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We are so proud of Medal of Honor recipient Sgt. 1st Class Leroy A. Petry – who received a Chamber’s Bootstrap Award in 1998!

Greater Albuquerque Chamber of Commerce – Santa Fe Chamber of Commerce

Rail Runner Position Paper

Background

In 2003 the New Mexico legislature and the Governor passed a $1.4 billion dollar transportation package called GRIP which was to be funded primarily by bonds. Over 1 billion dollars in the package was for roads that benefited cities throughout the state and $450 million was for capital to build the commuter rail component subsequently called the Rail Runner. The Greater Albuquerque Chamber of Commerce supported the GRIP package and most of the recommended financing mechanisms recommended at the time.  The Regional Transit District (RTD’s), the legislature and the office of the Governor negotiated and reached a verbal agreement on how the operations of the commuter rail would be funded.  It was verbally agreed by all parties that 75% of the operations for the commuter rail component would be funded from the four governments (Bernalillo, Sandoval, Valencia, Santa Fe County) through the RTD’s by a required election that would propose a 1/8 cent GRT tax. Additionally, and because it was a state-initiated project, 25% was committed for operations from the state as a part of the agreement.   A vote of the people in the four counties occurred in an election held in 2008.  The issue was passed by a majority of the people for both the commuter rail project and for the tax to fund it.

The election secured the RTD’s commitment for 75% of operations funding, but the 25% (or about $6 million) of state funding was never permanently secured.  The state’s commitment was instead funded by federal funds.  The lack of a permanent funding mechanism  at the state level and  to some extent, the poor economy has created the operations deficit problem for the Rail Runner. In an attempt to cut costs in the short term, the Rio Metro RTD voted on a 6-5 vote to end weekend service beginning mid-August. However, for the long term, the Rail Runner is facing a $1.2 million dollar operations deficit in FY 2012. The state is obligated to pay the $450 million over the next 16 years regardless of whether the Rail Runner is operational or not, as well as  the bond obligation payments for the larger road projects which was included in the GRIP package.  The state must currently use the federal dollars it receives to pay off the bonds which leaves few resources to maintain and expand roads in New Mexico.  Finally, unlike many other states, New Mexico does not have a long-term sustainable transportation fund dedicated to transportation systems which further aggravates the present problem.

Board Position

The Greater Albuquerque Chamber of Commerce and the Santa Fe Chamber of Commerce believe that a comprehensive transportation system is an economic development necessity. A comprehensive transportation system which efficiently moves both people and product is essential to creating a vibrant and competitive city and state. The Chambers have conducted several benchmarking trips to cities which have been successful at creating a comprehensive transportation system. All of those systems combine roads, commuter rail, light rail and bus systems in a synchronized plan which is designed to efficiently move people and product. None of those systems, roads included, can operate self sufficiently; all transportation systems need financial support from the people in the form of taxation, fares and in some places, toll charges.

The decision to end weekend service by the Rio Metro RTD , while bringing  the issue to a head, was nonetheless surprising and, we believe premature.  The Governor’s office should have been consulted and been a part of the debate at some level prior to any action being taken on a project which from the beginning has been a partnership between the local governments and the state.

The decision by the previous administration to use federal stimulus dollars and decline- for 4 years- to identify a permanent funding source ($6 million) to fulfill the state’s commitment was a mistake.

The Chambers urge all parties back to the table to creatively solve the dilemma. The investment has been made for the Rail Runner (and all other GRIP projects); the debt for it is still an obligation and tax revenue from the election result continues to come in for the project. We should not nickel and dime this project but solutions should recognize the problems, including, mistakes of the past. In the short run, questions like: How can we make this better? More  effective? More fair? … should  be answered. And then, the bigger problem should be solved – by all of us – how New Mexico can join the many other states who recognize transportation (roads and transit) as an important economic development tool and have created a long-term sustainable fund to pay for it.

