Testimony | Wages, Incomes, and Wealth

Wage standards are especially important for heightened-security job sites: Testimony in support of SB794, the Secure Maryland Wage Act

Madame Chairwoman, members of the committee, thank you for allowing me to speak with you today. My name is David Cooper. I am a senior analyst at the Economic Policy Institute (EPI). EPI is a nonpartisan, nonprofit research organization created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI researches, develops, and advocates for public policies that help ensure the economy provides opportunity and fair rewards for all working Americans.

Establishing higher minimum wage standards for heightened security locations in Maryland is a smart and important policy for maintaining the safe and effective operation of the state’s primary transportation and shipping hubs. By establishing a higher wage floor for covered workers at Baltimore–Washington Thurgood Marshall Airport (BWI), Pennsylvania Station (Penn Station), and the Port of Baltimore, SB794—the Secure Maryland Wage Act—would set standards that would help contracted service providers 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 proposed in SB794, will be increasingly important as the labor market continues to tighten 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 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 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. The study also finds that because wage increases reduce worker turnover, workers become more experienced at their jobs.

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 also been confirmed by studies of the effect of living wage policies that govern the pay of local government contractors, and by 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 International 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).

Transit and shipping hubs have a particular interest in reducing turnover, as 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, 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 covered workers at BWI, Penn Station, and the Port of Baltimore will help employers at these locations to reduce turnover for these positions and will also make it easier for employers to recruit for these jobs when necessary.

Relatedly, regularly adjusting the wage floor—as SB794 would do—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 hourly wage increases (from switching jobs) can equal meaningful increases in pay for workers with low total earnings. Yet with predictable pay increases scheduled into the future, there is less incentive to seek a different job—certainly within each heightened security location, but potentially elsewhere as well, as future pay increases at other locations would be less certain.

For jobs performed at transit and shipping hubs, ensuring smooth and efficient operations is particularly important to the broader state, regional, and even national economy. Disruptions of any kind in the movement of people or goods can have long downstream effects, leading to losses and inefficiencies that multiply as they reverberate through supply chains. Thus, measures to improve stability, reduce disruptions, and increase productivity at these locations are smart investments in the long-term health of the economy.

The Secure Maryland Wage Act will improve the operation of three of the state’s most critical pieces of infrastructure. The wage increase will help to attract and retain a skilled workforce, reducing the costs and dangers associated with high rates of turnover. Because BWI, Penn Station, and the Port of Baltimore are hubs for commerce throughout the region, raising pay for workers at these locations should be viewed as an investment in the broader health and security of Maryland’s economy.

References

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.

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

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

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.

 

 


See related work on Minimum wage | Unions and Labor Standards

See more work by David Cooper