Posts by Goldy

People Are Not Bananas (Except for Tim Worstall)

Banana

As a proud “Fellow at the Adam Smith Institute in London,” you’d think the one thing Forbes blogger Tim Worstall might have a firm grasp of is, well, Adam Smith. But you wouldn’t know it from Tim’s nuance-free depiction of the labor market:

This is very basic economic stuff: If we have a surplus of something then that means that the price is above the market clearing price. This is true of bananas and it’s also true of labor. The answer to getting all the bananas sold is to lower the price. The answer to getting all the people who want to offer labor employed is to lower the price of that labor.

Oy. If by “very basic” Tim means “simplistic to the point of absurdity,” then sure.

The most obvious problem with Tim’s labor/bananas analogy is that people are not bananas. For example, if the demand for bananas far outstrips supply, people can always choose to eat apples or oranges or any number of other fruits. Because markets! But regardless of the state of the labor market, people still need to eat. And as Smith explains in The Wealth of Nations, this fundamental human condition — eat or die — is just one of the factors that inherently distorts the labor market decisively to the advantage of employers:

What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. … In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

According to Tim, the most efficient (and broadly beneficial) market is one in which prices are set purely through the unadulterated interplay between supply and demand. But even if true, that’s not the way unregulated labor markets have ever functioned. For as Smith explains, wages are set by contract. They are negotiated. And particularly at the low end of the scale, employers enjoy a distinct negotiating advantage.

And as a result, wages are also influenced by bias — the natural bias of employers to keep their labor costs low. As Smith bluntly put it:

[W]hoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things, which nobody ever hears of.

Perhaps there’s no clearer real-world example of this “natural state of things” than our nation’s perennial shortage of truck drivers. After a brief collapse during the Great Recession, the shortage of truck drivers quickly reemerged, climbing from 38,000 in 2014 to 48,000 in 2015. According to the latest research from American Trucking Associations, the shortage could balloon to 175,000 by 2024. Trucking companies routinely turn away business.

Given the critical role of trucking in our economy (69 percent of all freight tonnage moves by road), Worstallian Economics predicts that industry wages will gradually rise until the supply of truckers matches demand, and the market clears. Yet as Neil Irwin observed in the New York Times, the industry’s bias against raising wages has prevented the market from doing its magic:

[T]he idea that there is a huge shortage of truck drivers flies in the face of a jobless rate of more than 6 percent, not to mention Economics 101. The most basic of economic theories would suggest that when supply isn’t enough to meet demand, it’s because the price — in this case, truckers’ wages — is too low. Raise wages, and an ample supply of workers should follow.

But corporate America has become so parsimonious about paying workers outside the executive suite that meaningful wage increases may seem an unacceptable affront. In this environment, it may be easier to say “There is a shortage of skilled workers” than “We aren’t paying our workers enough,” even if, in economic terms, those come down to the same thing.

By 2014, adjusted for inflation, truckers were earning 6 percent less, on average, than they did a decade before. And yet trucking executives would rather leave business on the table than raise pay to attract more truckers. “It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job,” observes Irwin.

Obviously, wages in the trucking industry aren’t immune to the tugs of supply and demand. But they sure as hell aren’t dictated by them.

And its not just the trucking industry. As the housing market recovers, the construction industry has faced a looming worker shortage of its own, even against the backdrop of persistent unemployment. And here in Washington State, produce is left rotting in the fields for want of enough farmworkers at harvest time. Pay them and they will come, Econ 101 teaches. But in industry after industry, the masters of capital simply refuse.

Minimum wage opponents like Worstall insist that the market determines the value of labor. And yet the wage-suppressing evidence of extra-market forces are all around us. Walk into a Sam’s Club and observe cashiers doing the exact same job for $5 an hour less than cashiers at the Costco down the street. The market didn’t set those prices; employers did. Or, look at the history of manufacturing in America, which didn’t broadly generate middle-class wages until collective bargaining forced it to. Supply and demand didn’t build the Great American Middle Class; unions did.

Or, look around your own workplace. You’ll likely find similar people with similar skill sets performing similar jobs but for different wages. Sometimes dramatically different wages. The invisible hand of the market? No. Some people are simply better at negotiating their own wage than others.

