Chicago’s Move toward Higher Wages Raises Issues for Nonprofits

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October 27, 2014;Chicago Sun-Times

Following the lead of Mayor Rahm Emanuel, who has increased the mandatory minimum wage for employees of City of Chicago contractors to $13 an hour, the Chicago Housing Authority raised the minimum wage for its contractors as well. “Supporting this hourly wage increase will strengthen the economic job pathway for many contracted employees,” announced Michael R. Merchant, the CHA’s chief executive officer.

In contrast to the Chicago agency-by-agency plan for a $13 minimum, which has also gotten the backing of the Chicago Transit Authority, the state’s minimum wage is only $8.25 an hour. An initiative to raise the minimum to $10 an hour is on the ballot for November 4th. Emanuel says that he wants the city to adopt its own minimum wage of $13 an hour by 2018. The specific living wage decisions for contractors with the City, the CTA, and the CHA—even if extended to other agencies like the Chicago Public Schools, the Chicago Parks District, and city colleges—do not actually affect all that many people. Maudlyne Ihejirika, writing for the Sun-Times, reports that the mayor’s order for employees of city contractors affects about 1,000 workers; if extended to other agencies, it would cover another 2,400, largely workers who do landscaping and maintenance, janitorial services, snow removal, and security.

Determining the impact of this order on nonprofits is difficult to determine. The CHA’s list of contract bids and awards doesn’t identify contractors by their tax-exempt status. However, the city’s living wage policy for contractors has quickly discernable impacts on nonprofits. On the list of the city’s 10 most recently awarded contracts, viewed on October 29th, nonprofit vendors listed include Neighborhood Housing Services of Chicago, the American Library Association, the American Theatre Company, and Chicago Neighborhood Initiatives.

Even if the assumption is that a relatively small proportion of workers are actually directly covered by the city’s narrow living wage policy, targeted on the employees of city contractors, statistical evidence suggests that such policies have broader wage impacts in the workforce and relatively minimal disemployment effects.

For Democrats, boosting the minimum wage or enacting living wage ordinances is a winning issue, one that seems likely to “get out the vote.” Emanuel’s decision to go for a citywide $13 minimum wage, reversing a previous slower approach, appears to have political underpinnings, helping to inoculate himself against potential intraparty criticism. Nationally, Democratic candidates are pushing for minimum wage increases and seeing success with it as a “wedge issue.”

Nonetheless, some nonprofits still feel a living wage could have a negative impact upon them or their clients. Earlier this year, Sylvia Fuerstenberg, executive director of The Arc of King County, wrote about her concerns regarding a proposed $15/hour living wage in Seattle, including the significant amount of additional funds her agency would need to cover increased wages for its sheltered-workshop employees—“money no one is offering”—and the possibility of having to increase wage rates in other program sites in the name of parity. (It would be inappropriate to pay a high wage in Seattle and a lower wage in Bellevue, for example.) However, she also expressed concern that exempting nonprofits would lead to an exodus of nonprofit employees in search of higher wage for-profit jobs. “We cannot achieve shared prosperity,” she wrote, “by passing a plan that risks putting nonprofits out of business, leaving vulnerable citizens without support.”

Similarly, Bill Hobson of Seattle’s Downtown Emergency Service Center expressed misgivings about the Seattle proposal. Employing 171 full-time employees who make less than $15/hour, Hobson told PBS that it would take $1.2 million or even $1.3 million to raise the wages of those employees, plus raise the wages of their supervisors, who may have not made much more themselves. “If [the $15/hour minimum wage] is 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 expense,” Hobson explained. “That would cause some reductions in staff positions, which in an organization such as this one, would invariably be translated into reductions in service.”

Late this summer, the Seattle Human Services Coalition issued a statement “fully” supporting the $15 minimum hourly wage for Seattle workers, but called on the City Council to ensure nonprofit human services providers received commensurate increases in their city contracts to ensure that there would be no diminution of service provision as a result. The solution for human service providers is, as a King County study recommended, “common sense solutions” such as additional public revenue for nonprofits. However, common sense and political will don’t always match up. For example, a bill introduced in the Wisconsin state legislature this year by a Republican state representative would prohibit municipalities from enforcing living wage laws if state funds were involved in paying the covered workers. That law would have removed from living wage coverage 62 nonprofit and for-profit human service vendors under contract with Dane County.

In the cases of both Fuerstenberg and Hobson in Seattle, they both personally supported the living wage (or an increased minimum wage, however you want to put it) while expressing concerns about its impact on their nonprofits’ operations. The questions for nonprofits navigating the issue of a living wage include:

  • What message might be construed about the nonprofit sector if sector leaders are perceived as reluctant to support a living wage due to organizational concerns?
  • Can nonprofits leverage a living wage ordinance into local governmental understanding and support for increased government funding of nonprofit service programs to compensate for the higher required wages?
  • Should the nonprofit sector overall be characterized and weighted down by the presence of nonprofits that pay subminimum wages to disabled persons under Section 14(c) of the Fair Labor Standards Act, a labor law provision that even President Obama rejected in his executive order requiring federal contractors to pay a minimum of $10.10 an hour?
  • How can nonprofits address and overturn the low wage rates that sometimes occur in the nonprofit sector while maintaining the delivery of program services and protecting the needs of the clients and communities the nonprofits serve?

—Rick Cohen

  • M Gepner

    In theory, a ‘living wage’ is great. However, as NFPs are finding, this money doesn’t come from nowhere. When the city of Chicago raises minimum wage, either taxes and/or fees will need to increase, or services (or workers!) will need to be cut. Yes, minimum wage workers will pay more in taxes and use less in government services, such as Medicaid and food stamps. However, this will not offset the direct cost to the entities that pay higher wages. It may be a fairness issue, and raising minimum wage may be absolutely the right thing to do. But it will not be without consequences. For profit companies will likely raise prices or cut workers. Some will, no doubt, take some of the cost as a bottom line hit, but for those mom-and-pop businesses that are existing on a shoestring, these increases will be deeply felt. For NFP leadership to support ‘living wage’ for everyone but themselves is rather hypocritical.