 08-29, November 2007.

Hirsch, Barry T., Bruce E. Kaufman, Tetyana Zelenska. 2015. “Minimum Wage Channels of Adjustment.Industrial Relations 54, no. 2: 199–239.

Manning, Alan. 2003. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton, N.J.: Princeton University Press.

Mani, Anandi, Sendhil Mullainathan, Eldar Shafir, Jiaying Zhao. 2013. “Poverty Impedes Cognitive Function.” Science 341, no. 6149: 976–980.

Naidu, Suresh, Eric A. Posner, and E. Glen Weyl. 2018. “Antitrust Remedies for Labor Market Power.” Harvard Law Review, forthcoming.

Reich, Michael, Peter Hall, Ken Jacobs. 2005. “Living Wage Policies at the San Francisco Airport: Impacts on Workers and Businesses.” Industrial Relations 44, no. 1: 106–138.

Wolfers, Justin, and Jan Zilinsky. 2015. “Higher Wages for Low-Income Workers Lead to Higher Productivity.” Realtime Economic Issues Watch (Peterson Institute for International Economics blog), January 13, 2015.


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