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Portland's growing divide: The wealthy and the rest of us


TRIBUNE PHOTO: JONATHAN HOUSE - ChefStable owner Kurt Huffman has experimented with trying to narrow the gap between the highest and lowest paid employees at his restaurants as Portland confronts a growing income inequality among its residents.

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Peter Emerson would like to pay his 25 employees $15 an hour. Em erson, who owns the Bipartisan Cafe on Southeast Stark Street, pays his longest-tenured employees $10.50 an hour, and it bothers Emerson that he can’t pay more.

But Emerson’s cafe operates on a narrow 5 percent profit margin. Ninety-five percent of his revenue goes to pay off his bank loan, for rent on his cafe, to vendors who supply his ingredients and, of course, to pay his employees. Emerson isn’t getting rich.

To compensate, Emerson says, he treats his counter workers and sandwich makers as well as he can. He hires more workers for each shift than he has to in order to reduce employee stress. Employees eat free. He works around school and family schedules to make life easier for his workers.

Emerson believes income inequality is the most pressing issue facing the country. That is why he is solidly behind the idea of a $15 an hour minimum wage for Oregon — which is likely, this year, to either be passed by the Oregon Legislature or brought to voters in the form of a ballot measure.

Here’s Emerson’s thinking: He figures one out of four of his customers make minimum wage or a little more. Many of them come in once a week for a mocha. His average customer tab is $7.27. Maybe if they were all making $15 an hour wherever they work, they’d add a slice of his homemade pie to their orders.

Yes, Emerson, says, he’d have to raise his prices in order to pay the higher minimum wage. Say, a buck. He figures for people getting a raise from $9.25 an hour (the current minimum wage) to $15 an hour, an extra dollar on the bill and an extra piece of pie will feel affordable.

But Emerson’s harsh reality is that he can’t raise the minimum wage alone.

“It only works if everybody does it,” he says.

Emerson is enticed by other potential benefits of a $15 an hour minimum wage. He knows many of his employees are on food stamps. If he pays them $15 an hour, they probably won’t qualify for or need the government assistance. They’re also going to be paying more taxes. “Maybe we can fix some of these roads,” he says.

Growing inequality

A number of business owners would like to tell Emerson he’s got it wrong. But looking at the big picture, those business men and women would find it hard to deny that income and wealth inequality have become one of the most pressing and fundamental problems facing the United States and Oregon.

One year ago this week President Obama highlighted the increasing gap between the rich and the rest of the country in his State of the Union speech. Unemployment is down, yet the working poor and middle class have never recovered from the recession, the president said, and that had become the defining economic issue of the coming decades. He proposed raising taxes on the wealthiest Americans by $320 billion.

“Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?” Obama asked.

The growing gap between the haves and have nots is indisputable.

Nationally, one family — the six heirs to the Walmart empire — has a combined wealth equal to the combined wealth of the poorest 30 percent of U.S. citizens.

The top executives at America’s largest corporations on average were paid about 20 times what the average worker in their field was paid in 1965. Today, that CEO makes about 300 times the average wage being paid his or her workers, according to the Washington, D.C.-based Economic Policy Institute.

Portland ranks smack dab in the middle — 25th — in a Brookings Institution ranking of income inequality among the nation’s 50 largest cities. Nevertheless, in Oregon, 71 percent of families labeled poor by the Oregon Center for Public Policy (two adults, one child with income less than $19,055 per year) had at least one parent working.

Raising the wages of those on the bottom end of the pay scale may or may not help bridge the income gap, experts say. Some economists believe only a fundamental change in our tax structure can make a dent. Others say American attitudes — that means all of us — are responsible for the widening disparity between what the wealthy and the working poor get paid.

The road to ‘fast casual’

Seattle’s City Council voted in a $15 an hour minimum wage last year, but the full increase will be implemented in phases, so there’s no lesson to be learned there quite yet.

Kurt Huffman doesn’t need to wait for returns from Seattle. Huffman owns ChefStable, which has developed a number of Portland’s high-profile restaurants, including St. Jack, Ox and Lardo. Most of his customers aren’t going to have more money to spend if the minimum wage goes up, he says, and many would balk at the 25 percent price hike he would have to enact in order to pay all his employees $15 an hour.

Huffman says if he’s forced to pay all his employees $15 an hour he will have to close four or five of his company’s 16 restaurants because they aren’t profitable. Going forward, Huffman says, he would have to focus on opening restaurants that are known as “fast casual” in the industry — which generally translates to fewer waiters and waitresses and customers waiting in line to order their food.

Huffman, ironically, is struggling with his own miniature wage inequality crisis. The waiters at his restaurants earn big money because of tips, and his cooks and dishwashers, getting paid by the hour, don’t make a living wage. Most dishwashers start at $12 an hour, line cooks make $15 an hour and head chefs about $20 an hour. He estimates his dinner shift waiters make between $25 and $50 an hour when tips are counted.