So enough of this bullshit about wage floors distorting the natural efficiencies of the market. You can’t distort something that doesn’t exist.

The Real Lesson from $15? America’s Trickle-Down Experiment Has Failed

Minimum wage model

Washington Post editorial writer Charles Lane admits he has no earthly idea what a $15 minimum wage will do to California’s economy. Still, that doesn’t stop him from squeezing an 800-word column out of his utter absence of knowledge. Nice work if you can get it.

There’s a total lack of evidence that the potential benefits would outweigh potential costs — and ample reason to worry they would not.

Yes, true in the sense that it is literally impossible to gather evidence on the actual consequences of something that has yet to happen. But it’s not like cities, states, and the federal government haven’t raised the minimum wage hundreds of times over the past 80 years while producing little compelling evidence that the actual benefits (you know, higher wages) have ever been outweighed by the actual costs.

And no, contrary to Lane’s assertion, California’s proposed increase from $10 an hour in 2016 to $15 in 2022 — 50 percent over six years — is not particularly “Yuuuge.” From a historical perspective, it’s kinda the norm. In fact, if anything, it’s on the low side.

california minimum wage

Hanna Brooks Olsen does spreadsheets old school.

From 1939 to 1945 the federal minimum wage climbed 60 percent. From 1961 to 1968 the federal minimum wage climbed 60 percent. From 1974 to 1980 the federal minimum wage climbed 94 percent. From 1990 to 1997 the federal minimum wage climbed 54 percent. Hell, from 2007 to 2009, over just three years, the federal minimum wage climbed 41 percent.

And what of the devastating job-killing consequences of these unprecedented wage hikes? If the evidence shows some equally obvious pattern of correlated job losses, I’ve never seen it. In fact, in the years following the largest one-year minimum wage hike in our nation’s history — a whopping 87.5 percent increase from $0.40 in 1949 to $0.75 in 1950 — the unemployment rate plummeted from 5.9 percent in 1949 to 2.9% by 1953. Likewise, here in Washington State, after tipped workers enjoyed an 85 percent wage hike from 1989 to 1990, restaurant industry employment growth outpaced the rest of the economy over the following decade.

In short, California has no idea what it’s getting into, because it can’t; there is simply no experience from which to learn.

In short, that is simply a load of bull. We have plenty of experience with minimum wage hikes at this scale, and the evidence displays no discernible correlation between rising wages and rising unemployment. (If it did, minimum wage opponents would be busy citing that correlation, instead of just imagining it.)

As for Lane’s assertion that $15 as a percent of the median hourly wage would be “unprecedented;” yeah, maybe, but really, not by all that much. And should we even care?

In 1968 the federal minimum-to-median ratio stood at 55 percent. By 2022 California’s ratio would rise to about 69 percent — a smaller differential from 1968 than is the current 38 percent federal ratio. Yet I don’t hear Lane warning about the risk of falling so far behind the norm. But moreover, the 50 percent “benchmark” that Lane and others cite is an arbitrary ideal grounded more in economic tradition than in rigorous intellectual analysis:

Other industrial democracies with statutory minimum wages typically set theirs at half the national median wage, too.

And if other industrial democracies were to jump off a bridge, should we follow suit? Sorry, but “that’s the way we’ve always done it” isn’t a compelling economic argument.

But even if the 50 percent benchmark had a rational justification once upon a time, given the enormous changes to our economy over the past half-century, it’s no longer clear that minimum-to-median remains a relevant index even for purposes of comparison. The “median hourly wage” figure is for full-time non-supervisory work, a metric that ignores the rise of part-time employment, particular among low-wage workers: Only 13.5 percent of US workers were part-timers in 1968. Today, that number stands at 18.5 percent. Yet about 64 percent of at-or-below minimum wage employees work part-time. And over the same period of time, the median wage has all but flat-lined, generating a 50 percent minimum-to-median benchmark that might never justify giving minimum-wage workers another raise.

Stagnant wages

Whatever the relevance of the minimum-to-median ratio a half-century ago, that ratio is simply not an apples-to-apples comparison to today’s.