 

• For the eighth year in a row, Santa Fe has made Travel + Leisure (T+L) magazine’s “World’s Best Awards” list of top 10 favorite Continental United States and Canadian travel destinations. For 2009 Santa Fe is ranked as the fifth most popular travel city in North America by the magazine’s travel-savvy readers. In 2008 Santa Fe was also in the poll’s fifth spot while in 2007 Santa Fe ranked fourth. Clearly, Santa Fe remains an enduring favorite with the publication’s large group of sophisticated and passionate travelers.
• On Sperling’s Best Places to Live list dated March 15, 2007, Santa Fe is second among the Ten Best Places to Live, and takes second-best place for artists and creatives.
• Santa Fe is second on a list of 11 cities acclaimed as Best Places to Live in the October 2007 issue of Resident magazine.
• Santa Fe ranked fifth in Best Towns 2007 by Outside Magazine in its August 2007 issue.
• Santa Fe is the second best place to live in the United States, according to Cities Ranked & Rated. The book released in 2004 gave Santa Fe the second highest marks as the most livable city in the country.
• Santa Fe was rated America’s Healthiest City by Organic Style magazine in September 2003.
• Santa Fe appeared in the “10 Best Places for Business and Careers” as determined by Forbes magazine in the May, 2003 issue.
• In April of 2003, AARP Magazine named Santa Fe one of the 15 best places in the country to “reinvent yourself.”

As our nation faces a nine percent unemployment rate, a $14 trillion debt and budget deficits in nearly every city and state, the Santa Fe Chamber of Commerce strongly believes that any regulations that could hinder economic growth should be carefully considered before being enacted. The recent proposal by the city council of a six-month moratorium on the construction of all cell towers is one such economically harmful measures. This proposal has the potential to weaken the economy of Santa Fe by limiting the expansion of crucial wireless communication infrastructure.

As a city grows and develops, the need to communicate becomes of the utmost importance. Santa Fe, just as any other city, has many businesses that depend on reliable cellular coverage. With so many people moving to cellular-only phone service, they need  to know that they can contact businesses, family members or research information using mobile broadband connections. Similarly, business owners must be reachable by customers, suppliers and employees, keeping operations running smoothly and meeting customer needs.

Unreliable network coverage could damage our city by driving away potential companies who want to settle in Santa Fe. Many factors influence the decisions of business executives searching for their next corporate headquarters or regional location. In these situations, we cannot give companies a reason to decide Santa Fe does not provide the right business and technological climate for economic development.

With over a million tourists visiting Santa Fe each year, our businesses and community profit significantly from the revenue non-residents bring to the city. If cellular coverage becomes spotty for our visitors, we may see fewer people vacationing in our city. In this case, businesses will certainly suffer from lower sales and in turn, Santa Fe will reap less of the valuable taxes it relies on to operate. Tourists bring millions of dollars each year, and we would be hard pressed to find an alternative to this income. When communications networks are strong, businesses thrive, and everyone benefits.

Everyone in Santa Fe benefits from dependable cellular coverage, whether it’s for calling, texting or mobile Internet usage. We all need a means to reach other. From businesses to educators to families to emergency responders, cell phones have moved far beyond a luxury – they are an everyday necessity. Better coverage ensures a better quality of life for our citizens and our visitors.

As populations grow, our technological needs grow in tandem. The city council must recognize this and help Santa Fe move forward into the next era of technology. If we’re not moving forward, we’re getting left behind and business that would have chosen our city have moved on to technologically greener pastures.

Santa Fe cannot afford to enact policies that run directly counter to our economic interests. By passing a proposal to ban the construction of cell towers in Santa Fe, we will hurt our businesses, the tourist industry and our citizens.

Simon Brackley

President and CEO

The recent political conflict between the Obama Administration and the U.S. Chamber of Commerce has thrown a new spotlight on an old communication problem. Local chambers of commerce, although they predate the U.S. Chamber by nearly a century and a half, often are assumed to be part of the U.S. Chamber, or otherwise under its direction. They aren’t. They are independent.

During the pre-election controversy this year, it was clear that many people, including many chamber members, did not know this fact. They believe that U.S. Chamber President Tom Donohue and his colleagues on H Street directly or indirectly control all that local chambers do. But Donohue and his staff don’t exercise such control, nor do they want to.

Few people think about what chambers do locally. For example, who knows that Elliot Tiber, president of the Bethel, N.Y., Chamber of Commerce, secured the permit for Woodstock?

It was also a local chamber – the Business Men’s League of Atlantic City – that came up in 1920 with the idea of a festival to keep tourists in town after Labor Day. Pretty women in beachwear would turn out to be the centerpiece of the annual event. We have that business group (now called the Greater Atlantic City Chamber) to thank for the Miss America Contest.

Was Charles Lindbergh’s plane called The Spirit of Enterprise (the U.S. Chamber’s tag line)? No, the flying bucket of bolts was, of course, The Spirit of St. Louis. The president of the St. Louis Chamber came up with the name in order to promote the great river city. And why should Lindbergh object? The chamber president also raised most of the money for the aircraft.

