Portland gave its minimum wage workers a raise. Here's what happened next.

In January, Portland, Maine, workers' pay jumped to $10.10 an hour, with the rest of Maine still at $7.50. US cities and states are raising their minimum wages as high as $15 an hour – creating a national experiment in how labor markets operate.

On a gray midweek morning, Jessica Rogers kneads pizza dough inside a downtown food court. A 20-something theater graduate, she’s working two jobs to pay the rent and put aside money for acting school in the fall.

Across town at the Squeaky Clean laundromat, Lorena White sits at the counter with her dog-eared crossword book. She puts in 27 hours a week and alternates with her husband, a hotel banquet server, in taking care of their teenage son.

In January, both women got a pay bump to $10.10 an hour, the new minimum wage in Portland, one of dozens of cities and states that have begun to raise the bar on wages in lieu of action at the federal level, where the minimum wage is stuck at $7.25 an hour. In Maine, the statutory minimum is $7.50. So, for the lowest paid in Portland, Jan. 1 brought a whopping rise of 34 percent.

For Ms. Rogers, who had been making $8.50 at the Big Sky Bread Co., Portland’s new law meant she could eat out more, hang out later, “be a person.” For Ms. White, the step-up from $7.75 to $10.10 went a long way in her household budget. “I can pay the bills and have a little extra for me,” she says.  

When Portland first proposed a municipal minimum wage in January 2014, it was seen as an outlier. Today, as New York and California roll out mandatory hikes that will take low-paid workers to $15 an hour over several years, calls to raise the minimum wage in order to tackle income inequality have become deafening, even as conservatives dispute its efficacy. Cities are joining the charge, from Seattle to Chicago to Los Angeles. Not all are succeeding: Birmingham, Ala., raised its minimum wage to $10.10 in February. Two days later, state lawmakers blocked the raise.

Taken together, these state and local policies amount to a national experiment in how labor markets operate and how companies respond to rising payroll costs. They add another overlay to the red-blue political map: Democrat-run states tend to favor higher minimum wages, in contrast to Republican-controlled states, particularly in the South. The upshot is that by 2022, states like North Carolina and Alabama could be paying wages half those mandated in New York and California.

In Maine, the debate has moved to the state ballot: Voters in November will decide if they support a $12-an-hour minimum wage by 2020. Supporters say this would benefit about one-fourth of the state’s workforce.

Critics say today’s gains are mortgaged to lower future employment, as it becomes more expensive to hire. Raise the minimum wage too high and a career ladder falls away for young and low-skilled workers.

Proponents counter that higher wages alleviate poverty for workers trapped in low-paid sectors – and boost morale and reduce staff turnover, saving employers money. “It’s a single policy that doesn’t require government spending but affects a huge number of people and closes the equality gap,” says Mike Tipping, a campaigner for Maine’s $12 minimum wage ballot initiative.

It’s a debate in which Jon Hinck, a city councilor who helped craft Portland’s new ordinance, is well versed. Researchers have found that paying a minimum wage below 60 percent of the median wage has little or no effect on employment – but it’s impossible to be certain at a local level. “There’s no definitive answer as to what works and what doesn’t. But it’s a truism that there’s a point at which the minimum wage could hurt the economy,” says Mr. Hinck, a Democrat.  

‘The sky has not fallen’

So far, Portland’s $10.10 wage hasn’t killed jobs, though some restaurants have cut hours. Many workers already earned above the minimum; tipped servers and bar staff make much more during the summer. Portland’s economy is booming and unemployment is below 3 percent. Even Greg Dugal, a prominent lobbyist for restaurant and hotel owners, admits that “the sky has not fallen.” Hinck calls it a “stunning silence” after the heated arguments over its adoption.   

The sizzling local economy is reflected in its housing market, with prime rentals approaching levels seen in Boston. The soaring cost of housing since the recession meant Portland (pop. 67,000) had become unaffordable relative to average incomes, says Michael Brennan, who was mayor from 2011 to 2015.