No doubt Lane is correct that “economic theory strongly suggests” that the consequences in California could be dire. But standard economic theory always suggests such dire consequences from raising the minimum wage — predictions that never turn out to be true!

The basic trade-off, per Economics 101, is that the increased earnings that a higher minimum wage gives workers at the low end of the income scale might be offset by pricing those workers out of jobs they could have had at less than the new, higher minimum wage.

So says the theory. But the evidence from 80 years of minimum wage hikes suggests that Economics 101 is wrong.

The biggest flaw in the standard economic models is that they never account for the increased consumer demand generated by a higher minimum wage. They correctly consider the reduction in wages due to capital-labor substitution and productivity gains. They correctly consider the reduction in consumer spending due to higher prices. And they correctly consider the reduction in jobs and GDP due to these cumulative effects.

But what these standard models have consistently failed to consider is the “income effect“: the countervailing increase in consumer spending due to higher wages. Instead, these old models — the ones on which most economists still rely — seem to assume that the money paid out in higher wages is simply pissed into a black hole or something.

Economist Michael Reich of UC Berkeley addresses this glaring oversight by creating a new model that adds the income effect to the cumulative impact of substitution and scale. And in a policy brief on a proposed $15 minimum wage for New York State, Reich and his co-authors project a small cumulative net gain in employment, concluding that “the costs of the minimum wage will be borne by turnover reductions, productivity increases and modest price increases.”

Whatever your predisposition to the minimum wage, it’s hard to argue that Reich’s approach doesn’t make sense: The wages earned by low-wage workers are not sucked out of economy; they’re plowed right back in, and at higher rates than those of more affluent workers who do not need to spend every penny they earn. I may lack the expertise to speak to Reich’s execution, but I have enough common sense to understand that the income effect is real.

But more convincingly, unlike the standard models touted by credulous status quoists like Lane, Reich’s model actually explains the actual data collected from actual minimum wage increases over the past 80 years. It predicts what happened rather than what did not.

And if this model proves true, it demands a paradigm shift in our entire approach to this debate: For rather than reflexively asking the question of whether the benefits are worth the jobs we might lose if we raise the minimum wage, we need to start asking how many jobs might we lose if we don’t? For if raising the minimum wage would result in a cumulative net gain in employment, however small, doesn’t that necessarily mean that we have fewer jobs today than we otherwise would have had we not kept the minimum wage so low?

How many jobs have we lost — how much GDP have we sacrificed — by allowing the minimum wage to fall so far behind growth in productivity, median wage, and even inflation? “How low is too low?” minimum wage critics should be forced to answer.

Or to borrow a phrase from their own smug rhetoric: “If $7.25 an hour, why not $5.00? If $5.00 an hour, why not zero?

The failure of opponents and supporters alike to even consider these questions just demonstrates how stuck we all are in the muddy intellectual morass of the old equilibrium economics. So convinced are we that there must be a cost to raising wages — a “basic trade-off, per Economics 101,” as Lane might say — that it’s never occurred to us to model the cumulative cost of keeping wages too low.

Well, no need.

Lane warns that with $15, California is running a dangerous “experiment” (or a “gamble” as Timothy B. Lee pejoratively chimes in on Vox), but we have already been running the largest economic experiment in our nation’s history — a low-wage trickle-down experiment — for the past forty-some years.

Sometime in the 1970s, after three decades of unparalleled growth and shared prosperity (an era in which we raised the minimum wage in step with productivity), we chose to conduct a massive experiment on the American economy: We chose to cut taxes on billionaires and to deregulate the financial industry. We chose to starve our schools and to saddle our children with more than $1.2 trillion worth of student debt. We chose to erode the minimum wage and the overtime threshold and the bargaining power of labor.  We chose to believe in the promise that a rising tide of capital accumulation would lift all boats.

It didn’t.

So now, after decades of stagnant wages, growing inequality, and the staggering rise of Trump, it is reasonable to conclude that America’s trickle-down experiment has failed.

(Alas, it is a failure that most journalists have yet to fully comprehend. For in reflexively repeating the discredited meme that $15 is a risky “experiment,” they repeat the most pernicious lie in the trickle-down repertoire:  Not that if the rich get richer it’s good for the economy, but that if the poor get richer it’s bad.)