And who sent out the promotional brochure that enticed the first movie producer to southern California in 1907? It was the Los Angeles Chamber of Commerce. In nearby Hollywood a chamber was later active as well, helping re-fashion the famous Hollywood sign out of a decaying advertisement for a real estate development called “Hollywoodland.”

Moreover, there’s a guy in a suit present next to the glamorous celebrities who get their photos taken when their stars are set in the Hollywood sidewalk. Who is that business man? It’s Leron Gubler, president of the Hollywood Chamber of Commerce, which invented and maintains the Walk of Fame.

Most of the thousands of things that local chambers have done and do are far removed from the big national issues that embroil the U.S. Chamber. Sure, most of the chambers in the country agree with and support the lion’s share of the U.S. Chamber’s positions. Although the goals are often the same, the priorities, issues, methods, leadership and, importantly, ownership are not.

Local chambers have shown themselves perfectly able to get into fights of their own, without orders from a non-existent chamber of commerce command center.

Was it the national chamber’s president who financed the Florida and Alabama, the ships that terrorized Union merchants during the Civil War? No, it was George Trenholm, one of the most active members of the Charleston (SC) Chamber of Commerce. As president of the chamber, Trenholm had asked for a thorough federal charting of the waterways around the Charleston harbor. The survey provided valuable navigation information that became critical when Trenholm emerged a decade later not only as privateer king of the Confederacy but also as chief sponsor of blockade runners. (Some believe he was a model for Rhett Butler in Gone with the Wind.)

But it wasn’t as if all chambers were Confederates. It was the New York Chamber of Commerce that furnished a cash reward of $25,000 to the captain and crew of the Kearsarge, which finally sank the Alabama.

There have been other times when local chambers have performed roles worthy of national headlines. During Prohibition, a liquor wholesaler named Al Capone was seen as bad for business by the president of the Chicago Association of Commerce, Colonel Robert Isham Randolph. In an act of some courage, Randolph personally warned Capone and created a chamber subcommittee, popularly called the “Secret Six,” that engineered Capone’s downfall. The Six hired a consultant named Alexander Jamie to gather information, especially financial information, on Capone. Jamie brought in his brother-in-law, Eliot Ness, to help. Capone later credited the Secret Six with taking him down.

Of course the local chambers have made their share of mistakes over the years. The St. Louis Chamber of Commerce once tried to stop the first railroad bridge across the Mississippi, but was stymied in court by the common sense and careful research of a folksy lawyer named Abraham Lincoln. And the New Orleans Chamber of Commerce successfully pushed for easing the quarantine regulations on ships in its harbor, after which a yellow fever-laden ship travelled up the Mississippi and nearly wiped out Memphis in 1878.

But if you take some water and add a chamber, the result can be a megalopolis. Starting in 1840, the Houston Chamber with single-minded determination pushed for the removal of snags and mud from the Buffalo Bayou, which trickled on a circuitous 50-mile path to the sea. In the late 1800s, rain melted the salt on a barge on the bayou, and the Galveston News cackled that Houston finally had a salt-water port. But the laughing stopped on September 8, 1900, when a hurricane flattened Galveston.

Houston overnight became a critical port for Texas, just in time for the Spindletop oil bonanza of January 10, 1901. The chamber would continue to push for improvements on what became the Houston Ship Channel, guaranteeing decades of future growth. Today, the chamber, now called the Greater Houston Partnership, is anticipating the shipping/economic impact of the opening of the second Panama Canal.

Some national change in the country’s economic model has sprung directly from the actions of chambers. The Chicago Board of Trade, a chamber founded in 1848, revolutionized how its members bought and sold farm commodities, becoming so successful that by 1859 it essentially left the traditional chamber business. Instead, the Board of Trade continued to plow the virgin soil of this new financial field, inventing futures contracts and modern commodities trading.

And so it goes. The Birmingham (AL) Chamber of Commerce belatedly, but successfully, broke the power of segregationist Bull Connor and promoted integration of the downtown, while the Atlanta Chamber of Commerce president negotiated the accord that, in a celebrated speech, Martin Luther King defended by saying, “If anyone breaks this contract, let it be the white man.” Segregation, especially racial conflict and the resulting negative publicity, was bad for business, and chambers took the side of peaceful integration in many (although not all) cities throughout the South.

