The Unfootnoted Assault on the Minimum Wage Increase – Wisconsin Edition

The Wisconsin Manufacturers and Commerce group has a recent piece, written by Scott Manley (VP), highlighting negative impacts of a minimum wage increase. I have attempted to track down the numbers cited. It has been an illuminating experience.

From the article:

A recent analysis by the Employment Policies Institute (EPI) found increasing the minimum wage to $10.10 per hour would kill as many as 27,937 jobs in Wisconsin. That estimate is consistent with a projection by the Congressional Budget Office (CBO) that predicted 500,000 lost jobs nationwide if the federal minimum wage was increased to $10.10.

It is instructive to see how this 27,937 figure is obtained. The estimate is found on this website sponsored by Employment Policies Institute. The supporting documentation, written by Even and Macpherson, reports the calculations using an elasticity of 0.3 for the high end. The website also reports estimated job loss, for a low-end elasticity of 0.1 (that low end elasticity, with associated job loss of 9,312 is not cited by Mr. Manley). The midpoint of the range is 18,625 (which might differ slightly from the estimate obtained using a 0.2 elasticity.)

Is the use of the high-end 0.3 elasticity justified? I would suggest not, as discussed in this post. It’s much higher than most recent estimates, and higher than the more precisely estimated coefficient values, as recounted in Doucouliagos and Stanley (2009).

Moreover, I cannot understand how the Wisconsin figure of 27,937 lost jobs is “consistent” with the CBO midpoint estimate of 500,000 lost jobs nationwide. 27,397 is 5.6 percent of 500,000; however, as of January 2014, Wisconsin nonfarm payroll employment constituted only 2.1 percent of national employment. It is conceivable that the composition of Wisconsin employment — in particular the minimum wage sensitive component — is so different from the national composition that the 27,397 figure is consistent with the CBO nationwide estimate. However, I must confess a such a large compositional effect seems implausible to me.

Here is an additional assertion from the Manley piece:

According to the U.S. Bureau of Labor Statistics, only 1.1 percent of workers over age 25 earn the minimum wage. That’s because typical minimum wage earners in America are teenagers living with their parents in middle class families. They are not living in poverty nor are they earning a wage that is responsible for sustaining a family.

This figure can be verified for one’s self by inspecting BLS, Characteristics of Minimum Wage Workers: 2013 (Mar. 2014), Table 1, page 4. Of course, this figure tells one how many are now at or below the current minimum wage. It doesn’t tell one how many would be affected by an increase to $10.10. According to a Economic Policy Institute study, using the CPS, 15.4 percent of all Wisconsin workers would be affected directly by the increase (by directly, I mean the constraint would bind; spillover, or indirect, effects on wages close to the new minimum wage are not incorporated). Here is the relevant table.

wisc_minwage

Table from David Cooper, Economic Policy Institute Briefing Paper #371, December 19, 2013

Would it only be youngsters affected, as implied by the WMC op-ed? According to the table, of the workers older than 29, 142,000 would be directly affected (constituting 5.4 percent of the total Wisconsin workforce). In other words, it’s not just teenagers in relatively affluent households that are affected. Figure 1 illustrates the age distribution:

wiagedist

Figure 1: Age distribution of directly affected Wisconsin workers. Source: David Cooper, Economic Policy Institute Briefing Paper #371, December 19, 2013

In fact, of the 404,000 directly affected by the $10.10 minimum wage, 104,000 individuals — with household income below $20,000 — would be affected. 104,000 is 25.7 percent of the total directly affected by a minimum wage increase to $10.10, and is 4 percent of the total workforce.

Finally:

The empirical evidence also suggests raising the minimum wage simply does not impact poverty levels.

This is an interesting statement, and is made on the basis of a Employment Policies Institute funded study written by Saiba and Burkhauser. This assertion is seemingly contradicted by this recent analysis that highlights the fact that earlier studies of the impact of the minimum wage on poverty might have been outpaced by recent developments.

In this study I show that the target efficiency of the minimum wage improved between 1999 and 2013. In 1999-2001, 15.3% of the minimum wage benefits went to workers in poor families. By 2011-2013 this figure had risen to 18.8%. Nearly two-thirds of the improvement in target efficiency occurred during pre-recession years (1999-2001 to 2005-2007), and the balance of the improvement occurred since the onset of the Great Recession. The improvement in target efficiency during pre-recession years was entirely due to an increase in the share of minimum wage workers in poor families. Decreased income among near-poor minimum wage workers drove the majority of the increase in the share of minimum wage workers in poverty. Reduced teen employment, increased teen wages (relative to the minimum wage), and increased employment among poor low-skilled 20-29 year-olds also contributed.

The WMC conclusion also contrasts strongly with the CBO reading of the literature, and the corresponding estimate that 900,000 individuals would be moved above the poverty line by a $10.10 minimum wage (see Table 1, page 2).

It is at this juncture it is useful to remember what the Employment Policies Institute is. As noted in the NY Times, it is a nonprofit organization which bills a for-profit organization for services (and shares office space with that for-profit organization). The IRS form 990 for the Employment Policies Institute makes for illuminating reading.

Bottom line: Beware of unfootnoted articles! And beware the estimates of the Employment Policies Institute!

Update, 4/8 2PM Pacific: Arindrajat Dube points me this paper:

I use data from the March Current Population Survey between 1990 and 2012 to evaluate the
effect of minimum wages on the distribution of family incomes for non-elderly individuals. I find robust evidence that higher minimum wages moderately reduce the share of individuals with incomes below 50, 75 and 100 percent of the federal poverty line. The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels. For my preferred (most saturated) specification, the poverty rate elasticity is -0.24, and rises in magnitude to -0.36 when accounting for lags.