That is the lesson to learn from California and New York and Seattle and everywhere else that $15 has taken hold: the trickle-down experiment has failed. And so reasonable people, looking at this failed experiment’s results, have reasonably chosen to move on to something else.

Of course $15 is an experiment too. Everything in life is. That is how we and all our social institutions evolve. But $15 is an experiment based on a wealth of experience, a ton of supporting evidence, and an economic model that — unlike trickle-down — appears to work in practice as well as it works in theory.

What Happens in California Stays in California; Why $15 Will Boost Employment Statewide

A promotional image from Sony Picture's 2012, which imagined the total devastation California might suffer from a $15 minimum wage.

A promotional image from Sony Picture’s 2012, which imagined the total devastation California might suffer from a $15 minimum wage.

Experienced bloggers know that if you provide a block quote, few readers will click through the cited link — a rule of thumb that less scrupulous bloggers sometimes exploit to devious effect.

For example, take this recent post from Forbes economic blogger Tim Worstall: “California’s $15 Minimum Wage Deal Will Cause Unemployment–And We Have Proof Of This.” Worstall’s claim (as always!) is that a $15 minimum wage will cost many low-wage workers their jobs. Only this time, he kvells, he’s got a lefty economist to back him up:

And we actually do have proof of this: a report about what a $15 minimum wage will do to employment in Los Angeles City. This is not, by the way, a report by some from market fundamentalist like myself. This is from Michael Reich et al at Berkeley, stout supporters of a rise to $15. And yet even their report states that the net effect will be fewer jobs.

Go ahead. Click through the link above and read this Worstall quote in its full context. The “proof” mentioned in Worstall’s headline, that $15 “will cause unemployment,” is a cited study by Berkeley economist Michael Reich. That is the main thesis of Worstall’s post. There is absolutely nothing misleading or unscrupulous about my block quote.

Alas, the same can’t be said for Worstall’s out-of-context quoting of Professor Reich:

Los Angeles City: Combining costs and benefits and taking into account multiplier effects,we estimate a cumulative net reduction in GDP of $135 million by 2017 and $315 million by 2019, or 0.1 percent compared to a scenario with no city minimum wage increase.

These effects on the level of economic activity correspond to a cumulative net reduction in employment in Los Angeles City of 1,552 jobs by 2017 and 3,472 jobs by 2019, or 0.1 and 0.2 percent of all employment, respectively.

Yes, according to Reich’s model, it is true that a $15 minimum wage hike — in the City of Los Angeles — would result in less growth and fewer jobs — in the City of Los Angeles — than there might have otherwise been had the city not raised its minimum wage. But if you click through the provided link and read the Reich quote within its full context (as Worstall presumed you wouldn’t), you’d come to a very different conclusion about the State of California as a whole:

  • The costs of the proposed minimum wage law will be concentrated in Los Angeles City, but the full benefits will be realized throughout Los Angeles County, because more than half of the affected workers live, and therefore spend most of their increased earnings, outside the city.
    1. Los Angeles City: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net reduction in GDP of $135 million by 2017 and $315 million by 2019, or 0.1 percent compared to a scenario with no city minimum wage increase.
      These effects on the level of economic activity correspond to a cumulative net reduction in employment in Los Angeles City of 1,552 jobs by 2017 and 3,472 jobs by 2019, or 0.1 and 0.2 percent of all employment, respectively. These employment changes are quite small when compared to projected job growth of 2.5 percent a year in the city.
    2. Los Angeles County: Combining costs and benefits and taking into account multiplier effects, we estimate a cumulative net increase in employment of 3,666 jobs by 2017 and 5,262 jobs by 2019 at the county level.

That’s actually a net increase of jobs throughout Los Angeles County that more than offsets the tiny projected loss within the city proper!

What Reich is describing above is a kind of economic “leakage,” in which the costs of higher wages are borne entirely within the city while the benefits are shared countywide. This is especially pronounced due to Los Angeles’ relatively high concentration of low-wage jobs. The smaller and more local the minimum wage jurisdiction, the greater the potential leakage effect might be.