So much of what we think of as America was facilitated or aided by those often forgotten, always resourceful groups known as local chambers of commerce. Whether it’s the Golden Gate Bridge, Great Smoky Mountains National Park, the statue of Vulcan over Birmingham, commission and city manager forms of government, United Way-style giving, Baltimore’s Inner Harbor, and so much more – it was local chambers that led the way. The U.S. Chamber was fighting for business and free enterprise principles in Washington, but it was local chambers working “on the ground” that helped plant so many of these seeds across the nation.

Each of the local chambers is vastly smaller than the U.S. Chamber, but collectively they have had a large impact. As in so many things, it has been the local organizations, not merely the national ones, that have shaped this country’s enterprise culture.

Chris Mead is senior vice president of the American Chamber of Commerce Executives. He is working on a history of local chambers of commerce in the United States.

January 18, 2011

Chamber Supports Film Incentives and Study of Benefits

At its January meeting the Santa Fe Chamber of Commerce Board of Directors took a position on the existing incentives that support the film industry in New Mexico.

The board resolution was that the Chamber will support the continuation of the existing state film incentives for a one-year period during which time an objective research vehicle is to be put in place to determine the efficacy and transparency of the incentive policy, its true cost, impacts and competitiveness and whether it should be continued.

The Santa Fe Chamber of Commerce urges State lawmakers to take this time to get all the facts before the public while continuing to invest in the film industry.

Area businesses have urged the Chamber to support the industry because the movie industry is directly responsible for over 12,000 jobs in New Mexico, 3000 in the industry, 3000 in film vendor businesses and over 6000 indirect jobs benefitting from the industry.

Numerous businesses in Santa Fe County credit the movie industry with helping to save their business during a very difficult economic period. Hotels, lumber companies, printers, office suppliers, caterers and restaurants directly benefit from investment by film companies.

The movie industry is well-established locally with studios and soundstages already built and more in the design stage. Training programs are in progress and we have thousands of experienced technicians already trained. The movie industry is no longer a start-up. To remain competitive with other states maintaining existing levels of incentives must be considered.

Movies are made throughout New Mexico. They are not just limited to the Santa Fe – Albuquerque area. Terminator Salvation was filmed in Carrizozo, benefiting a rural community tremendously. Wild Hogs similarly for Madrid.

The Santa Fe Chamber of Commerce urges State lawmakers to take this time to get all the facts before the public while continuing to invest in the film industry.



The board is responsible for “the promulgation of
rules and standards” for, among other things, food
protection, water supply, liquid waste, air quality
management, radiation control, occupational health
and safety, hazardous waste and solid waste.

No small feat for a board

that typically meets once a month.

Earlier this month, the board meet in Las Cruces to
consider two proposals regulating large-scale
greenhouse gas emitters in New Mexico. Like all
cap-and-trade bills, both would allow those that fall
short of meeting the proposed requirement to
purchase allowances from those that exceed the
standard.

A final decision is expected in November or
December. Which is convenient, because, while Gov.
Bill Richardson is a strong supporter of state
emissions standards, the candidates running to
replace him – Democrat Diane Denish and
Republican Susana Martinez – are both vehemently
opposed.

Meanwhile, the State Environment Department is
proposing sweeping new regulation for about 700
miles of rivers and streams, 29 lakes and more than
4,900 acres of wetlands in a dozen wilderness
areas. An amendment would add another 800 miles
of waterways.

It is something Richardson has been pushing for
since 2008. Last week the Supreme Court gave its
approval for hearings to begin.

I’m not questioning the merits of either proposal.
I’m all for clean air and water. But I do question

whether such important changes should be made byappointed boards in the final months of a lame-duck administration.

Walter Rubel has been a newsman for more than 25
years and is managing editor of the Sun-News. He
can be reached at wrubel@lcsun-news.com.

This Is Why There Are No

Jobs in America

By Porter Stansberry

Saturday, August 21, 2010

I’d like to make you a business offer.

Seriously. This is a real offer. In fact, you really can’t

turn me down, as you’ll come to understand in a moment…

Here’s the deal. You’re going to start a business or expand

the one you’ve got now. It doesn’t really matter what you

do or what you’re going to do. I’ll partner with you no matter

what business you’re in – as long as it’s legal.

But I can’t give you any capital – you have to come up

with that on your own. I won’t give you any labor –

that’s definitely up to you. What I will do, however, is

demand you follow all sorts of rules about what

products and services you can offer, how much (and

how often) you pay your employees, and where and

when you’re allowed to operate your business. That’s

my role in the affair: to tell you what to do.

