Raising the minimum wage is powerful. Powerful enough to lift millions out of poverty. Powerful enough to reduce dependence on social services, such as food stamps. And, apparently, powerful enough to go back in time and change unemployment numbers for teens and also spur lawmakers to create policies to address those numbers.
At least, that’s what the conservative bloggers over at ShiftWA seem to think—which would certainly explain their apparent fear of a minimum wage increase. I mean, if it’s so completely able to change the arc of time, what can’t it do?
Their most recent example of the minimum wage’s might is Seattle Mayor Ed Murray’s youth employment initiative which, they say, is a direct response to the massive decline in youth employment as a direct result of the gradual ascent to $15. First pointed out by right-wing think tank the Washington Policy Center, the initiative is designed to help encourage businesses to hire more youths, and to train young people to make them more job-ready. Because, according to WPC and Shift, it’s the minimum wage that has made it so hard for them to get hired.
Nevermind the fact that Washington’s schools are literally criminally underfunded, which could contribute to a dearth of teens with necessary skills the join the workforce (according to the Mayor’s office, “nearly 70% of employers report graduates are deficient in critical thinking and problem solving skills essential to successful job performance”)—no, the reason teens and other young folks can’t get hired is because of a law that went into effect just about 400 days ago.
That makes perfect sense, assuming that the minimum wage increase was somehow impacting employment long before it actually became a law, let alone went into effect.
Washington state has had high numbers of teen unemployment for years; a 2011 report found that “Washington teens are only slightly better off than teens in Georgia when it comes to unemployment rates” (for reference, the 2011 minimum wage in both of those states was and $8.65 and $5.15, respectively, so it’s safe to assume that was not wage-based, either). A few years later, in 2014, Washington’s minimum wage had gone up, while its teen unemployment rate had gone down to about 25%.
Today—post minimum wage increase—it’s 13%, according to the city.
Part of the reason for the decrease? Youth employment initiatives like the Mayor’s, which have existed for years and are kind of a staple in city, county, state, and federal politics. Programs like Youth at Work and the (partially) privately-funded Summer Youth Employment Program have been actively trying to place kids in jobs because it’s good for the economy, not because the minimum wage has made them impossible to hire.
Murray’s youth employment initiative is likely not intended to cover up the blunder that is the minimum wage ordinance, but rather, to fulfill a promise he made in his State of the City address this year, wherein he addressed the racial achievement gap that has plagued Seattle since long before anyone uttered the words “$15.” From his speech (wherein he announced the doubling of the youth employment initiative among other investments in racial equity programs that have nothing to do with the minimum wage):
I believe that when our young black men are at their best, Seattle is at its best. My vision is that in 10 years, all of Seattle’s young people will have the opportunity to enjoy the benefits that come with a growing city and a growing economy.
Yes, that definitely sounds like an elaborate coverup of a failed policy and not, you know, a politician addressing a systemic issue that is failing thousands of King County residents.
Unless, of course, you believe that the minimum wage is so vastly powerful that it has managed to reach back through decades to change the course of history specifically to ensure that at this very moment, the Mayor is forced to (horror of horrors) take affirmative action to help vulnerable community members find jobs because some other community members are now pulling down what’s close to a wage they can live on. Yes, that explanation makes sense.
The deeply ironic act of spending money to avoid paying workers even a cent more is not new; conservative think tanks, lobbyists, and industry groups have been shelling out money in the form of campaign donations, legal services, and “educational” materials for ages. Just look at how far the airlines and Port of Seattle went just to avoid paying SeaTac airport workers $15 an hour. That couldn’t have been cheap. And we know from a ROC report that the National Restaurant Association had (as of 2014) spent close to $13M on political donations since 1989, largely to fight proposed labor laws like increased minimum wage and sick leave.
But they’re not just throwing money at guys in suits to argue that this country is becoming a nanny state, damnit! No, they are also spending decent dollars on campaigns to actively mislead you—with clever names that sound like they may be quite scholarly.
Like, you know, MinimumWage.com:
…Which is paid for by the very-rational-sounding Employment Policies Institute (EPI—not to be confused with the otherEPI, who actually do good work), who are in fact a right-wing think tank whose major focus is ensuring the minimum wage stays as low as possible.
Another “winner”: MinimumWageFacts.com:
…Which is a product of the Freedom Foundation, a Washington-based conservative think tank which has fought the unions at every possible turn.
And to be honest, I have to recognize the hustle that these groups are demonstrating. It’s extremely clever to just snatch up a domain knowing full well that people will be Googling exactly that fact. Plus, buying domains is fun! I recently did it myself!