But California as a whole is a virtual economic island with none of its job centers a reasonable commute from state borders; almost every minimum-wager who works in California lives in California. There would be little if any economic leakage from a statewide $15 minimum wage. Indeed, as Reich explains: “Just as minimum wage increases in Los Angeles will benefit surrounding areas, higher minimum wage levels in those areas would also boost economic activity within the city, allowing Los Angeles to realize its full share of the benefits of a minimum wage increase.”

What Worstall has done is cleverly deceptive: he selectively quotes a study on Los Angeles as “proof” that $15 “will cause unemployment” statewide. But Reich’s model actually suggests the opposite: a statewide $15 minimum wage would provide an economic boost to Los Angeles proper and to California as a whole.

Overtime Rule Goes to OMB, 13.5 Million Americans Could Soon See Higher Wages

Overtime

The Economic Policy Institute’s findings indicate that millions of families would benefit from these increased rules.

President Obama’s proposal to restore overtime benefits to millions of hardworking Americans cleared another hurdle last night when after months of considering public comments, the Department of Labor (DOL) transmitted the final rule to the Office of Management and Budget.

We don’t know exactly what’s in the final rule, but there’s been no indication from the administration that the details have substantially changed. If approved as proposed, the income threshold above which salaried employees are exempt from time-and-a-half pay for every hour worked over 40 hours a week would more than double, from $23,660 a year to $50,440.

According to an analysis from the Economic Policy Institute, 13.5 million Americans would directly benefit from the new rule.

Overtime pay is like a minimum wage for the middle class. And just like the minimum wage, the overtime threshold has been allowed to erode away for decades: Back in 1975, 65 percent of salaried workers qualified for overtime; today only 11 percent do.

But unlike the minimum wage, the Obama administration has the power to raise the overtime threshold without congressional approval through the DOL’s rule-making authority. It’s a long and drawn out process, but it looks like it’s on track to be completed by the end of summer.

No doubt a Republican president would reverse this rule — something middle class voters might be thinking about when they cast their ballots in the fall.

$15 Minimum Wage Would Boost Employment in New York State, Study Concludes

Minimum wage model

A new study from UC Berkeley’s Institute for Research on Labor and Employment concludes that raising the minimum wage in New York City to $15 by 2018 and in the rest of the state by 2021, would actually result in a net increase of jobs:

Our estimate projects a cumulative net gain in employment of 3,200 jobs by mid-2021, which corresponds to 0.04 percent of projected 2021 employment.

Sure, 3,200 jobs is a tiny gain within the context of a giant economy like New York’s, but the point is it’s not the catastrophic loss that the naysayers warn of. It’s not any loss at all. In fact, it’s the opposite.

But more important is the “23.4 percent average wage increase for 3.16 million workers” in New York State. As The Donald would say, that’s yuuuge!

How is this possible? “How can such a major improvement in living standards occur without adverse employment effects?” Simple, the researchers conclude:

While a higher minimum wage induces some automation, as well as increased worker productivity and higher prices, it simultaneously increases worker purchasing power. In the end, the costs of the minimum wage will be borne by turnover reductions, productivity increases and modest price increases.

As we’ve been saying all along: When workers have more money, businesses have more customers and hire more workers. Pretty obvious, right?

Their Job Losses Are Hypothetical; Our Minimum Wage Gains Are Real

Jobless men keep going

I can’t actually bring myself to read all the way through Tim Worstall’s latest word jumble at Forbes, because I already have a slight headache, and Jesus, folks, it’s Friday afternoon, so gimme a break. But I would like to comment briefly on his disclaimer at the top:

Before we go any further, as with other minimum wage rises that have been discussed here, no, I am not claiming that the rise is about to destroy the economy of that fair state, nor that all that will be left is a howling wasteland as the unemployed desperately search for scraps. I also agree entirely that the macroeconomic issues of what happens to the whole national economy are going to have far more to do with the employment and unemployment rates in Oregon than this change to the minimum wage will bring about.

… The claim is this and only this: That a higher minimum wage will lead to fewer jobs than the absence of that higher minimum wage would have led to.