I also use recentered influence function regressions to estimate unconditional quantile partial effects of minimum wages on family incomes. The estimated minimum wage elasticities are sizable for the bottom quantiles of the equivalized family income distribution. The clearest effects are found at the 10th and 15th quantiles, where estimates from most specifications are statistically significant; minimum wage elasticities for these two family income quantiles range between 0.10 and 0.43 depending on control sets and lags. I also show that the canonical two-way fixed effects model—used most often in the literature—insufficiently accounts for the spatial heterogeneity in minimum wage policies, and fails a number of key falsification tests. Accounting for time-varying regional effects, and state-specific recession effects both suggest a greater impact of the policy on family incomes and poverty, while the addition of state-specific trends does not appear to substantially alter the estimates. I also provide a quantitative summary of the literature, bringing together nearly all existing elasticities of the poverty rate with respect to minimum wages from 12 different papers. The range of the estimates in this paper is broadly consistent with most existing evidence, including for some key subgroups, but previous studies often suffer from limitations including insufficiently long sample periods and inadequate controls for state-level heterogeneity, which tend to produce imprecise and erratic results.

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36 thoughts on “The Unfootnoted Assault on the Minimum Wage Increase – Wisconsin Edition

  1. Bruce Hall

    A 40% increase in the minimum wage will have little or no effect on those businesses which have an inelastic demand for their products and can raise their prices, oh, say 10-15% to cover the costs of the increased wages [not fast food].

    It has been pointed out that for those whose employment has not been impacted, this is a very good change. For those who lose their jobs, this is not so good. As with most pricing actions, the marketplace will adapt. This adaptation will most likely be in the form of somewhat higher prices within the range of businesses being affected. Whether or not this wage action will have significant impact overall, it is likely to negatively impact the high unemployment teenage segment and the retirees who look for a little supplemental income.

    It would be interesting to see the impact the higher wages have on taxes and government benefits, if any, and factor those into the overall impact. It will also be interesting to see if any of the estimates have any basis in reality.

  2. Ed Hanson

    A most interesting post.

    I find it interesting because it takes numbers from a credible source and extrapolates a number which agrees with its agenda and belief. It produces a number shows a dire consequence of a government policy, in this case, a mandated large increase of minimum wage. It shows a number which a more nuanced, a more complete study from other sources, is likely wrong. A more nuanced, a more sourced study is exactly what should be expected.

    A most interesting post. It is interesting that recently I read somewhere a study which took wholesale prices from a credible source, extrapolated from that number a dire consequence from a government policy, in that case a drastic reduction of government expenditures. But that wholesale number was not nuanced, did not make reference to other studies showing an actual effective difference, that previous price controls distorted the number and caused widespread shortages, and showed results, not dire, but solid economic growth. I wonder if even for economists, agenda and belief trump good study.

    So it seems.

    Ed

  3. Dr. Morbius

    Instructive that the “Employment Policy Institute” would use a name so close to the far-more trustworthy (and nearly 30-year-old) Economic Policy Institute.

    So yes, garbage economics from the right as usual.

    1. Brian

      I agree the Economic Policies Institute is a bit shady. But do you honestly believe the other EPI is any more trustworthy and doesn’t work to advance its own agenda?

      1. Menzie Chinn Post author

        Brian: First things first, let’s distinguish between the two groups. It is the Employment Policies Institute which shares offices (or is in the offices) of Berman and Co., who is also the President of Employment Policies Institute; Employment Policies Institute paid over a million dollars to Berman and Co. in 2012. The Economic Policy Institute has a funding relationship with many unions, but I daresay nobody would say it rivals the “coziness” of the Employment Policies Institute.

  4. Johnny

    That’s political motivated garbage, and it also tells somthing about the Professor to turn an eye on it.

    Keep calm and carry on.

  5. DeDude

    Minimum wage jobs are almost all in the service sector. The work done by those minimum wage employees still have to be done, so where is the job loss supposed to come from? Yes the price of a burger may have to increase 10%, but most of the people buying them will have much more than 10% increase in their income – so affordability and sales will go up not down. In essence an increase in minimum wage move money from the part of the population that save a substantial fraction of their income to those who spend every dime they earn before the next paycheck. How can that do anything but stimulate the economy and create jobs?

    1. Brian

      Not necessarily. Restaurants are already experimenting with automated order-entry machines whereby you enter your order on a touchscreen device and swipe your credit card to pay, eliminating the need for so many people at the front of the restaurant. I’m sure McDonalds et al. are also investigating technologies to help automate food preparation. Not all jobs can be eliminated, but if the wage becomes to high a fair subset of those jobs can be replaced with capital.

        1. Brian

          Menzie,

          I bought a meatball sub for lunch from here (they’re delicious!):

          http://www.wawa.com/WawaWeb

          and the person behind the counter asked me what I wanted on it and whether I wanted toasted or not. Oh wait, that’s not right. I just entered my order using a touchscreen device, and the person in back made it for me. I guess the other person who took orders got priced out of the labor market.

          More generally, have you flown through Newark or some of the other East Coast airports lately? The restaurants no longer have waitresses. You order off a tablet, and they have just one or two people running orders out from the kitchen.

          And it’s not just airports:

          http://www.slate.com/blogs/future_tense/2013/12/03/tablets_at_restaurants_applebee_s_chili_s_race_to_eliminate_human_interaction.html

          When I went grocery shopping last night, the bagger at the end of the checkout lane put all my groceries in bags and took them out to my car for me, just like I used to do in high school and college. Wait, that’s not true, either. None of the supermarkets around here have baggers anymore.

