What Should We Make Of The UW Minimum Wage Study? (Demo)

On June 27, 2017, Hayat Norimine writes on the  Seattle Met:

Rarely does a study put University of Washington researchers at odds with the city, but that’s what happened today with new analysis released on the city’s minimum wage. Seattle officials have in the past looked to the top-rated university’s experts as a resource to develop policy—UW Law (Hugh Spitzer) for the city’s income tax, UW School of Public Health (Jim Krieger) for the soda tax, UW Aquatic and Fishery Sciences (Jeff Cordell) for the seawall’s salmon habitat. This time, though, a University of California Berkeley professor briefed the city on the effects of the minimum wage the same morning a group of UW researchers came out with their study on the same topic.

On Monday mayor Ed Murray-championed minimum wage bill took a hit when UW researchers released conclusions that the legislation led to fewer hours worked (a 9 percent cut) and a total loss in wages ($125 a month). Berkeley professor Michael Reich pointed out that UW’s results are three times more than what minimum wage critic David Neumark estimated. Robert Feldstein, director of the mayor’s Office of Policy and Innovation, on Monday sent a letter to Jacob Vigdor—a professor from UW’s Daniel J. Evans School of Public Policy—echoing criticisms from Reich. Before the UW study came out, the mayor’s office asked him for comments, according to a letter from Reichdated Monday.

“Although we appreciate the time and effort invested by your team, professor Reich’s concerns lead us to believe that your report may not, in fact, tell the full story of the effects of Seattle’s minimum-wage policy,” Feldstein wrote to Vigdor. “We would hope that future work will address these substantive and methodological concerns, and that your team will be open to looking at how to examine more precisely the characteristics of Seattle’s labor market.”

The study had very different results to previous minimum wage reports that have been published—including a Berkeley study published just last week–and Reich at a city council briefing Monday said UW’s findings “are not credible. They have a lot more work to do.”

But, as Vigdor pointed out, both UW and Berkeley studies reported the same results among restaurant jobs. The minimum wage didn’t hurt those jobs. UW’s report included employees’ number of hours worked and included seven faculty members, as well as some graduate students.

“If you do an apples-to-apples comparison, there’s absolutely no contrast between our reports,” Vigdor told PubliCola. “The catch is that restaurant employment is not the same thing as low-wage employment. It’s when we look specifically at low-wage employment that we’re picking up very different results.” Vigdor said a lot of restaurant jobs, especially in Seattle, cater toward affluent Seattleites and hire employees who have a fair amount of experience in the service industry. That means higher wages.

Criticism: The UW report excluded multi-site businesses. 

Explanation: UW researchers used data from the Employment Security Department, to which employers send their data every three months. Let’s say business owners have two locations, one in Seattle and one in Bellevue. Owners then have two options when they’re reporting their numbers—they can either add to an existing ESD account or open up a second account to keep their locations separate. With a multi-site business, you can’t tell which employees are based in Seattle and which are based in Bellevue, Vigdor said. Employees outside of the city wouldn’t be affected by Seattle’s minimum wage bill.

So yes, it’s possible some of those jobs “lost” actually just got transferred outside the city. But Vigdor said a survey showed those businesses—which tend to be larger corporations with more employees—are also more likely to report reducing employment as a consequence of minimum wage.

Criticism: The UW report compared Seattle to other parts of the state, as opposed to similar cities across the country. 

Explanation: Data varies quite a bit depending on the state. For example, it would be tough to compare Seattle to San Francisco because there’s a completely different state agency that collects employment data in California. The quality of data collected by Washington state’s Employment Security Department is way better—it includes the number of hours worked.

Criticism: The UW report went too low by capping low-wage jobs to $19 an hour. 

Reich said over the same period, jobs at all pay levels increased at single-site businesses.

Explanation: Vigdor said the researchers put a lot of thought into where to draw the line between low-wage and high-wage jobs. They repeated their analysis 13 different ways, he said, experimenting with wages anywhere between $13 to $25 an hour. “The results don’t change.”

Criticism: The UW report didn’t adequately account for Seattle’s economic boom and how that factors into the results. 

This is the toughest factor to consider. With an economic boom, employers replace low-wage jobs with higher-wage jobs to compete with other employers in the area—so maybe jobs aren’t disappearing, just paying better. Reich pointed out that it’s difficult to separate out the boom’s effects, especially in the UW report. The control cities UW used (other cities in the state) aren’t booming like Seattle, and may not be adequate controls at all.

Explanation: “You have to ask yourself, ‘Was Seattle in the economic doldrums until January 2016, when it suddenly grew explosively?’ That’s the only kind of boom that could explain away our results,” Vigdor said, which showed those employment impacts appear beginning of 2016. That’s exactly when the $13 minimum wage began. “Anybody living in Seattle back in 2015 will probably recall that it was booming pretty well back then too.”

It’s fair to say UW did its due diligence—and though some may still dispute the researchers’ claims, it certainly wasn’t out of any sort of negligence.

The big takeaway? Vigdor said it’s too early for that. The UW study isn’t perfect, and Vigdor said they’re not claiming any sort of conclusion. The message is not, “Seattle’s minimum wage is terrible for poor workers.” (Though some headlines offer some derivative of that.) There’s still a lot of work to do and a lot of unanswered questions. Researchers have 30 other papers in the works on the minimum wage, Vigdor told PubliCola, and they’re not expected to finish that research until 2025.

“We get this question asked repeatedly,” Vigdor said. “What should Seattle do about this? What should another city that’s contemplating another minimum wage think about this study? There’s still more that we need to know before you make any kind of judgment call like that.”