Y’all last night I had some fun with domains and I made a vanity url for my Twitter profile.
But truly, the idea of spending real American dollars for the express purpose of spreading misinformation (more on that later) about a policy that could legitimately help people is just upsetting. And lest you think it’s not that much cash, allow me to examine.
Even just buying a website with a domain as coveted as that—hello, minimum wage dot com? Who wouldn’t want that? — is expensive, and having it designed and built is even more costly. In fact, according to a website that literally just estimates the worth of a site, MinimumWage.com is like, pretty spendy:
Yowza! $2,160? Why, that’s 298 hours worked at the minimum wage! Or, it’s how much more a worker currently making $7.25 would have after seven weeks of work if they were making $15. But of course, that’s not how much EPI actually spent; according to a 2014 tax filing, they dropped $1.7M “to maintain EPIonline.org, minimumwage.com, and tippedwage.com” as well as to do other things, like buy advertisements.
That’s 234,483 hours worked at the minimum wage—or about the cost to employ more than 4,500 workers full-time for a year—but who cares? That’s chump change to an organization (which is exempt from income tax!) whose gross receipts totaled over $3.6M.
And while all of that is a sincere bummer, and also really fishy—have you ever stopped to wonder why someone would spend more money than a minimum wage person will see in a lifetime to keep those same people from making an extra few dollars each year? Like maybe, I don’t know, racism, classism, misogyny, or greed?—the truly sad part is that they’re not even doing a good job of it. I mean, EPI has an infographic with little to no information on it and their blog posts on the subject routinely ignore very salient research from the University of Washington, UC Berkley, the Cornell School of Hotel Administration, and other valuable resources.
And the Freedom Foundation’s site is a true nightmare. The FAQ is literally dummy text:
…and their research page may as well be, as it’s more than half full of citations from the same researcher who—surprise! Works for EPI!
Now, I am sure opponents of the minimum wage will gleefully point to the fact that as we speak, I am getting paid real American dollars to write this blog post. And that SEIU and other labor and interest groups have also spent money to further the idea that it’s good for the economy when workers have more money. But if that is your counterpoint—that we, too, are making it rain to push our agenda—consider who that agenda helps. I have literally no financial stake in whether or not the minimum wage goes up or down. I’m doing this because I believe that people should be able to support themselves with full-time work, and that the economy is better off when people have more money in their pockets to spend on stuff in their community. Interestingly, there’s a large body of evidence from think tanks, universities—and the U. S. government—to back me on that.
So when someone tells you a scary story about how raising the minimum wage will cost you your job, ask yourself: What are they getting out of it?
Writing in The Week, Shikha Dalmia, a senior analyst at the libertarian Reason Foundation (motto: “free minds and free markets”), adds absolutely nothing to the minimum wage debate beyond the same old 1980s-era trickle-down bullshit:
Progressives have gone crazy over the minimum wage.
As opposed to conservative Republicans, who I guess are sanely campaigning on promises to deport 10 million immigrants, build a giant border wall, carpet bomb Syria/Iran/whoever, return us to the gold standard, and punish women who have abortions.
President Obama got the ball rolling when he called for hiking the federal minimum wage from $7.25 to $10.10 per hour. Now, both Democratic presidential candidates are trying to one-up him, with Bernie Sanders demanding a $15 federal wage and Hillary Clinton $12. Meanwhile, California and New York have already passed laws mandating the Bernie rate, and scores of cities across the country are clamoring to follow suit.
Actually, President Obama first got the ball rolling back in 2008, when he campaigned on raising the minimum wage to $9.50 an hour — equivalent to about $10.50 today (about 40 cents below the 1968 inflation-adjusted peak of $10.90). So, yeah, Obama’s been pretty damn consistent on this issue, like, forever.
As for Hillary Clinton’s proposed $12 an hour minimum wage, phased in over five years, by the time it would be fully implemented in 2022, it would stand about 30 cents below the 1968 inflation-adjusted peak. So again, no historical outlier here.
And while Bernie Sanders’ $15 minimum wage would represent an inflation-adjusted high, he too proposes phasing it in over five years, so it’s not quite the jump it first appears: about a 22 percent premium over 1968 (but about half what it would have been had the minimum wage kept pace with productivity gains as it had done over its first 30 years).
So I’m failing to see what’s so “crazy” about all this.
And all the while, minimum wage advocates are making increasingly fanciful claims on behalf of their beloved laws.