A former state Senate leader, Mr. Brennan became Portland’s first directly elected executive since 1923, a measure of its rising stature after decades of decline in the local fishing industry on which its port thrived. It has become a popular destination for cruise ships and college students alike, supporting hundreds of restaurants and a string of new downtown hotels.

In 2013, state legislators agreed to raise the state minimum wage to $9 an hour by 2015. But Gov. Paul LePage, a Republican, vetoed the bill. That was when Brennan, a Democrat, began looking into what other municipalities were doing. “We could not wait for the federal government or the state government to do something with the minimum wage,” he says.

In January 2014, Brennan unveiled his proposal in his State of the City address. Even his allies on the council were taken aback, says Hinck. “No city in Maine had ever set a minimum wage. Not that many in the country had. Part of the debate was, do you think a municipality should do this?”

At the time, nearly all the cities that had mandated minimum wages were on the West Coast. After a lengthy public debate, Portland’s wage hike was passed last summer. By then, Chicago and Washington, as well as Kansas City, Mo., and Lexington, Ky., had passed their own wage ordinances. Before it passed, Governor LePage tried and failed to pass a law to block Portland’s hike and prevent other cities from following suit – similar to actions taken by Alabama and North Carolina this spring.

In contrast to cities where unions have led campaigns against pay and conditions in fast-food chains, Portland is dominated by fine dining and family restaurants. The city has only one McDonald’s and a handful of Subways. Relatively few workers were on the lowest pay rung.

“We may not have had many people working in Portland at $7.50 an hour. We did have people working at $9 an hour and $9.50 an hour ... and all of these people were affected by going to $10.10 in January,” Brennan says.

'Let's not get too greedy'

The city is attuned to the risk of aiming too high. Last November, a ballot proposal for a citywide $15 minimum wage by 2019 was voted down.
“Fifteen dollars an hour? Let’s not get too greedy. Small businesses can’t absorb that impact,” says White, the laundromat attendant, as a machine goes into the spin cycle.

Raising the wage floor has a ripple effect, say experts. “Workers making around or near minimum wage will get a raise because employers like to maintain a wage ladder,” says David Cooper, an economist at the Economic Policy Institute in Washington.

Brandon Lee, a supervisor at Big Sky Bread, says he’s seen an uptick in responses to job postings since Jan. 1 from addresses in surrounding towns. And the résumés are better than before: Applicants tend to have years of experience in food service, which means they’re easier to train and more likely to stick around.

“You immediately see better candidates,” he says. “They want to get a job downtown.”

That has consequences for towns like Falmouth, just north of Portland. There, the minimum wage is still $7.50. Judy Dyer, a supervisor at a breakfast spot 10 minutes from Portland, says nobody among the 20 staffers has quit or demanded a raise, so far. “We’re not feeling it yet. But it’s coming here.” (Starting wages are $9 an hour.)

For Joe Walsh, paying a living wage is part of his business model. Nine years ago, he founded Green Clean Maine, a chemical-free, carbon-neutral alternative to other home cleaning services in Portland. He now has $1.2 million in revenue and employs 30 people who earn an average of $13 an hour.
Mr. Walsh applauds Portland for raising the minimum wage. “If everyone had to pay more, it wouldn’t hurt me. Actually it might help me,” he says, noting that his competitors were paying closer to minimum wage.

But he also hesitates to support a $15 minimum wage, in part because it would make it harder to take on staff and train them. “I do think the minimum wage needs to rise. I just think $15 is too much.”

In 2017, Portland’s minimum wage rises to $10.68. Subsequent increases will be indexed to inflation. Economists point out that a lack of indexing is why the federal minimum wage is so low: Its peak in terms of purchasing power was in 1968. Similarly, Maine’s ballot proposal is indexed to the state’s consumer price index after the minimum wage reaches $12 an hour in 2020.

