Commentary

Federal Court Wrongly Revives Lawsuit Against State for Blocking City Minimum Wage Hikes

By Hans Bader | July 30, 2018 | 4:12pm EDT
(Screenshot)

Radical court rulings threaten to strip people of the right to govern themselves. The people’s elected representatives in state legislatures often pass laws that prevent cities from adopting burdensome rules, such as ordinances whose costs fall not just on city residents, but on people who live outside their borders. States’ right to preempt burdensome local rules was undermined by a recent federal appeals court ruling. It allowed Alabama to be sued for its law overriding the Birmingham City Council’s attempt to increase the minimum wage. That minimum wage increase would have led to both job losses and increased consumer prices for non-residents who work in the city.

The Supreme Court made clear in Hunter v. Pittsburgh (1907) that state legislatures have the freedom to override city ordinances and other municipal rules, since the “number, nature and duration of the powers conferred upon [municipal] corporations and the territory over which they shall be exercised rests in the absolute discretion of the State.”

But on July 25, the Eleventh Circuit Court of Appeals circumvented this basic principle. It allowed Alabama to be sued over a recently-passed law preempting municipal minimum wage increases, a law that prevented the City of Birmingham from increasing the minimum wage to $10.10 in the city. The court’s ruling in Lewis v. Governor of Alabama claimed that plaintiffs challenging Alabama’s Minimum Wage Act “have stated a plausible claim” that the law “had the purpose and effect of depriving Birmingham’s black citizens equal economic opportunities on the basis of race, in violation of the Equal Protection Clause.”  It noted that Birmingham, Alabama’s largest city, is predominantly black, and that the sponsor of the state law and the legislators who voted for it were white (Alabama’s state legislature is composed largely of white Republicans and black Democrats).

Alabama’s law is perfectly normal. As NPR notes, 25 states have similar laws preempting local governments from imposing minimum wage increases.

Several legal commentators criticized the court’s ruling about Alabama’s law. Former Justice Department lawyer Ed Whelan noted that the ruling’s reasoning was “farfetched, with radical implications for future judicial intrusion on the legislative processes.” Washington lawyer Paul Mirengoff observed that in purporting to find evidence of discriminatory motivation for the state legislature’s action, the judges improperly “descended into blatant speculation, second-guessing of the state legislature, racial stereotyping, and circular reasoning.” The court also exhibited an indifference to basic laws of economics — which is at odds with the Supreme Court’s Twombly decision. In Bell Atlantic v. Twombly (2007), the Supreme Court made clear that even at the earliest stage of a lawsuit — on a pretrial motion to dismiss — courts must follow basic laws of economics in assessing whether a plaintiff’s claim is “plausible,” such as in taking into account “competitive business strategy” and “market” behavior.

Basic laws of economics make clear that minimum wage increases have costs as well as benefits. The Washington Post reported on a study predicting that a municipal minimum wage increase in a single county would cost 47,000 jobs. An economist at Moody’s calculated that up to 160,000 jobs will be lost in California’s manufacturing sector alone from an increase to $15. Republican legislators tend to focus on the costs, and Alabama has a Republican legislature. Increasing the minimum wage increases unemployment rates the most among young people and blacks, noted black economics professor Walter Williams in his 1982 book, “The State Against Blacks.” The black economist Thomas Sowell made the same point about black youth being harmed by minimum wage increases in his columns “Minimum Wage Madness” Parts I & II.

State legislators also have reason to be concerned about the lost federal revenue flowing into their state due to a municipal minimum wage increase. When a minimum wage worker’s wage increases, she often receives fewer refundable tax credits from the federal government. As one commenter noted, “the tax implications of going from a $10- to a $15-an-hour minimum wage” can wipe out much of the benefit of any increase to affected workers. “For a family of four with both spouses making the minimum wage, their federal tax will increase from $4,106 to $7,219, payroll tax will increase from $2,579 to $3,869, their earned-income tax credit (EITC) will be reduced from $596 to zero … and the $2,400 food-stamp credit will be lost.” Large minimum wage increases can also harm health and safety. By financially squeezing restaurants and forcing them to reduce staffing, minimum wage increases can have a negative effect on hygiene. That’s the conclusion of a 2017 study by three professors cited by economist Tyler Cowen. It looked at the “hygiene rating of food establishments in Seattle [where minimum wage increased annually between 2010 and 2013] as the treated group and from New York City [minimum wage was constant] as the control group,” and found “an increase in real minimum wage by $0.10 increased total hygiene violation scores by 11.45 percent.” Similar findings resulted from “using an alternate control group – Bellevue City … located near Seattle.” These costs are all non-racist reasons to oppose a municipal minimum wage increase.