The left’s minimum wage obsession dovetails with a shifting academic consensus that until the 1990s considered such hikes a recipe for killing jobs, especially for low-skilled workers.
If by “fanciful claims” Dalmia means touting the latest “academic consensus,” then yes, guilty as charged.
For a long time, the generally accepted rule of thumb was that, all else remaining equal, every 10 percent increase in the minimum wage would decrease low-skilled employment by 1 to 2 percent, since the more employers had to pay these employees, the fewer jobs they could afford to provide.
This consensus began to fray with a 1992 study by economists David Card and Alan Kreuger, who found that New Jersey’s minimum wage hike — from $4.25 to $5.05 — did not lead to expected job losses in the state’s fast food restaurants.
In other words, the “generally accepted rule of thumb” was refuted by, you know, actual data.
This finding has been hotly contested,
… by free market ideologues like Shikha Dalmia…
… but even if it were true, it doesn’t mean there are no other downsides to minimum wage laws. For example, sometimes employers don’t respond to minimum wage hikes by laying off workers, but instead by raising prices for consumers.
Actually, if she bothered to read the latest academic literature instead of just reflexively dismissing it, Dalmia would learn that rising prices (along with increased worker productivity, reduced turnover costs, and rising consumer demand from higher paid workers) is prominently part of the mechanism that explains why rising wages do not result in net job losses.
(Minimum wage opponents haven’t helped their case by hitching it almost exclusively to job losses while ignoring the other, equally pernicious, adjustment responses by businesses.)
No, they most certainly haven’t helped their case. But that’s mostly because their equilibrium theory is so clearly contradicted by economic reality.
There is only one scenario, according to Naval Postgraduate School economist David Henderson, under which a modest legally mandated minimum wage might do more good than harm: when employers enjoy monopsony power (a monopoly on the buying side) in the labor market, either because there are very few of them or because workers can’t leave for some reason. Employers then have a relatively free hand to hold wages down. A mandated minimum wage under those circumstances merely diverts the firm’s “excess profits” to the worker, something that would have happened automatically in a more competitive market. But it doesn’t diminish a company’s productivity or its incentive for additional hiring — thereby actually boosting job growth. But genuine monopsony isn’t common and would require a very finely calibrated and skillfully crafted minimum wage, which is not how blanket policies work in the real world.
The founder of economics, libertarian heartthrob Adam Smith, would disagree.
America’s federal minimum wage of $7.25 per hour works out to about 42 percent of its $17.40 hourly median wage. Even the most gung-ho academics only advocate raising it to 50 percentof the median — which means a little over $8.70. This in itself is a crude benchmark that lumps together high-wage service occupations with low-wage construction and other non-service ones whose market realities are completely different. Be that as it may, it is inconceivable that a $15 minimum wage — equal to 86 percent of America’s median wage, and the highest in the Western world — wouldn’t kill jobs, especially in small towns and cities where wages tend to be lower. Witness the chronic double-digit unemployment rate that a far less insane minimum wage has generated in France, Spain, Belgium, and other European countries.
Oh, this again. Please. There’s a reason why Dalmia (and every other $15 opponent) neglects to explain the empirical rationale behind the 50 percent minimum-to-median ratio; it’s because there isn’t any. (Also, her “86 percent” number? That’s bullshit. By 2022, when it’s fully phased in, Sanders’ $15 minimum would equal about 69 percent of median, while Clinton’s $12 figure would equal the 55 percent ratio we enjoyed back in 1968).
And yet, minimum wage enthusiasts are abandoning all caution and making increasingly extravagant claims. Here are four of their sillier arguments:
Or rather, four of her sillier arguments.
False: Minimum wage hikes will lead to productivity-boosting automation
The standard rap against minimum wage laws is that by raising the cost of hiring workers, they prompt companies to invest in labor-saving technologies, throwing people out of work. But Matthew Yglesias claims that this would by no means be a “bad thing.” Why? Because productivity is the engine of economic progress. And if machines are more productive than people, then policies that prod employers to replace people with machines would mean more wealth without toil for everyone. This is the reverse of the Luddite fallacy that seeks to boost jobs by eschewing labor-saving technologies. Nobel laureate Milton Friedman once heard a Third World bureaucrat, suffering from this fallacy, defend his decision to have poor workers dig a massive canal with shovels rather than earth movers because that meant more jobs. Friedman asked: Why don’t you replace their shovels with spoons?