A coalition of business groups allied with LePage has lobbied lawmakers to introduce an alternative proposal for a phased-in $10 minimum wage, minus automatic indexing. Mr. Dugal, who represents the Maine Restaurant Association and Maine Innkeepers Association, says this is a reasonable compromise, given the disparities between Maine’s prosperous southern coast and less wealthy inland and rural counties.

Many restaurants in Portland are run by local entrepreneurs who are willing to adjust their costs, says Dugal. But he warns of a potential exodus of chains if Maine becomes too costly. They “will just leave. You’ll come there to eat one day and there will be a sign on the door, ‘We’re closed.’ They are not going to lose money to be in Maine.... At $12, I think you find that kind of pressure. At $10, I think people can figure it out.”

At her sandwich shop in Winthrop, a scruffy mill town an hour’s drive north from Portland, Linda Parker shakes her head at the proposed $12 wage. She says it would drive her to the wall. Ten dollars an hour is more than she pays her three part-time workers, and even raising the wage to that level worries her, given the tight budgets of local households. Using her floury hands, she gestures at the faded price list above the pockmarked counter. “There’s only so much you can put up prices before people don’t come back,” she says.

Economists point out that low-paid workers typically spend whatever extra they earn on local goods and services; a bump in the minimum wage means higher demand.

John Conzelman runs a salad bar in the food court where Rogers works. He raised prices in March to reflect rising costs, though he already paid above minimum wage. “I think [$10.10] is fine. It puts more cash in everyone’s pockets, which they spend. What goes around comes around,” he says.

$10 an hour for teens?

Colleen Kelley, who owns a family restaurant called Silly’s a block from Squeaky Clean laundromat, is less sanguine. Last August she cut the days the restaurant is open from six a week to five so she could keep her head count at 26. Normally she would hire extra staff for the summer, but she says Portland’s ordinance makes it hard to justify when it comes to unskilled extra pairs of hands.

“I’m not going to pay teenagers $10 an hour to make milkshakes,” she says.

Experts agree that young workers are vulnerable under higher minimum wages. One study estimated that a 10 percent rise in the wage floor led to a 1 percent or more drop in teen employment.

However, most workers at restaurants and retail chains are adults, a change from the 1970s. By 2011, teen employment had dropped from 1 in 4 workers to less than 1 in 8, according to the Center for Economic and Policy Research in Washington.

Even if the policy does have negative effects, this doesn’t mean it misfired, says Jacob Vigdor, a professor of public policy at the University of Washington, who is leading a study of Seattle’s phased-in $15 minimum wage.
“The real question you want to ask is, Where is the fulcrum point? If we make 80 percent of the low-wage population better off at the expense of making it worse for 20 percent, there are a lot of people in Seattle who would say that’s an acceptable trade-off,” says Professor Vigdor.

Michael Hillard, a labor economist at the University of Southern Maine in Portland, sees another benefit that gets to the heart of American capitalism. “A new set of social norms are being set. It’s not just a static thing to raise wages at the bottom. It really pushes on business models that rely on very low wages,” he says.

This may already be happening in the retail industry. In March, Costco raised its starting wage to $13 an hour, up from $10.50. In February, Wal-Mart raised its minimum hourly rate to $10, its second hike in two years. Target followed suit.

Jim Wellehan’s retail footprint is smaller. Started by his father in 1914, Lamey Wellehan Shoes has six branches and employs about 100 people. Mr. Wellehan, who has a Bernie Sanders sticker on his car, has joined the campaign for $12 an hour. He’s proud of his staff’s pay – an average hourly rate of $15 – and their benefits, including paid vacations and sick leave. Retention is high; many raise families and retire from the job.

This was how companies used to treat employees, and he regrets the passing of this brand of capitalism and what he says has resulted: divided communities and rising inequality. “We’ve developed into a society of poor ghettos and rich ghettos,” he says. “We separated. We’re not a society anymore.”