Now in return for my rules, I’m going to take roughly half

of whatever you make in the business each year. Half

seems fair, doesn’t it? I think so. Of course, that’s

half of your profits.

You’re also going to have to pay me about 12% of

whatever you decide to pay your employees because

you’ve got to cover my expenses for promulgating all of

the rules about who you can employ, when, where, and

how. Come on, you’re my partner. It’s only “fair.”

Now… after you’ve put your hard-earned savings at

risk to start this business, and after you’ve worked hard

at it for a few decades (paying me my 50% or a bit

more along the way each year), you might decide

you’d like to cash out – to finally live the good life.

Whether or not this is “fair” – some people never can

afford to retire – is a different argument. As your

partner, I’m happy for you to sell whenever you’d like…

because our agreement says, if you sell, you have to

pay me an additional 20% of whatever the capitalized

value of the business is at that time.

I know… I know… you put up all the original capital.

You took all the risks. You put in all of the labor. That’s

all true. But I’ve done my part, too. I’ve collected 50%

of the profits each year. And I’ve always come up with

more rules for you to follow each year. Therefore, I

deserve another, final 20% slice of the business.

Oh… and one more thing…

Even after you’ve sold the business and paid all of my

fees… I’d recommend buying lots of life insurance. You

see, even after you’ve been retired for years, when you

die, you’ll have to pay me 50% of whatever your estate

is worth.

After all, I’ve got lots of partners and not all of them are

as successful as you and your family. We don’t think

it’s “fair” for your kids to have such a big advantage.

But if you buy enough life insurance, you can finance

this expense for your children.

All in all, if you’re a very successful entrepreneur… if

you’re one of the rare, lucky, and hard-working people

who can create a new company, employ lots of people,

and satisfy the public… you’ll end up paying me more

than 75% of your income over your life. Thanks so much.

I’m sure you’ll think my offer is reasonable and happily

partner with me… but it doesn’t really matter how you

feel about it because if you ever try to stiff me – or

cheat me on any of my fees or rules – I’ll break down

your door in the middle of the night, threaten you and

your family with heavy, automatic weapons, and throw

you in jail.

Economic stimulus, education, tourism, business advocacy – these issues are priorities for our community and priorities for the Chamber of Commerce. We have committees devoted to each of these topics and we are inviting local businesspeople to become engaged in these issues by joining a Chamber committee and making a difference in our community.

We cannot have a prosperous community filled with opportunities without a strong business climate. The Economic Stimulus Committee will build on the Chamber’s business development program in order to help businesses of all sizes find the resources they need to grow.

The Education Committee is focused on the CHOICES program which puts young businesspeople into SFPS classrooms to speak about making good decisions and the consequences of those decisions.

Tourism is our primary business sector and the Tourism Committee allows businesspeople from the industry together regularly to support ways to keep tourism strong and visitors to enjoy a positive experience in Santa Fe.

The Government Affairs Committee is the heart of the Chamber’s mission to be The Voice of Business in Santa Fe. The Committee works to create legislative priorities and be an effective advocate for business in the community.

If you have any interest in joining a committee please contact Marilyn Blessie at marilyn@santafechamber.com or 988-3279. Just come to meeting and see how you can help the community prosper while growing your business network.

Jun 2010

Minimum Wage Matters

Increasing the minimum wage may not help low-wage workers

Based on the Research of Ohad Kadan And Jeroen Swinkels

The impact of increases in the minimum wage has long caused controversy in political and management circles. Supporters of regular increases argue that those raises are necessary to keep working people from falling below the poverty line. Opponents contend that the increases actually prevent less qualified workers from entering the labor pool because employers can no longer afford to hire them.

Unfortunately, little data existed to support either side, until now. Recently, a Kellogg professor helped to build a model that gives an unexpected answer to the question in one particular type of situation: the service sector that employs minimum-wage workers who depend on incentive payments as part of their earnings, such as servers who receive tips and retail employees and sales staff who work on commission. In these cases, the model strongly suggests that everyone—employers, customers, employees who lose their jobs, and even those who stay—ends up in a worse situation when the minimum wage increases.

“We show the increase will reduce the level of service, hurting customers,” says Jeroen Swinkels, a professor of Management and Strategy at the Kellogg School of Management, who developed the model in collaboration with Ohad Kadan, an associate professor at Washington University, St. Louis. “You end up with a smaller number of workers, and even those workers who keep their jobs are less happy, because they’re forced to work harder for less attractive incentive pay. The surprise is that it’s a lose-lose-lose situation—even for people who keep their jobs.”