Increasing productivity is not simply a matter of increasing output, but doing so in the most cost-effective way. You do not encourage that with policies that force investments in capital equipment when labor is plentiful. Indeed, this raises the overall opportunity cost, rendering an economy less efficient. If Friedman were alive, he may well have asked Yglesias why, by his logic, he doesn’t just advocate a ban on all manual labor.
If Friedman were alive, he’d be scratching at the lid of his coffin. Which if you think is an unserious rebuttal, well, yes, but no more unserious than Dalmia’s lazy “why not ban all manual labor” reductio ad absurdum.
False: Minimum wage hikes helps firms make more money
This claim strains credulity. How would a $15 mandate that almost doubles a company’s labor costs actually boost profits? The argument that former Labor Secretary Robert Reich offers is that higher wages means happier employees and lower turnover, something that saves a company money. If so, the million-dollar question is why aren’t greedy companies doing this already? Are they too stupid or sadistic or both to pass up on a win-win deal for both themselves and their workers?
Yes, many employers are too stupid or sadistic or both.
But rhetorical questions aside, I just re-watched that Robert Reich video Dalmia links to, and nowhere in it does he imply that raising the minimum wage would boost companies’ profits. What he’s saying (and again, what the “academic consensus” says) is that lower turnover “helps employers save money,” thus offsetting part of the cost of higher wages:
In fact, I don’t know anybody on our side who is pushing the “boosts profits” argument. If anything, one of the things that is ailing our economy is the six percent of GDP or so — about a trillion dollars a year — that used to go to wages but now goes to profits. Shifting some of that back into pockets of workers would be a good thing.
False: Minimum wage hikes will stimulate the economy
Michael Reich, an economist at the University of California, Berkeley, claims not only that a $15 minimum wage wouldn’t produce job losses in the short run, but would actually stimulate the economy, resulting in job gains in the long run. “They’d (employees) have more money to spend, the overall level of demand for goods and services would be higher, and so would the level of employment,” he claims.
But shifting wealth around doesn’t generate real economic growth. Boosting productivity does. Indeed, ordering employers to give artificial raises means that they would have less money to spend or invest, cancelling out any extra spending by workers.
Oy. Again, raising the minimum wage increases productivity. That’s the “academic consensus,” not just Michael Reich’s.
As to Dalmia’s larger point about “shifting wealth around” not generating real economic growth, well she’s absolutely right — if we’re shifting wealth into the pockets of the super-wealthy. A 2014 working paper from the OECD found that widening income inequality knocked a cumulative 6 to 9 percent off US GDP growth over the previous two decades due to the drag of stagnant wages on the 70 percent of the economy that is driven by consumer spending.
Wow. Just imagine how many more jobs there would be today if our economy was 9 percent larger!
False: Minimum wage hikes will diminish the strain on welfare programs
Advocates of the minimum wage claim that without a suitably high minimum, low-income workers are forced to rely on food stamps and health care programs to make ends meet. In essence, they argue, welfare programs end up subsidizing McDonald’s low-wage workforce, which is hardly fair to taxpayers. Forcing companies to pay something resembling “living” wages would diminish low-wage workers’ dependence on government programs.
This assumes that boosting the minimum wage would hand more workers a raise than it would throw people out of work, of course — which is hardly a reasonable assumption, as pointed out earlier. Indeed, notes University of California, Irvine’s David Neumark, the probability that a family will escape poverty due to higher wages will be offset by the probability that another will enter poverty because it has been priced out of the labor market.
So, here’s the thing: We’ve been raising the minimum wage for 78 years, and there is simply no evidence of any correlation between minimum wage hikes and net job losses! Nada. Bupkes. Zilch. Dalmia’s got the gall to accuse minimum wage advocates of making “extravagant claims,” and yet Dalmia is unable to support her core argument by, you know, facts.
The core fallacy in this line of reasoning is that employers can set wages based on employee needs rather than market forces. Hence, they can simply be forced to hand over more money to their workers. That, however, is not how things work, especially in a globalized world where forcing employers to cough up wages higher than the market can bear would undermine their competitiveness — not something that helps anyone in the long run.
First of all, most of these minimum wage jobs are in the service sector, and since you can’t offshore the work of a barista or a retail clerk or hotel housekeeper, there isn’t much threat from cheap-labor global competition. But Dalmia’s core fallacy is that the market for labor operates like the market for bananas. It doesn’t.
The problem for Dalmia and her ilk is that this is about much more than just the minimum wage; this is about the entire free market philosophy to which she has dedicated her life. For if we do raise the minimum wage and the job losses don’t come — if we shove the labor market into “disequilibrium,” yet disaster never strikes — then the question must be asked: What else have the neoliberals gotten wrong?