Huffman’s experiment in redistributing some of that money led to the opening of Loyal Legion in Southeast Portland last year, which experimented with a policy of no tipping — servers (bartenders) and cooks get paid about the same, starting at $18 an hour.

But Loyal Legion, which has space for 200 customers, doesn’t have waiters. Food service is handled by the four bartenders — there is no table service. That’s fast casual, and it’s where restaurants are heading and will head more quickly if they have to pay all employees $15 an hour, Huffman says. Grassa, a popular pasta restaurant opened by ChefStable downtown, is another fast casual variation.

The move to fast casual dining eliminates the best paying jobs, which is waiters, Huffman says. That doesn’t seem like progress to him.

Nighttime servers at every other ChefStable restaurant make more money than the owners, according to Huffman. Yet chefs are the employees most responsible for the success or failure of the restaurants, Huffman says, and most responsible for the resurgence in the Portland food scene.

Fifteen dollars an hour? “It’s like a big sledgehammer and it’s a one size fits all solution that is going to be devastating,” Huffman says. “It’s not going to be devastating for national chains or coffee houses where you have few employees. It’s going to be devastating for precisely the type of restaurant that has put Portland on the national culinary map.”

TRIBUNE PHOTO: JAIME VALDEZ - BIpartisan Cafe owner Peter Emerson wants to pay his workers $15 an hour, but he says thats only possible if the higher minimum wage becomes law and his competitors have to do the same.

Real impact

All sorts of service industry jobs might be lost if the minimum wage is raised, says Michael Saltsman, research director for the Employment Policies Institute, a Washington, D.C., nonprofit that receives much of its funding from the restaurant industry. Saltsman says a $15 an hour minimum wage won’t help the poor so much as those who are one rung above them, and won’t do much at all to narrow the income inequality gap.

“It’s a brave new world,” Saltsman says. “I don’t think we want to experiment with the burger flippers’ jobs ... we’re already checking ourselves out at the grocery store.”

Saltsman predicts many of the poorest of the working poor would lose their jobs and become unemployed. Many of those who might benefit would be those bringing a second paycheck to a household where somebody else is the primary breadwinner — a teenager working part time, for example.

“When minimum wage has gone up it’s really been best described as, basically, a redistribution of income among people at the bottom end of the wage scale,” Saltsman says.

That’s not true if the higher minimum wage is recycled back into the local economy, says Tyler MacInnis, policy analyst for the Oregon Center for Public Policy, which supports $15 an hour.

“If we look back at our state history, we have a pretty good record that a boost in wages can go hand in hand with job growth, especially in the small business sector,” MacInnis says. “Really, we’re talking about putting more money in the hands of consumers. A higher minimum wage works for small businesses.”

Yet even MacInnis says it’s hard to predict whether a $15 an hour minimum wage would have substantial impact on income inequality. The widening gap between the rich and the working poor is greatly the result of a series of complicated economic and social forces that have allowed top executives and wealthy investors to secure compensation packages that dwarf the pay of their employees, and dampened the wages of nearly all but the top salaried U.S. workers.

Economists’ measurement of inequality is called the Gini coefficient, which measures the difference in income of each household in a city. The more income inequality between households, the higher the coefficient.

According to that measurement, U.S. inequality was at its low point in 1975, according to Richard Morrill, a retired University of Washington professor who studies the geography of inequality.

“It’s gotten worse ever since,” Morrill says. Among the most oft-cited reasons are the shift of high-wage manufacturing jobs to oversees factories and changes in the federal income tax structure. Income tax rates for the wealthy were slashed during the 1980s.

But economists began to see Gini coefficients soar as the nation came out of the recession — the income gap between the rich and poor increased dramatically after the hard times. Remarkably, this wealth transformation has occurred in Portland to a greater degree than in most U.S. cities.

Historically, Portland has been ranked low for inequality, according to Troy Walters, senior economist at IHS, an economic forecasting firm that studies inequality for the U.S. Conference of Mayors. “It’s been a pretty egalitarian metro area and Oregon has been a pretty egalitarian state.”

But Portland’s rapidly escalating home prices, combined with a recent study showing that Oregon has the highest net percentage of new residents moving in, Walters says, paint a picture of a place where people of wealth are choosing to relocate. The sense that Portland’s immigrants are largely young creatives struggling to find work is probably outdated, he adds.

“The attractiveness of Portland brought (young creatives) there, but those type of people tend to be the leading indicators of wealthier young people moving to an area,” Walters says.

A recent Brookings Institution study of cities with the most dramatic one-year income increases for their wealthiest households ranked Portland seventh.

“I fully expect that to be a trend,” Walters says.

Next: A different local model


U.S. cities with most dramatic increases for top 5 percent of household incomes, from 2012 to 2013

Seattle 14.9 %

Cleveland 13.9

Jacksonville 13.8

Louisville 13.8

San Jose 12.2

Dallas 12.2

Portland 11.3

Data: Brookings Institution