Do Minimum Wage Increases Help Those With Psychiatric Disabilities?

PsychOdyssey OpEd, July 10, 2010

Everyone should earn a living wage. But to earn a wage, first you have to have a job.

Recently in Pennsylvania the minimum wage rose from $5.15 to $7.15 an hour. On the surface that’s a good thing. But as so often occurs when politics intersects economics, there are intended consequences that end up hurting the very people that were intended to be helped.

In Malvern, PA, there is a wonderful enterprise called Baker Industries. Baker provides light manufacturing, assembly and fulfillment work to corporations and other entities. Founded 25 years ago by Charles and Elizabeth Baker, who wanted to create an employment solution for their own disabled son, Baker Industries has successfully employed workers with psychiatric disabilities (and other “hard to employ” workers like ex-offenders) in real-world work.

For these workers, Baker is a godsend. Using a “work to train” model, Baker recruits and applies them to real-work situations at minimum wage. Some stay for a long time, but many (as is Baker’s goal) move on to even better jobs elsewhere in the marketplace. Baker is not a sheltered workshop of the “train to work” type. It is an on-the-job commercial enterprise of the “place-and-train” type. For workers with psychiatric disabilities especially, whose lives are typically enmeshed in the devilishly complicated web of Social Security disability payment rules, Baker’s flexible approach suits them very well.

Baker’s business model is mostly commercial. Typically 75% of its revenue (about $2.5 million) comes from competitive commercial contracts. The other 25% comes from donations sourced into its 501(c)3 holding company. To keep costs down (by avoiding expensive bureaucratic paperwork), Baker takes no government money. Much of Baker’s success lies in its very low cost structure, which in turn derives from its mostly minimum wage payroll.

This past year has been brutal for Baker’s business. The depressed economy has reduced contract work. Baker has been doing all it can to keep its workforce together. As commercial contracts have fallen off, the revenue percentage from this sector has slipped from 75% to 65%, forcing more to be raised from donors at a particularly bad time for that source of funds.

Then came an ill-timed legislative increase in the Pennsylvania minimum wage. Overnight, Baker’s wage expense increased by 38%. This has enormously stressed Baker’s employment model. Because of its lean cost structure, the expense increase had to be translated into at least a 10% increase in its prices, which has been difficult to sell in its tough and competitive business environment, leading ultimately to fewer contracts, which further threatens the stability of its workforce. The increase also blunts the intent of Baker to prepare and train its disabled workers to be able to move up and out to better positions elsewhere, making room for other disabled workers to get on the first rung of the ladder of personal independence. The higher minimum wage has made the existing workforce a little too comfortable. The workforce dynamic at Baker is ossifying as a result.

No one deserves a higher minimum wage than workers with psychiatric disabilities. Yet for many of these good folks, the more immediate need for their recoveries is to have work in a supportive and flexible but realistic and “real-world” enterprise like Baker. Such a drastic increase in the minimum wage is having an unintended effect. It is making more difficult the ability of enterprises like Baker to do what no other enterprises can, or will, for those with psychiatric disabilities. Ironically, by helping them a little, the drastic increase in the minimum wage may be hurting them a lot.

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