          I guess it’s more important that the single woman without a high school diploma but with three kids be guaranteed a high minimum wage rather than have entry-level positions for young people to gain work experience and spending money. But what happens when she can’t get a job, either?

          1. Menzie Chinn Post author

            Brian: Yes, I was at Newark two weeks ago. I had a waiter at the place I ate at (fish ‘n’ chips!).

            I bagged half of my own groceries last time I shopped, because I didn’t want to stand doing nothing but watch the clerk bag it all for me. But he would’ve bagged it for me had I wanted.

          2. cwaltz

            And at the other end of the spectrum you’ve got places like McDonalds that are experimenting with creating a menu based on individual options that will likely require more than 1 person to make a sandwich. Or you fail to consider that those touchscreens will need to be maintained(which is a job opportunity)

            The fact that we might have technological gains is positively no reason not to improve wages. The bottom line is the economy adjusted when we got rid of milkmen, and it’ll adjust if technology actually ever catches on to the idea of taking an order, making a burger, cleaning up after patrons, restocking, etc, etc(that’s right machines probably won’t be that cheap for that many functions for a looooooooooong time, ask Japan they’re still trying to create robots that are affordable to fill low wage positions like nanny.)

    2. Hans

      Bring your substandard economic understanding from the
      Economist’s View will not helf matters.

  6. Patrick R. Sullivan

    As usual, Menzie is late to the party;

    http://object.cato.org/sites/cato.org/files/pubs/pdf/tbb_70.pdf

    ‘In a 2014 study, I examined Census data from 1990 to 2010 to explore whether the low-skilled employment effects of minimum wage increases differ in peaks and troughs of state business cycles.11 The results showed that during economic downturns—periods of high unemployment or low nominal GDP growth—the adverse employment effect of minimum wage increases for younger high school dropouts is larger than in times of expansion. Specifically, I found that during state expansions, a 10 percent increase in the minimum wage reduces employment of younger high school dropouts by about 2 percent. However, during recessions, the effect is twice as large—a 10 percent increase in the minimum wage reduces low-skilled employment by 4 percent. This study suggests that if the proposed [by Barack Obama] 39 percent federal minimum wage increase [to $10.10/hr] were implemented, and a state were in a period of high unemployment or sluggish growth, there could be a nearly 16 percent decline in employment for vulnerable low-skilled workers.’

  7. Menzie Chinn Post author

    Otto Maddox: I don’t believe I ever indicated zero costs to a minimum wage increase. Please provide a reference to the appropriate post, if you have such an instance.
    Bruce Hall: A higher minimum wage and resulting higher low income wage bill implies a smaller level of government support, via e.g. SNAP. See this paper. More recent analysis (March 2014) here.
    Patrick R. Sullivan: Do you even read the studies you cite? If you refer to the actual Working Paper version of the Sabia paper (as opposed to the press release), you will find the econometrically odd procedure of first reporting results with a state specific time trend, then dropping the state specific time trend but including a cubic in the state specific time trend, without an explanation for suppressing the time trend and square of time trend. I would’ve at least tried including both time and time-cubed.
    But thanks for a good example of a problematic study for my econometrics students to dissect to illustrate how not to conduct (or at the minimum, how not to report) econometric analyses.

    1. Patrick R. Sullivan

      Careful there, Menzie, your students might find something else to laugh about.

  8. 2slugbaits

    First a note about some of the data. The minimum age in the BLS data is 16, but there are plenty of 14 and 15 year olds in the workplace making minimum wage or less. My wife and I were both 14 when we got our first actual jobs. I don’t recommend it.

    Second, a note for Brian. The grocery store I prefer actually does take your groceries out to the car. In fact, it’s pretty hard to take the groceries out yourself even if you would prefer it. One of the reasons is that the store can maintain better control over the shopping carts. Carts take up a lot of precious floor space. If you can increase the turn rate of the carts, you save on floor space. Next time you’re at Wal-Mart take a look at how many acres of parking space and floor space is dedicated to just maintaining a huge inventory float of shopping carts. And all of those carts have to be maintained…unless you’re Wal-Mart, which never seems to maintain their carts. Or maybe I’m just unlucky and always get the cart with the flat spotted rubber wheel.

    Finally, assuming for the moment that increasing the minimum wage would adversely impact employment for 16 and 17 year olds, why exactly is that a bad outcome? Do I care if upper middle class teenagers lose their jobs at the local fast food place? Not really. in fact, teen employment carries with it plenty of negative externalities, such as increased teen driving at night and less study time. There’s also some evidence that reducing teen income reduces drug use
    (http://www.ncbi.nlm.nih.gov/pubmed/10885045); and that alcohol use and marijuana are (somewhat surprisingly) complements rather than substitutes,
    (http://www.nber.org/papers/w6940), so increasing the price of either (or equivalently, reducing teen buying power) reduces consumption of both.

    1. Bruce Hall

      2slug: We can all generalize from personal experience, but that’s a bit dangerous. For example, I got a job cleaning rugs starting when I was 12 at $1.25 per hour. At first it was simple stuff, but I did it through high school and part of college. It paid for an old beat-up, but running, car and my college tuition and books. I still managed to do my studying and have a social life. I didn’t spend money foolishly, however, because I worked damn hard to earn it.