 

While the court cited the fact that beneficiaries of the Birmingham minimum wage increase would have been disproportionately black (10% more black employees would have gotten a wage increase than whites), it is also true that the losers from the increase would have been disproportionately black, namely, black employees who lose their jobs. As Ed Whelan notes, “Basic economics would likewise suggest that a higher minimum wage would have a disproportionate impact on job loss and on loss of entry-level job opportunities for black workers in Birmingham. (That’s the obvious flip side of black workers accounting for a disproportionate share of minimum-wage earners.)”

While benefiting workers whose wages increase and remain employed, minimum wage increases harm other workers who lose their jobs as a result of the increase, and harm consumers who face higher prices due to businesses passing on to consumers some of their added wage costs. A $10.10 minimum wage might have little effect in most of the country (where most wages are already well above $10.10), but in a poor state like Alabama (where wages and the cost of living are low by national standards), it would be unaffordable for some employers, resulting in some employees losing their jobs and others facing reduced hours of work.

But the Eleventh Circuit panel engaged in cherry-picking, citing the benefits of a minimum wage increase, while studiously ignoring its costs, making it appear that the Alabama legislature could only have had a racist motive for not allowing Birmingham to increase its minimum wage. As Mirengoff notes, it was wrong for the court to disregard such facts in reviving the lawsuit:

“What did the court say about the economic effects of raising or lowering the minimum wage? Nothing. It refused to consider them. ‘This is not the place to debate the Minimum Wage Act’s long term macroeconomic merits,’ Judge Charles Wilson sniffed.

“Why not? To prevail in this suit, plaintiffs will have to show that it was race, not economic considerations, that motivated the Alabama legislature to pass the Minimum Wage Act. Thus, it is wrong, in assessing whether plaintiffs have a case worthy of being tried, to rule out all consideration of the economic rationale for passing an economic regulation.”

As a lawyer who has handled constitutional challenges and federalism and civil-rights lawsuits, I agree with Paul Mirengoff’s critique of the court ruling, and also the criticisms of it by Ed Whelan, who used to be the Principal Deputy Assistant Attorney General for the Office of Legal Counsel in the U.S. Department of Justice.

As someone who used to produce labor cost and other economic statistics for the Bureau of Labor Statistics, and wrote about minimum wage legislation for think tanks and a general audience, I find the court’s disinterest in the well-known economic effects of minimum wage laws depressing (especially since such well-known effects are obviously relevant to the legislature’s motive in passing the challenged law).

Given the obvious non-discriminatory rationales for the state law, the state might still be able to prevail on summary judgment when the case returns to the trial court, despite the Eleventh Circuit's very jaundiced view of the state law, which puts the state at an unfair disadvantage (it obviously could still win at trial). For example, the state could rely on legal principles or arguments that the Eleventh Circuit overlooked or declined to address, or on additional arguments, or undisputed facts that could not be considered on its earlier motion to dismiss. The Eleventh Circuit's ruling simply ignores many relevant considerations, but “cases cannot be read as foreclosing an argument that they never dealt with,” (see Waters v. Churchill (1994)), and “the unexplained silences of [court] decisions lack precedential weight.” (See Plaut v. Spendthrift Farm (1995)).

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law.

DONATE

CNSNews Reader,

The liberal media are terrified of the truth, especially when it leads to uncomfortable questions about their own leftist worldview.

CNSNews covers the stories that the liberal media are afraid to touch. It drives the national debate through real, honest journalism — not by misrepresenting or ignoring the facts.

CNSNews relies on the support of our loyal readers to keep providing the news and commentary that matter to the American people, not just stories that prop up the liberal agenda.

Make a donation today. Just $15 a month would make a tremendous impact and enable us to keeping shining the light where the liberal media are afraid to tread.

— The CNSNews Team

DONATE

Connect

Sign up for our CNSNews.com E-Brief to receive the latest news.