The surprise is that raising the minimum wage is a lose-lose-lose situation—even for people who keep their jobs.

Swinkels is quick to point out that the result is not an excuse to ignore the plight of the working poor, but that raising the minimum wage may not be the best way to affect change. Swinkels suggests that individual incomes can be lifted by helping workers find new, higher paying jobs, not by legislating higher pay. There are several ways to accomplish this, he says, from improving employer demand, to creating job-training programs, to improving labor market mobility. All help workers advance while insulating them from adverse market changes. As workers climb the ladder, Swinkels’ model shows their movements can also help the well-being of those who remain in their current jobs.

Unanswered Questions
Swinkels developed the model intending to answer a few longstanding questions: How does a firm choose to change incentives in response to a change in the minimum wage? Do the resultant incentives lead workers to work harder than before? What happens to employment? And are workers, even if they keep their job, better off? “The power of the model,” Swinkels says, “is in the way it tells how it’s going to come out in the wash.”

Swinkels and Kadan base their model on the so-called “moral hazard issue,” which itself stems from the “principal-agent problem.” This deals with situations in which the worker who undertakes specific actions—such as selling items in a department store or serving customers in a restaurant—has incentives that are different from those of the employer. In addition, what the worker does is not directly observable. “As an employer, I can’t see whether you work hard as a salesperson,” Swinkels explains. “I can see the sales you make, but I can’t directly observe whether you are doing the right things at the right moments. So the problem is one of how to provide incentives in this world.”

The new model emerged as part of a project to understand incentive pay in the context of a lower limit on what an employer can pay. “We haven’t had a good model for thinking about this before,” Swinkels says. “The standard model doesn’t allow the latitude to answer the question of how many workers the employer should spread the work among.”

To expand on the standard model, the two theorists relied on a couple of technical advances and a different mathematical approach. They also included recognition of the risks that employees experience when they operate in an environment of high incentives, such as working very hard for a sale that can’t be made for various reasons unrelated to the employee’s effort and ability. “The model incorporates thinking through what these contacts look like in the case of the minimum wage, or limited liability, or legal constraints,” Swinkels notes. “Finally, the model incorporates the ability of the firm to decide not only how hard individuals are working, but also to adjust the number of employees.”

That factor recognizes that employers have some flexibility in the face of an increase in the minimum wage. While the increase inevitably causes employees’ total effort to fall, because the minimized cost of the effort rises with the minimum wage, employers can deal with that decrease in effort in more than one way. For example, they can fire some workers and require everyone who remains to work harder. Or, they can continue to employ all their workers but, in order to maintain minimum overall costs, reduce (costly) incentives for extra effort—in effect, asking the employees to put forth a little less effort. Whichever path they choose, the employers have one end in mind. “It does not matter whether the word processing pool of a firm is typing up the notes of auto body claims adjusters or medical researchers,” Swinkels and Kadan write. “The right thing to do is to minimize the cost per page typed accurately.”

A Series of Trade-offs
For many positions, such as rental car clerks or restaurant servers, firms face the issue of finding enough qualified employees for the total pay package of wages and incentive pay that they offer. Raising the minimum wage would make it a little easier for those firms to recruit the right people. But then, Swinkels and Kadan observe, the firms would reshuffle their incentive pay because they are no longer as worried about recruitment.

This is just one of the possible outcomes of the new model. Overall, Swinkels continues, “We show increases in the minimum wage will reduce the level of service, hurting customers. The surprise is that you end up with a smaller number of workers, and even those workers who keep their jobs are less happy, because they’re forced to work harder for lower incentives. Once the firm has adjusted the number of workers and the market in which it operates has balanced, you end up with harder working, more miserable workers.”

Swinkels emphasizes that the model’s results have implications beyond service area firms and their employees. “Many of these factors will apply to relationships between a firm and its suppliers, involving penalties for suppliers’ poor performance,” he explains. “It can also apply to boards of directors’ treatment of CEOs. And the same piece of mathematics says how a firm will adjust when its employees have more attractive outside options.”

So far, the model remains a theoretical pursuit. “It screams for empirical testing,” Swinkels says. “We hope that it will excite empirical activity by people better qualified at that than ourselves.” Nevertheless, he continues, the project carries a strong message. “The implication is that if you want to help the working poor, this is not the way. There are smarter ways of doing so than by raising wages in the service sector.”