      When my youngest son was 14, he wanted a fairly expensive item… quite expensive. As I was already putting one boy through the University of Michigan and another was about to join him, I told the youngest that the money I would be spending would go toward his education, not unnecessary luxuries. So, he promptly arranged a job as a bus boy. I told him that he could do that as long as no of his grades slipped. He would do part of his homework at school, come home and finish his homework and go to work. He did that for a year and his school work didn’t suffer and he was able to buy what he wanted. He went on to Michigan State, was president of a fraternity where he handled the contracts and accounting, finished with a business and pre-law degree, went into a business venture with one of his brothers which is a fast growing company already employing three other people. He doesn’t spend his money foolishly, but he gets what he wants.

      I’ve seen too many “entitled” young people. They don’t value money; they don’t have a work ethic; they prefer to party. Sorry if these examples are not “typical”, but they are real and reflect human nature. Thomas Paine wrote: “What we obtain too cheap, we esteem too lightly.” He wasn’t talking about teenage jobs, but he spoke a universal truth. Studies that say the opposite are not worth the electrons used.

      1. 2slugbaits

        Bruce Hall First, just to be clear. I am talking about high school aged kids (14 – 17), not college kids. High school kids do not have economic or property rights, so I don’t think there is any prima facie reason for thinking they are entitled to after school jobs.

        I think the tone of your letter proves my point. Clearly you are (justifiably) very proud of your youngest son. But the reason you’re proud is because his case was exceptional. If his case was the norm, then you would have no reason to be especially proud of him. You even admitted the possibility that his school work could suffer. He was fortunate that it didn’t, although it’s also possible that he could have done better if he had not been working. But for many…I’d say most kids, their school work does suffer. For example, they may take less challenging courses.

        I also worked my way through college. At one point I took a break to take advantage of an opportunity to earn some serious money running a few corporately owned mid-scale sit down restaurants. I earned enough in that year and a half that I didn’t have to work again and I left school debt free. Over that time there were probably a couple hundred people working under me. About one-fourth were full-time adults and the rest about evenly split between high school kids and college (undergrad and grad) students. The college students were fine and you didn’t worry about them. The high school kids were another story. A few were very responsible, but most were not. Why would you expect someone two years out of middle school to be responsible? I’m afraid that what a lot of them learned was that minimum wage jobs are an excuse for minimum effort. While some learned good work habits, more learned how to be slackers. Throwaway jobs breed throwaway work attitudes. Workers (even high school kids) aren’t stupid. The figure out how to calibrate effort to match reward. If you want to teach your kids bad work habits, have them start working early in a minimum wage job.

        A lot of kids (boys especially) want high school jobs so they can buy cars. Unfortunately, all too many find that they end up working to support the car. Back in my day high school kids would earn a buck and immediately thumb through the JC Whitney catalog for ways to trick out their cars. High school kids get used to having some walking around money, and a lot of them figure out that going to college means they’ll have to give up that walking around money. So they find themselves stuck in dead end jobs. Teenagers aren’t exactly known for their long term outlook on things. The immediate opportunity cost of college is a lot higher if you’ve gotten used to that walking around money.

        You talked about kids being entitled. My sense is that kids who feel entitled felt that way long before they entered the workforce. I’ve never seen a case where a kid who felt entitled suddenly felt grateful and appreciative because he or she had an opportunity to work at a minimum wage job. The only cure for that is growing up.

        Now I would agree that for some kids working in high school might help them pay for college later. That’s what I did. I saved virtually everything I made. I also didn’t have a life. Most high school kids are not like that. For most kids money burns a hole in their pocket. And that’s why high school jobs can trap at least as many kids as it liberates.

        My preferred solution would be a Pigouvian payroll tax on high school employment. The tax would offset many of the negative externalities associated with young teen employment. It would also discourage employers from hiring young teens and give preference to college students and older workers.

        Bonus comment. My solution to the irresponsible high school kids working at those restaurants was to raise their wages by 60%. This meant that they could no longer treat the job as a “throwaway” thing. I also found that measured productivity (customers per labor hour) also increased by 60%. At the time I thought this was kind of curious, but probably just a coincidence. Since then I’ve seen some literature that says workers at the low end of the wage spectrum have an uncanny ability to calibrate work effort to wages. Note that increasing wages by 60% did not solve the negative externality problem, but it did solve my problem.

  9. Menzie Chinn Post author

    Bruce Hall: And they don’t use proper grammar! And get off my lawn!

    I will say at this (state) university, most of the students seem to be holding down a job as well as taking classes. So not sure exactly how “entitled” they are.

    1. Bruce Hall

      Menzie, I was responding to 2slug’s assertion that teenager’s holding a part-time job led to increased drug and alcohol issues. I agree that a considerable percentage of students going to college have jobs to partially or fully pay for their tuition/room/board. They are not the students who consider school to be a time to blow off steam or otherwise waste their time and resources. But having been a counselor for my youngest son’s fraternity, I saw too many students who were irresponsible and often destructive… the “entitled” ones who were given everything.

      But going back to the original point that it is likely that the teenage segment and retirees are likely to be adversely affected by reductions in minimum wage service jobs, this is not a good thing as 2slug initimated:

      “Finally, assuming for the moment that increasing the minimum wage would adversely impact employment for 16 and 17 year olds, why exactly is that a bad outcome? Do I care if upper middle class teenagers lose their jobs at the local fast food place? Not really. in fact, teen employment carries with it plenty of negative externalities, such as increased teen driving at night and less study time. There’s also some evidence that reducing teen income reduces drug use.”

