The 2019 General Assembly session is well under way and the state’s business community is actively lobbying for its agenda: tax relief, opposing new taxes, limiting regulations, opposing new employment laws, limiting corporate legal liability, building infrastructure and more. These are issues of perpetual interest that are fought out in session after session. But Montgomery County’s business community should add one more priority to this list:
Supporting passage of a statewide $15 minimum wage in Maryland.
I know what you’re thinking: why on Earth should businesses want higher mandated wages? Consider the patchwork of minimum wage laws now covering the Washington region. The District of Columbia’s law has a minimum wage phase-in to $15 in 2020, after which the wage increases with inflation. Montgomery County’s law phases in a $15 minimum wage for businesses at different rates depending on their numbers of employees, but all categories reach $15 by 2025. After that, the rates for all sizes of employers eventually converge and rise with inflation rounded to five cent increments. Prince George’s County has a flat minimum wage of $11.50. The state has a flat minimum wage of $10.10. Virginia has a flat minimum wage of $7.25, which mirrors the federal level. Of critical importance here is that Montgomery County and the District are the only jurisdictions in the Washington region that index their minimum wages.
The table below projects minimum wage levels by jurisdiction over the next 15 years under current law. For years covered by an index, inflation is assumed at 1.8 percent — the same average level of inflation in the Washington region over the last decade. Montgomery County has three different minimum wage levels for three size categories of employers, but under the county’s formula, they equalize by 2030.
Because of both the $15 level and indexing, the District and MoCo will become significant outliers in the region within just a few years. In less than a decade, MoCo businesses with more than 10 employees who pay minimum wage will be paying 45 percent more than competitors in Prince George’s, 65 percent more than rivals in the rest of Maryland and 130 percent more than competitors in Virginia. Those differences rise continuously because of indexing in future years. And the minimum wage law does not just boost wages for workers at the bottom – because of the consequences of wage compression, employers must raise wages for slightly higher-paid workers too to maintain spacing in their salary scales.
Labor costs are not the only drivers of competition. Productivity, service and product quality, skilled management and workforce, technology, financial practices, training, employee tenure, labor relations and other factors are important too. That’s why many businesses succeed despite paying their workers more than competitors. But at some point, large labor cost differentials can become problematic. By 2032, MoCo employers affected by the minimum wage law will be paying rates that are 152 percent higher than similar businesses in Virginia. That’s a high mountain to climb.
Low wage workers tend to be concentrated in specific industries. The largest ones include restaurants and bars, grocery stores, retail stores, beer and wine stores, child care providers, hotels and motels, home health care services, building services, security services, nursing care facilities, assisted living facilities, lawn care and landscaping services, couriers and express delivery services and some parts of the construction industry.
Some of these industries are relatively insulated from geographic competition. For example, few MoCo residents will drive across the American Legion Bridge to pick up fast food. But other industries have regional competition, especially hotels, lawn care, landscaping, health care, assisted living, couriers, child care and construction. Some of these companies may be encouraged to start establishments outside county lines and occasionally do work in the county or attract in-county customers to their facilities by offering lower prices. Such tactics would undercut competing employers who remain in MoCo, but they would be harder to implement if the entire region has similar wage levels.
And that’s why MoCo employers should support a statewide, indexed $15 minimum wage law. MoCo’s law is not going to be repealed. That means either the labor costs of competitors must be raised to ensure a level playing field or affected MoCo businesses will be disadvantaged against all regional rivals other than those based in D.C. That applies to both sides of the Potomac River and believe it or not, a $15 minimum wage bill was just defeated in the Virginia Senate along party lines by only two votes. With Republicans holding very thin majorities in both chambers of the Virginia General Assembly and elections coming in November, Democratic victories could conceivably result in passage of a phased-in $15 minimum wage law as soon as next year.
Set aside ideology and just look at the bottom line. It’s in the economic interest of affected MoCo businesses to demand a $15 indexed minimum wage all across the Washington region. And the sooner it passes, the better.
Adam Pagnucco is a writer, researcher and consultant who is a former chief of staff at the County Council. He has worked in the labor movement and has had clients in labor, business and politics.