Start with an unpopular but irrefutable fact: Raising the minimum wage to $15 an hour, as some states are doing, will create both winners and losers. The winners will be workers who get paid more, of course. The losers will be low-skilled workers who don’t get paid at all, because employers couldn’t afford to keep them on.
In the short term, no doubt, yes. Some businesses will struggle to adapt, and fail. Some workers will lose their current jobs. But then, that’s true of every economic innovation, from new technologies to new regulatory policies. The more pertinent question is not whether $15 will cause some workers to lose their jobs, but whether it will cause net job loss in the aggregate over time.* And on this, there is simply no historical evidence to suggest that it will.
Coy repeats former Bureau of Labor Statistics Commissioner Katherine Abraham’s claim that we “have no experience with an increase in the national minimum of that size,” but a quick glance at past hikes shows that this simply isn’t true. We have plenty of experience with 50 percent, 60 percent, even 94 percent minimum wage increases phased in over several years, with no evidence of any discernible correlation between rising wages and rising unemployment.
Might $15 result in a substantial net loss of jobs? I suppose. As they say in the footnote to all those investment brochures, “past performance is not necessarily indicative of future results.” But while Coy’s job losses remain theoretical, I can absolutely guarantee you that the wage gains are real.
So yeah, despite how frequently and faithfully it is repeated, the assertion that “the $15 minimum wage will kill jobs” — that $15 is “a job-killer” — is totally unsupported by the facts. A more honest (if admittedly less click-baity) headline would have been: “If the $15 Minimum Wage Kills Jobs, Should You Care?” You’re welcome, Peter.
Which finally brings me to Coy’s larger thesis: that when it comes to the minimum wage and free trade, those bemoaning job losses from one often ignore the job losses from the other. An interesting point. Too bad I’m so exhausted from reading Coy’s credulous headline to give it the serious discussion it deserves.
* Actually, I don’t really believe net job loss is the appropriate metric at all. But that’s a subject for another conversation.
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.
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?
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.
To be considered even somewhat conclusive, a scientific study is typically expected to identify just one variable—one aspect of the research which can clearly be shown to have an impact on the outcome. For some reason, the same is not expected in political economy—at least not according to new research which “indicates” (kind of) that higher minimum wages lead to job losses among young, uneducated people.
Conducted by Jeffrey Clemens at the University of California San Diego for the National Bureau of Economic Research, the paper cites higher minimum wages between 2006 and 2010 as the a major reason why employment among young people saw a sharp decline.
“My baseline estimate is that this period’s full set of minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,” Clemens explains in the abstract adding that “this estimate accounts for 43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate and a 0.49 percentage point decline in employment across the full population ages 16 to 64.”
Clemens’ framework seems sounds on its face—he’s not just comparing unemployment to wages, and has also included additional numbers, including housing declines.
It’s no secret that during the Great Recession, workers of all skill and experience levels found themselves without a paycheck, or with a retirement fund that simply wasn’t going to cut it. As a result, many turned back to lower-skilled jobs in service and other industries to make ends meet, effectively crowding out individuals who were less desirable for the same jobs—not because employers didn’t want to pay high wages to unskilled workers, but because there were simply better candidates willing to accept the same minimum wage jobs.
Talking to Bloomberg, economist Richard Vedder explained in 2014 that “the underemployment of college graduates affects lesser educated parts of the labor force,…Those with high-school diplomas that normally would have no problem getting jobs as bartenders or taxi drivers are sometimes kept from getting the jobs by people with college diplomas.”
And it’s unlikely that a lower wage for teens or unskilled workers would have helped those applicants find jobs more easily; the acceptance rate at McDonald’s was lower than that of Harvard at one event in 2014, demonstrating that it’s simply too many people (including college graduates) vying for low-wage jobs, rather than high wages in so-called low-skilled jobs, that’s harming young and unskilled workers.
And while most of the jobs added since the recession have been low-wage jobs, the “bottleneck” remains, as older workers, college students and graduates, and those with careers in shrinking industries returned to or stayed in jobs typically thought to be reserved for the under-30 crowd.
All of which is to say that at a time of economic tumult, when some of the most reliable, accessible, and available jobs were those that paid the minimum wage, it’s extremely difficult to pin wages alone as the reason for low employment among uneducated young people. And even if you’re running with that theory, if the solution is to reduce wages (and thus increase dependence on social services and other threadbare safety nets), you’re all but ensuring that the poor stay poor, the unskilled stay unskilled, and everyone loses.