      It is a bad thing for two reasons:
      1) few teenagers learn the basics of holding a job and earning the money they want/need for whatever it is that they want/need
      2) it potentially reduces their ability to earn money needed for 2-year/4-year colleges and reduces future opportunities [as you said, a large number of college students must work to be able to attend college].

      So, what exactly is your argument with me?

  10. Hans

    Mr Cooper is a fool, why not raise the rate to $20.oo per hour
    and get it over with…

    Or better yet, let’s create “liberal zones” where higher wages
    and tips are mandated…These zones of economic liberation
    could only be inhabited be self described Progressives.

    Please leave me out of your hellhole.

  11. Denis Drew

    I LOVE THE PART ABOUT THE MINIMUM WAGE (at a meager $10.10 — about 75 cents below 1968; 180 quarters of growth since) NO AFFECTING POVERTY LEVELS — great place to start:

    Progressive economists should readily admit — shout — that a “moderate” federal minimum wage increase, typically 10% cited in conservative studies, should indeed have little or no effect on poverty rates. Why would an extra 1/4 of one percent of GDP added to low wage pay checks be expected to clear a broad swath through poverty? That is what a $1 an hour increase in the federal minimum wage equates to — about $40 billion out of a $16 trillion economy. (E.I.T.C. shifts $55 billion.)

    A $15 an hour minimum wage OTH would send about 3.5% of GDP the way of 45% of American workers — about $560 billion (much of it to bottom 20 percentile incomes who today take only 2% of overall income).
    * * * * * *
    Could raising the wages of 45% of the workforce actually raise demand for the goods and services they produce? Sounds sensible at some level; raising wages so much ought to add demand somewhere – but, is it all smoke and mirrors? Before the 45% — who would get a wage hike to $15 an hour — can raise demand anywhere, they would need to get the extra cash from somewhere else – meaning the 55%. (Bottom 45 percentile incomes – not wages – currently take 10% of overall income – so, at no time are we talking giant chunks of the economy here.)

    The 45% can get higher pay even as “numerical” (to coin a phrase?) demand for their output declines due to higher prices — as long as labor gets an bigger enough slice of the new price tags. This can be compared to a leveraged buyout or buying stocks on margin.

    Products produced by low-wage labor tend to be staples whose demand tends to be inelastic. Demand for food is inelastic – maybe even fast food. If the price of your Saturday family jaunt to McDonald’s rises from $24 to $30, are you really going to eat at home (the kiddies haven’t forgotten the fundamental theorem of economics: money grows on trees :-])? And fast food should be the most worrisome example: lowest wages to start with; even so, highest labor costs, 25%.

    Wal-Mart is the lowest price raising example (surprise) with 7% labor costs. Jump Wal-Mart pay 50% and its prices go up all of 3.5%.

    If low wage labor costs average 15% across the board and go up 50%, overall prices increase only 7.5% — and that is for low wage made products only; nobody’s car note, mortgage payment or health premium is affected. If demand drops just enough for price increases to maintain the same gross receipts (conservative, even without inelasticity), low wage income should improve appreciably.

    Allow me to cite: from a 1/ll/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell:
    “… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”

    The same species of wheels-within-wheels multiplier ought to work the at both ends of the income spectrum — and likely in the middle. A minimum wage raise to $15 an hour is not going to send most low-wage earners in pursuit of upper end autos, extra bedrooms or gold seal medical plans. Wal-Mart and Mickey D’s should do just fine, OTH – which in turn should keep Wal-Mart and Mickey D’s doing even better.
    * * * * * *
    When I was a gypsy cab driver in the Bronx, back in the late 1970s, the city’s yellow cabs raised their meters and we raised ours in step. Most drivers agreed this did not hurt business. I also heard from veteran drivers that the previous meter raise did cost business (I was new – having finally gotten my driver’s license at age 32).

    In any market, selling anything, you never know for sure what the customer will pay until you test. Does this chart below look like the federal minimum wage has been much tested over multiple generations?

    yr per capita real nominal dbl-index %-of
    68 15,473 10.74 (1.60) 10.74 100%
    69-70-71-72-73 [real, low point -- 8.41]
    74 18,284 9.47 (2.00) 12.61
    75 18,313 9.11 (2.10) 12.61
    76 18,945 9.44 (2.30) 13.04 72%
    77 [8.86]
    78 20,422 9.49 (2.65) 14.11
    79 20,696 9.33 (2.90) 14.32
    80 20,236 8.78 (3.10) 14.00
    81 20,112 8.61 (3.35) 13.89 62%
    82-83-84-85-86-87-88-89 [6.31]
    90 24,000 6.79 (3.80) 16.56
    91 23,540 7.29 (4.25) 16.24 44%
    92-93-94-95 [6.51]
    96 25,887 7.07 (4.75) 17.85
    97 26,884 7.49 (5.15) 19.02 39%
    98-99-00-01-02-03-04-05-06 [5.97]
    07 29,075 6.59 (5.85) 20.09
    08 28,166 7.10 (6.55) 19.45
    09 27,819 7.89 (7.25) 19.42 40%
    10-11-12 [7.37]
    13 29,209? 7.25 (7.25) 20.20? 36%?
    * * * * * *
    I almost forgot: … :-)
    There is a growing consensus is that the economy may be permanently slowing down (economists dub this “secular stagnation” as opposed to “cyclical”). Progressives see DEMAND — and therefore EMPLOYMENT — stalled because of too much income squeezed out of the pockets of Americans who spend a lot more than save …

    … meaning that raising the minimum wage – doubling it if we want any noticeable effect on the economy or poverty; not, not quite catching up with 1968 — should be a sure fire way to bring down unemployment.