Good on Tim for being up front about what he is claiming; not all trickle-downers are so forthright. But let’s be clear about what the core neoclassical claim is: it’s not that raising the minimum wage will destroy existing jobs, but rather that it will lead to fewer jobs in the future than there otherwise might have been.

In other words, it is a claim that, no matter the empirical evidence, has the inherent advantage of being impossible to ever disprove!

How convenient.

Of course, the neoclassical models back Tim up. Run the models, and they’ll always project at least some theoretical job losses (in the future!) associated with minimum wage hikes large and small — despite the fact that the actual data from hundreds of local, state, and federal minimum wage hikes over the past 75 years show zero correlation between the minimum wage and jobs.

No, I can’t actually prove that there wouldn’t have been more jobs created (in the future!) had the minimum wage not been raised, because it’s entirely impossible to prove or disprove. It’s an alternate history. But what I can prove (and even Tim apparently agrees with this) is that a minimum wage hike has never destroyed the economy in the past.

Oh, also: that it always results in higher wages!

To be clear: Tim’s job losses are hypothetical. But our wage gains are real.

But even if Tim is right that a modest hike in the minimum wage would almost certainly lead to fewer jobs (in the future!) — and I’m not saying that he is — that still may be a tradeoff that’s well worth making. This isn’t a video game. The purpose of economics isn’t to score the highest GDP or the lowest unemployment rate. The purpose of economics is to broadly improve the lives of actual people. I’m more than willing to admit that there is a limit to how high we can reasonably raise the minimum wage — that there is a point beyond which the risk of theoretical job losses exceeds the benefits of actual wage gains.

If trickle-downers like Tim can likewise admit that there’s a point where the benefits of raising the minimum wage exceed the theoretical costs, perhaps we can have a rational and productive policy debate about how high the minimum wage should actually be.

Mutually Assured Obstruction: McConnell’s SCOTUS Gambit Leaves Dems No Choice but To Go Nuclear

Nuclear option

Thanks to the obstructionist tactics of the GOP majority, 210 years of US Senate tradition are about to go “BOOM!”

Not only are Republicans refusing to consider any Obama appointment to replace the late Justice Antonin Scalia, Senate majority leader Mitch McConnell has even refused to commit to confirming a nominee put forth by the next president — you know, should that president be a Democrat. And for all the chatter about what this means for the future of the United States Supreme Court, I’d like to take a moment to consider what this means for the future of the US Senate.

Um… BOOM!!!

If a Republican Senate majority sets a precedent by denying a Democratic president his constitutional authority to appoint a SCOTUS justice, then given a similar opportunity, a Democratic Senate majority must return the favor in kind. The failure to retaliate would only incentivize the Republicans to do this again and again, leaving them exclusive control over the ideological balance of the Supreme Court. So Democrats must vow to reject the nominees of all future Republican presidents.

And I don’t just mean during an election year — I mean ever.

Republicans must be made to understand that if they deny this president his right to appoint a justice to this particular Supreme Court seat, the Republicans will assure that no president with an opposition Senate will ever be able to appoint a justice again.

Sounds pretty dysfunctional, right? So given the current rules (whereby a single spiteful member can pretty much block any bill or motion from coming to a vote), how could such a pathologically partisan Senate ever hope to function again? Of course, it can’t. That’s why, should the Democrats regain control of the Senate this November, the first thing the new majority must do is eliminate the body’s longstanding super-majority rules. In other words, Democrats must choose the “nuclear option” and kill the filibuster.

And should the Republicans retain their majority in the face of a justifiably angry and indignant Democratic opposition, McConnell would have to be an idiot not to do the same.

Assuming the Republicans carry through on their pledge to block any Obama nomination, the filibuster is as good as dead.

Here’s Why Unemployment Is Not the Best Measure of the $15 Minimum Wage

minimum wage increase

Damn you, $15 an hour minimum wage!

 

There are a handful of anti-minimum wage propagandists who jump on any monthly uptick in Seattle’s already low unemployment rate (or whatever statistic they’re obsessing on this month) as evidence that Seattle’s $15 minimum wage ordinance is an unmitigated job killer. Sure, anybody who actually lives here knows firsthand that Seattle’s economy is booming, but, you know, statistics don’t lie, or something.

