The missing piece of the minimum wage and inequality debate

Editor’s Note: When our Making Sen$e team traveled to Seattle-Tacoma, Washington, last fall and returned to The Evergreen State this spring to cover Seattle’s debate over raising the minimum wage to $15 an hour, we met with workers and employers on both sides of the issue.

Bill Hobson, executive director of Seattle’s Downtown Emergency Service Center (DESC), brings an interesting perspective that shows why increasing the minimum wage isn’t so straightforward. As the leader of a human services agency based on helping the “community’s most vulnerable individuals,” specifically disabled homeless people, Hobson is personally supportive of paying all workers a minimum of $15 an hour. But as an employer of 520 full-time employees, 171 of whom make less than $15 an hour, he realizes that his nonprofit doesn’t have the resources to pay employees more without having to cut personnel, which would affect the services DESC is able to provide. His solution? Elected officials needs to restructure the tax base to allow human service agencies like his to stay in operation while paying their employees a living wage.

Hobson appears in our Making Sen$e segment about Seattle’s debate over raising the minimum wage, below, and Paul Solman’s extended conversation with him follows. Look for our second interview with two of Hobson’s employees about their feelings on the minimum wage increase.

Paul Solman: So what happens to you and this organization if $15 an hour becomes the minimum wage in Seattle?

Bill Hobson: It depends on how that’s implemented and that’s a main feature of the discussion in this community among the mayor’s Income Inequality Advisory Committee. If there is an increase of wages to $15 an hour, that will cost this agency somewhere between $1.2 and $1.3 million. Just raising wages for 171 employees is going to cost slightly more than a million dollars, but then there will be compression in the wage scale. So there may be a supervisor whose salary is going to have to be increased to respect the difference in degree of responsibility if everyone else is now making $15.

A human service agency is no different from any other organization. If it’s not offset by increased revenue, we will have to make cuts, and cuts in a human service organization are between 75 and 80 percent staff expenses. That would cause some reductions in staff positions, which in an organization such as this one, would invariably be translated into reductions in service. We try to provide an array of housing services that not only stabilizes the lives of homeless behaviorally disabled people, but also keep them out of jails and hospital emergency departments, which reduces the taxpayer burden for keeping those programs operational. So given the nature of what we do, I don’t think our community is going to be as healthy should DESC have to reduce its services.

Paul Solman: But one argument is that if the minimum wage goes up to $15, there will be fewer people on the street and fewer people for you to serve.

Bill Hobson: No, that doesn’t make any sense for the type of organization that we are and the individuals that we help. They are living with severe and persistent mental disorders; they’re living with chronic addictive disorders; they’re people that are not employed to begin with and most are not employable in their current conditions. So they’re not going to benefit. They don’t have jobs to have their salaries increased. There may be some tiny handful that will benefit, but the vast majority won’t. The vast majority of people that this organization serves, if they have income, it’s a disability entitlement benefit like Supplemental Security Income or Social Security Disability.

Paul Solman: But proponents of this policy say, looking at the big picture, there will be less pressure on government services, like food stamps and Medicaid for example. So government will have more and therefore at some point down the line, an organization like yours might get more from the savings elsewhere.

Bill Hobson: Let me be absolutely clear. I am personally a big proponent of a $15 an hour minimum wage in this community. I’m simply surfacing a problem that our elected leadership is going to have to contend with. Human service workers in Seattle and across the country are paid abysmally, and guys in my position in every human service organization that I’m aware of are embarrassed by the paltry amount they’re capable of paying their employees. It’s time for our community to struggle with the wages that human service workers are being paid, and there’s one solution to it: that’s to raise taxes.

I’m hoping elected officials will have the courage to adopt a $15 an hour minimum wage and will also have the courage to do something about tax revenue to underwrite organizations like DESC. There’s no way the city mayor or the county executive wants to see services at this organization reduced because they understand that we are effectively investments against greater downstream public expense.

Paul Solman: So the point you’re making is look, you’re in favor of a hike to $15 an hour, but people had better be cognizant of what that entails?

Bill Hobson: Yes, that’s exactly what I think, Paul. There can be unintended consequences of wage increases, and frankly, knowing a lot of the members of the mayor’s Income Inequality Advisory Committee, I know they’re grappling with those and they’re trying to come out with the right solution. I would bet that we are not going to immediately go to a $15 an hour minimum wage. There will be an increase, but the devil is in the details of doing that increase.

There’s been some discussion about whether the value of a total compensation package should be considered. So should restaurant employees, for example, be forced to count their tips? Or employees in organizations like DESC, should we be forced to count the value of other benefits in our compensation package like medical and dental care? I personally don’t want to see that. If that were the case, nobody at DESC would get a raise because even the people making less than $15 an hour are starting at $11.75, and the value of their health care package is an additional $4.16 cents an hour, so that would automatically preclude them.

I want to see our employees get a raise, so that’s why I say the devil is in the details.

Paul Solman: You’re a very curious person to interview because you are really of two minds about a specific policy, no?

Bill Hobson: No, I think I’m very clear on what I would like to see happen. I want a $15 an hour minimum wage and I want government to raise taxes in order to underwrite the additional expense that that presents to not-for-profit human service organizations.

Paul Solman: But all else equal, as economists like to say, if there isn’t a tax increase in the offing, you’re ambivalent to the extent to which a minimum wage increase might damage your organization?

Bill Hobson: It might not just damage the organization, but also the community in which the organization exists. There would be more disabled homeless people on the street, cycling in and out of jails and out of hospital emergency departments.

I have a lot of confidence in the mayor of Seattle, but that doesn’t extend to the belief that he can somehow economize city government to the extent that he can underwrite human service increases to expense a minimum wage. There’s not that much wiggle room in the expense profile of the city. It has got to come in increased taxes.

One of the big missing pieces from this discussion starts off at a high level. We want to address growing income inequality in the city of Seattle, King County and the state of Washington, but no one is talking about creating a tax profile in this state that is based on a person’s ability to pay. The state of Washington has one of the most regressive tax structures; it’s based on property tax, business, occupations and sales tax. Those are all percentages and it has the most adverse impact on people in the lower income classification. Even a person like Bill Gates, Sr. has argued for a progressive income tax in the state of Washington, but we don’t seem to be able to figure a way to pull one off. The state of Texas has a more progressive tax structure than the state of Washington does. It’s appalling when you think about it. By the way, I’m a Texan so I mean no disrespect to that wonderful Lone Star State.

Paul Solman: Why is Washington the way it is?

Bill Hobson: I wish I had an intelligent answer for you. Our Senate is now controlled by a Republican coalition that includes two very conservative Democrats, which prevents any kind of move toward a more progressive tax structure in spite of the fact that everybody thinks the state of Washington is one of the bluest states in the nation. If you look at the general population that’s true, but the eastern part of the state is not.

There are many people on this side of the mountains — the Cascade Mountains, I’m talking about — that are members of the state legislature and are not comfortable with a progressive income tax. Progressive activists, whether they be former members of a political party or elected officials or union leaders or human service executive directors, are losing the battle for the public consciousness.

Until we can convince lower middle class folks to really vote their economic interests and not get sucked into social issues, like gay marriage or a woman’s right to choose her own reproductive health course, we are losing the battle for the political education of the majority of voters in this country. If the majority of voters truly understood what a progressive income tax would do for them, they would put it in place in a heartbeat, but we’ve lost that battle. The right is much more effective at controlling voter consciousness, not just in the state of Washington, but across the country, than progressive forces are.