    1. Denis Drew

      APOLOGIES: USED WRONG CUT-AND-PASTE TABLE ABOVE:

      “Dbl-index” is for inflation and per capita income.

      yr..per capita…real…nominal…dbl-index…%-of

      68…15,473….10.74..(1.60)……10.74……100%
      69-70-71-72-73
      74…18,284…..9.43…(2.00)……12.61
      75…18,313…..9.08…(2.10)……12.61
      76…18,945…..9.40…(2.30)……13.04……..72%
      77
      78…20,422…..9.45…(2.65)……14.11
      79…20,696…..9.29…(2.90)……14.32
      80…20,236…..8.75…(3.10)……14.00
      81…20,112…..8.57…(3.35)……13.89……..62%
      82-83-84-85-86-87-88-89
      90…24,000…..6.76…(3.80)……16.56
      91…23,540…..7.26…(4.25)……16.24……..44%
      92-93-94-95
      96…25,887…..7.04…(4.75)……17.85
      97…26,884…..7.46…(5.15)……19.02……..39%
      98-99-00-01-02-03-04-05-06
      07…29,075…..6.56…(5.85)……20.09
      08…28,166…..7.07…(6.55)……19.45
      09…27,819…..7.86…(7.25)……19.42……..40%
      10-11-12
      13…29,209…..7.25…(7.25)……20.20?……36%?

  12. Denis Drew

    [Since I'm waiting moderation, maybe I can put a cleaned up version back together -- eliminate wrong table.]
    I LOVE THE PART ABOUT THE MINIMUM WAGE (at a meager $10.10 — about 75 cents below 1968; 180 quarters of growth since) NO AFFECTING POVERTY LEVELS — great place to start:

    Progressive economists should readily admit — shout — that a “moderate” federal minimum wage increase, typically 10% cited in conservative studies, should indeed have little or no effect on poverty rates. Why would an extra 1/4 of one percent of GDP added to low wage pay checks be expected to clear a broad swath through poverty? That is what a $1 an hour increase in the federal minimum wage equates to — about $40 billion out of a $16 trillion economy. (E.I.T.C. shifts $55 billion.)

    A $15 an hour minimum wage OTH would send about 3.5% of GDP the way of 45% of American workers — about $560 billion (much of it to bottom 20 percentile incomes who today take only 2% of overall income).
    * * * * * *
    Could raising the wages of 45% of the workforce actually raise demand for the goods and services they produce? Sounds sensible at some level; raising wages so much ought to add demand somewhere – but, is it all smoke and mirrors? Before the 45% — who would get a wage hike to $15 an hour — can raise demand anywhere, they would need to get the extra cash from somewhere else – meaning the 55%. (Bottom 45 percentile incomes – not wages – currently take 10% of overall income – so, at no time are we talking giant chunks of the economy here.)

    The 45% can get higher pay even as “numerical” (to coin a phrase?) demand for their output declines due to higher prices — as long as labor gets an bigger enough slice of the new price tags. This can be compared to a leveraged buyout or buying stocks on margin.

    Products produced by low-wage labor tend to be staples whose demand tends to be inelastic. Demand for food is inelastic – maybe even fast food. If the price of your Saturday family jaunt to McDonald’s rises from $24 to $30, are you really going to eat at home (the kiddies haven’t forgotten the fundamental theorem of economics: money grows on trees :-])? And fast food should be the most worrisome example: lowest wages to start with; even so, highest labor costs, 25%.

    Wal-Mart is the lowest price raising example (surprise) with 7% labor costs. Jump Wal-Mart pay 50% and its prices go up all of 3.5%.

    If low wage labor costs average 15% across the board and go up 50%, overall prices increase only 7.5% — and that is for low wage made products only; nobody’s car note, mortgage payment or health premium is affected. If demand drops just enough for price increases to maintain the same gross receipts (conservative, even without inelasticity), low wage income should improve appreciably.

    Allow me to cite: from a 1/ll/14, NYT article “The Vicious Circle of Income Inequality” by Professor Robert H. Frank of Cornell:
    “… higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. … as the rich get richer, the talented people they patronize get richer, too. Their spending, in turn, increases the incomes of other elite practitioners, and so on.”

    The same species of wheels-within-wheels multiplier ought to work the at both ends of the income spectrum — and likely in the middle. A minimum wage raise to $15 an hour is not going to send most low-wage earners in pursuit of upper end autos, extra bedrooms or gold seal medical plans. Wal-Mart and Mickey D’s should do just fine, OTH – which in turn should keep Wal-Mart and Mickey D’s doing even better.
    * * * * * *
    When I was a gypsy cab driver in the Bronx, back in the late 1970s, the city’s yellow cabs raised their meters and we raised ours in step. Most drivers agreed this did not hurt business. I also heard from veteran drivers that the previous meter raise did cost business (I was new – having finally gotten my driver’s license at age 32).

    In any market, selling anything, you never know for sure what the customer will pay until you test. Does this chart below look like the federal minimum wage has been much tested over multiple generations?