For one thing, the UW study doesn’t elaborate which low-wage employees are being hurt the most. Is it teenagers who still live with their parents, or, say, single mothers who work well over 40 hours a week and barely cover their rent? Which workers are being impacted, and how? The data researchers received from the Employment Security Department include names, social security numbers, and information about the hours they work and their wages, but they know nothing about the people beyond that.

The next step, Vigdor said, is to bring data in from the Department of Social and Health Services—to keep track of who’s eligible for benefits like SNAP, Medicaid, and housing assistance—and Department of Licensing to get birthdates. Because of the sensitivity of that private information, Vigdor said, taking appropriate cautions to protect people’s identity and finalizing a contract with DSHS will take another few months.

https://www.seattlemet.com/articles/2017/6/26/what-should-we-make-of-the-uw-minimum-wage-study

Gary Reber Comments:

I have written extensively on this subject. Below is a bit of history provide by my colleague Michael D. Greaney at the Center for Economic and Social Justice:

“In 1914, Henry Ford more than doubled the base wage at the Ford Motor Company from $2.34 per day, to $5.00 per day for certain classes of machinists and widows with children. He was soon forced to raise it across the board for every Ford worker or face a strike.

“Other automakers had to raise their base wages in order to keep trained workers. Riots ensued in the middle of a Michigan winter — which destroyed a number of small businesses and were broken up with fire hoses — when vast numbers of unemployed workers descended on Detroit to apply for jobs at Ford.

“Ford’s unilateral increase in wages without any corresponding increase in productivity is credited with being the “official” start of the modern wage-price inflationary spiral (“cost-push inflation”). Combined with Keynesian monetary theory intended to stimulate demand by issuing massive amounts of government debt (“demand-pull inflation”), the U.S. economy was eventually ground between the upper and nether millstones of increasing the costs of production with no increase in production, and creating demand without producing anything at all. Jobs either disappeared as workers were replaced with more productive (and thus lower relative cost) technology, or went to lower wage areas where workers would produce the same goods at less cost.

“The lesson here is that increase the cost of anything without a corresponding increased benefit, and you decrease demand for it. How much you can increase the cost or price of something varies according to the “elasticity of demand” for a particular good or service, but regardless how inelastic or elastic demand might be, if the price keeps going up, eventually everyone will be priced out of the market.

At least Ford were playing with his own money. “Three years ago the city of Seattle, Washington, decided to play with other people’s money, and mandated the gradual implementation of a $15.00 per hour minimum wage. When the increases started, studies showed no change in employment, although the data sometimes appeared a little questionable.

“What did change was the cost of living. Rents started increasing, forcing people on fixed incomes to find lower cost housing in the city, or move. While not factored in to employment statistics (most people on fixed incomes are retired), there was a spate of angry articles about greedy landlords and price-gouging grocers, etc., as if such increases were unheard of in the wake of across the board pay increases . . . as happens inside the Washington, DC Beltway every time the government gives an across the board increase.

“The latest study, though, shows something unexpected by virtually everyone, ourselves included. There have been some layoffs and cutbacks in hours. This is usual, as would happen, e.g., if the definition of “full time worker” (with a corresponding increase in benefits) was defined in some areas as working 40 hours a week. A large number of workers would find themselves scheduled for 39½ hours per week.

“No, the unusual thing was that low-income workers started losing jobs to higher-income workers. Better-trained and experienced workers making $19.00 and $20.00 per hour can produce more goods and services in the same time than untrained and inexperienced workers paid less money, decreasing the relative cost of production.

“As a result, the average income of higher-income workers increased, while that of the average low-income worker (the one the increased minimum wage is supposed to be helping) decreased by $125.00 per month . . . just as costs are increasing in anticipation of their increased income. In effect, low-income workers are experiencing on the micro level what the U.S. economy has been experiencing on the macro level: rising costs, falling production.

“At some point, somebody is going to wake up and grasp the wisdom (today’s word for yesterday’s common sense) of what the late labor statesman Walter Reuther pointed out half a century ago in his testimony before the Joint Economic Committee of Congress, February 20, 1967:

“’The breakdown in collective bargaining in recent years is due to the difficulty of labor and management trying to equate the relative equity of the worker and the stockholder and the consumer in advance of the facts. . . . If the workers get too much, then the argument is that that triggers inflationary pressures, and the counter argument is that if they don’t get their equity, then we have a recession because of inadequate purchasing power. We believe this approach (progress sharing) is a rational approach because you cooperate in creating the abundance that makes the progress possible, and then you share that progress after the fact, and not before the fact.  Profit sharing would resolve the conflict between management apprehensions and worker expectations on the basis of solid economic facts as they materialize rather than on the basis of speculation as to what the future might hold. . . . If the workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices. . . . Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth.’

“Louis Kelso’s Employee Stock Ownership Plan (ESOP) was one step on the path Reuther laid out. Capital Homesteading is another. Perhaps it’s time world leaders took economic reality and common sense into account. . . .

As for the question that is asked repeatedly, University of Washington’s Jacob Vigdor said. “What should Seattle do about this? What should another city that’s contemplating another minimum wage think about this study? There’s still more that we need to know before you make any kind of judgment call like that.”

The logical answers are to think outside the one-factor LABOR/WAGE box and begin to think how to make EVERY citizen productive through OWNING interests in the corporations growing the economy. To acquire OWNERSHIP financial mechanism are needed to provide interest-free capital credit without the requirement of “past savings” and repayable out of the future earnings of the investments in our economy’s growth and quality living standards. How to solve the “past savings” security collateral problem to make good on the relatively few bad loans that are inevitable, is to insure banks against such risks using commercial capital credit insurance and reinsurance (ala the Federal Housing Administration concept).

Researchers should start with this proposal and study its impact.

See my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.