Of course, it will take years to tease out the real impact of Seattle’s higher minimum wage, so all this short term analysis is just so much bullshit. But let’s for the sake of argument assume that the righties are right, and that a modestly higher minimum wage does in fact result in a modestly higher rate of unemployment.

Would that necessarily be a bad thing?

If you think about it, if you’re unemployed, what really matters to you personally is unemployment duration, not the unemployment rate — that’s the amount of time it takes you to find a new job. You know, the time during which you might expect to be unemployed.

Historically, the median unemployment duration has tended to be about 5 weeks, while the average came in somewhat higher at about 15 weeks, with both figures rising and falling somewhat in line with the unemployment rate. Likewise, the rate of longterm unemployment (defined as 27 weeks or more of unemployment) has tended to average about 1 percent, again, fluctuating somewhat in line with the overall rate of unemployment.

(The exception to all this was the Great Recession, when the rate of longterm unemployment soared compared to past downturns. Given that the number one predictor of your likelihood of finding a job is the length of time you’ve been without one, many Americans who lost jobs during the Great Recession may never work again.)

Seattle’s seasonally adjusted (though preliminary and uncorrected) unemployment rate has in fact risen about a point since bottoming out at a near historic low of 3.5 percent this summer. It would be stupid given what little data we have to blame this on our minimum wage, but again, for the sake of argument, let’s be stupid and do exactly that. So what exactly does this mean for our city’s low-wage workers?

Well, the fact is, at about 4.5 percent, Seattle’s unemployment rate is still so low as to fall within the range of what most economists consider to be “full employment,” and thus history tells us that at this rate it is reasonable to assume that unemployment duration should remain low as well. But even if unemployment duration increased substantially, Seattle’s minimum wage workers would still come out way ahead. That’s because any lost income from an increase in unemployment duration would quickly be made up by an increase in hourly wage.

At $13 an hour, Seattle’s minimum wage workers already earn $3.53 an hour more than the state’s $9.47 minimum wage, meaning it would take less than three weeks of work to make up for each additional week of lost wages at the lower state rate. Except, that’s not counting for unemployment insurance. Throw in WA state’s minimum unemployment compensation of $158 a week, and it takes only about a week and half of work at $13 an hour to make back the lost wages from each additional week of lost wages at $9.47 an hour.

Let’s put this another way. Let’s say, on January 1 of this year, two workers, Mark and Tim, got laid off from their $13 an hour jobs at a franchise of a national fast food chain. Mark immediately took a $9.47 an hour job tossing pizzas in Renton, while Tim took 14 weeks of unemployment — until April 1 — until he could find another $13 an hour job in Seattle. By September 2, Tim’s year-to-date income would already surpass Mark’s, despite three full months of unemployment! Assuming full-time work, by the end of the year, patient Tim would have out-earned Mark by more than $2,400.

But the real payoff for Tim comes in 2017, when Seattle’s minimum wage climbs to $15, and the inflation-adjusted state minimum wage inches up to maybe $9.66, tops. Over the course of the year, Tim would earn more than $11,100 more than Mark for the same 2,040 hours of full-time work!

Or, let me put this in a way even one of our city’s well-paid tech workers might understand: If you suddenly lost your current job, would your rather take another one immediately at $96,000 or would you rather take a few extra months to find a comparable job that pays $150,000? If you choose the former, I’m guessing you can’t do the math well enough to command either.

The point is, the goal of our economic policies shouldn’t be to lower unemployment or increase GDP (or boost corporate profits, for God’s sake); the goal of our economic policies should be to broadly improve the lives of our people. And while we’d rather keep the unemployment rate low — and while there’s no empirical evidence suggesting that minimum wage hikes boost unemployment — we’re more than willing to accept a modest increase in unemployment in exchange for a substantial increase in wages, if that’s what’s best for our community.

The problem with focusing on metrics like the unemployment rate is that you end up prioritizing those things that are easiest to measure rather than those that best reflect outcomes. But in the end, as I’ve said before, whatever the statistics, only Seattleites get to decide whether $15 has succeeded or failed.