    “Dbl-index” is for inflation and per capita income.
    yr..per capita…real…nominal…dbl-index…%-of

    68…15,473….10.74..(1.60)……10.74……100%
    69-70-71-72-73
    74…18,284…..9.43…(2.00)……12.61
    75…18,313…..9.08…(2.10)……12.61
    76…18,945…..9.40…(2.30)……13.04……..72%
    77
    78…20,422…..9.45…(2.65)……14.11
    79…20,696…..9.29…(2.90)……14.32
    80…20,236…..8.75…(3.10)……14.00
    81…20,112…..8.57…(3.35)……13.89……..62%
    82-83-84-85-86-87-88-89
    90…24,000…..6.76…(3.80)……16.56
    91…23,540…..7.26…(4.25)……16.24……..44%
    92-93-94-95
    96…25,887…..7.04…(4.75)……17.85
    97…26,884…..7.46…(5.15)……19.02……..39%
    98-99-00-01-02-03-04-05-06
    07…29,075…..6.56…(5.85)……20.09
    08…28,166…..7.07…(6.55)……19.45
    09…27,819…..7.86…(7.25)……19.42……..40%
    10-11-12
    13…29,209…..7.25…(7.25)……20.20?……36%?
    * * * * * *
    I almost forgot: … :-)
    There is a growing consensus is that the economy may be permanently slowing down (economists dub this “secular stagnation” as opposed to “cyclical”). Progressives see DEMAND — and therefore EMPLOYMENT — stalled because of too much income squeezed out of the pockets of Americans who spend a lot more than save …

    … meaning that raising the minimum wage – doubling it if we want any noticeable effect on the economy or poverty; not, not quite catching up with 1968 — should be a sure fire way to bring down unemployment.

  13. Rick Stryker

    This post looks like the standard argument from the Left: start by refuting points that no one actually made and then question motives.

    1) Manley said that “increasing the minimum wage to $10.10 per hour would kill as many as 27,937 jobs in Wisconsin.” That’s a true statement based on the study he read. He didn’t say exactly 27,937. He didn’t say that 27, 937 was a best estimate. He said “as many,” indicating that the estimate is an upper range.

    I find it interesting that while criticizing him for not footnoting, you reveal the lower range from the study he was looking at and you estimate what the number would have been for an elasticity of -0.2 (which was not one of estimates reported ) but you fail to mention the actual mid-range presented on the web page for Wisconsin was 27,659, very close to the upper estimate of 27,937.

    Why the omission? If you want Manley to footnote and give the range of estimates from the study he used, shouldn’t you do that too? Shouldn’t you have told your readers that the mid-range estimate was right on top of the upper end that Manley provided? And shouldn’t also the pro-minimum wage activists who consistently claim that the minimum wage literature shows that employment effects are small or zero? Shouldn’t they provide scores of footnotes to the studies that contradict that view?

    2) Because Manley provided an upper range estimate, it is consistent with the CBO estimate. You are comparing an upper range estimate to the CBO’s mid-point estimate of 500K. The upper range for the CBO study is surely north of 1 million, since the CBO said that there is a 2/3 chance that the true number is between 0 and 1 million, and a 1/3 chance that it’s greater than 1 million.

    3) You are refuting a statement that Manley didn’t make on the impact of the minimum wage on poverty rates as well. He said “poverty levels” but you cited a study that calculates “target efficiency,” which measures the fraction of minimum wage benefits that go to families with incomes under the poverty level. Yes, the study does find that the already small benefit goes up a little bit, from 15.3% to 18.8%. But that’s not equivalent to establishing that the poverty rate has gone down.

    The problem, of course, is that they very group near the poverty line that might benefit from a minimum wage increase is the same group who disproportionately lose their jobs or have their hours reduced. The minimum wage is a redistribution from the poor to the poor, where those who lose their jobs or have their hours cut subsidize those who don’t. There is scant evidence that this redistribution lowers the general poverty rate

    4) You refer to an “Employment Policies Institute Funded Study,” implying that the study is bought and paid for. In doing so, you have sullied not only the authors but also the referees and editors of the Southern Economic Journal. This is a peer-reviewed study. Were the referees and editors of the Journal bribed by the Employment Policies Institute too?

    But on the other hand, you don’t seem to refer to studies done by the Economic Policy Institute as “Economic Policy Institute-Funded Studies.” The Economic Policy Institute is the left wing analogue of the Employment Policies Institute but they are completely objective in your mind I suppose.

    You keep referring to the Doucougliagos funnel plot but you don’t seem to show any interest in finding out what studies are included and how legitimate they are. The Economic Policy Institute puts out non-refereed papers that not surprisingly find small or insignificant effects of minimum wage increases. Are those estimates in the funnel plot? Are those estimates OK but anything supported by the Employment Policies Institute is tainted research?

    1. Menzie Chinn Post author

      Rick Stryker: Sigh. OK, here we go.
      1) Yes, I’ll grant he said “as high”. Of course, why go with any study, as in principle it could go as high as infinity, why stick with a single study?
      More importantly, you should read the supporting documentation for the “mid-range” calculation; they use 0.2 elasticity for all other affected workers, and 0.6 affected workers 16-29, w/less than HS education, based on not consensus, but another study coauthored by Sabia. I don’t begrudge the use of these elasticities in such a document, but I don’t think I would call it a “mid-range” estimate.

      2) Is the Employment Policies Institute estimate for Wisconsin consistent with the CBO estimate? You say, we should use the CBO high end estimate to judge. Well, the CBO high end estimate is 1 million. 27,397 is 2.74% of 1 million; yet Wisconsin employment is only 2.1% of national employment. Given your description of “consistent with”, I think Manley could’ve said 55,000 and still have been “consistent” with CBO. But then, you thought 500,000 jobs created per month was typical in a economic recovery, so I think you have elastic definitions of of words like “consistent”.

      3) Poverty — so you don’t like the target efficiency paper. That’s fine. But the Dube et al. paper indicates a reduction in poverty rate, so directly addresses the concern. And the CBO analysis (which if I recall you thought roughly correct) also indicated a reduction in poverty rate (p.11).

      Under current law, CBO projects, there will be roughly 45 million people in families whose income is below the poverty threshold in 2016. The $10.10 option would reduce that number by about 900,000, or 2 percent, according to CBO’s estimate. That estimate takes into account both families whose income would increase and move them out of poverty and families whose income would fall and move them into poverty.

      4) I’m naturally a little wary of all analyses emanating from think tanks, including Economic Policy Institute, and even my old employer Brookings. But there’s the matter of degree — Employment Policies Institute has a uniformity of results that is illuminating. I have more trust in the peer-reviewed Employment Policies Institute funded study than the non-peer-reviewed Employment Policies Institute discussion paper. Finally, the specifics are important. The Economic Policy Institute tabulation of number of affected workers nationwide matched the Council of Economic Advisers’s tabulation of affected workers, and so knowing the CEA staff (under Democratic as well as Republican administrations) as I do, I am more confident of the calculations. I didn’t rely on Economic Policy Institute for anything else besides the tabulation, and I don’t know of anybody who has disputed the tabulation of directly affected workers. Do you?

      5) Finally the funnel plot is from Doucougliagos and Stanley, and as you have failed to note (or at least not mention after I have observed), Stanley wrote the Journal of Economic Perspectives survey of meta-studies. In this case, I’m willing to take a flying leap of faith to guess that they did something reasonable, even if they did not hew to the Stryker-standard of meta-studies (please provide references to the meta-studies you have undertaken, and I will re-assess).

      1. Rick Stryker

        Menzie,

        I know that Stanley wrote the Journal of Economic Perspectives article on metaanalysis. I’m not questioning his or Doucougliagos’s expertise. I think I can critique their paper without questioning their expertise.

        In their paper, Doucougliagos and Stanley were very fair in the research they included. Besides academic papers, they included papers from the American Enterprise Institute, the Employment Policies Institute, and the Economic Policy Institute. Apparently, the included any paper that estimated an elasticity for which they could calculate a standard error.

        But that’s precisely the problem. As I’ve mentioned before, the systematic review is a critical part of a meta analysis and it’s supposed to exclude some papers based on objectively reported criteria. That’s not my standard. That’s just a standard for this kind of work. Perhaps they didn’t do that because their intention was to make an argument about publication bias–I don’t know. But if you want to summarize what the literature is saying (assuming no publication bias), you have to do the systematic review first. That systematic review is how you decide what studies to include or not.

        If you are planning to use fixed effects, then the systematic review should focus on including studies that report underlying effects that are identical but for statistical noise. That review must eliminate studies that are biased or misspecified. Since fixed effects is rarely practical, a systematic review for random effects has to identify non-misspecified studies that are similar enough to be statistically aggregated.

        That’s not so easy. Some of the studies that report small or insignificant effects are short panel data sets while panel data with longer time horizons tends to find more significant results. Should shorter panel data sets be rejected, given that they don’t include enough time for the effect of the minimum wage to be realized? Positive elasticities are sometimes seen in studies that focus on specific industries. However, there is nothing in the theory that says that the effect of the minimum wage on a specific industry is to lower employment. If, for example, the industry under study is less low-wage labor intensive than average, then demand from the more low-wage labor intensive segments could shift to the industry under study, producing greater employment and thus positive elasticity. But this is very misleading, given that we didn’t count what happened to the other industries. Should we toss these industry studies or include them? Some studies use surveys that depend on the accuracy of self-reported numbers. Should we keep or exclude those?

        Different people will answer these questions differently, producing a different looking funnel plot. Just to be transparent, I tend to discount the Card/Kruger analysis that relies on surveys, the studies on single industries, short panel data studies, and studies that aren’t careful about the econometrics. The picture that emerges for me is one of a clear disemployment effect.

        Now I’ll acknowledge that the size of this effect is uncertain. But to my way of thinking, whatever the true size, it’s big enough that the minimum wage policy is not a free lunch. There is a real tradeoff between those hurt in terms of lost jobs, lost hours, lost skills and those who benefit from higher wages. And the tradeoff does not look like a good one to me, given that theory, common sense, and some empirical evidence suggest that those who bear the costs of the minimum wage are those who can least afford to.

    2. 2slugbaits

      The problem, of course, is that they very group near the poverty line that might benefit from a minimum wage increase is the same group who disproportionately lose their jobs or have their hours reduced. The minimum wage is a redistribution from the poor to the poor, where those who lose their jobs or have their hours cut subsidize those who don’t.

      Hmmm…I don’t think this is correct. Don’t most studies that predict adverse employment effects also predict that most of the job losses will be among teenagers? I don’t know about you, but I would not lump middle class teenagers in the same group as working poor adults.

      1. baffling

        slug,
        this is the typical bait and switch behavior of the anticrowd. when the first argument fails, move onto another one and claim this is what you meant all along. and when that fails, move onto another one. you see it very clearly with obamacare. first nobody would sign up for the program. then they signed up, but they were not paying. then it was the spectrum of folks signing up was wrong. have not heard the latest talking point, but i’m sure it will make me chuckle as well. but they have already defined what the outcome should be, now let me find a “fact” that supports my preconceived outcome.

      2. Rick Stryker

        2slugs,

        Most studies use teenagers and young people since those groups are a good proxy for low wage workers that might be affected by the minimum wage. However, not every teenager or young person is a low wage worker and not every low wage worker is a teenager or young person. The elasticities estimated are very much capturing average effects.

        Of course, it’s likely that within those broad groups, specific types of workers might be disproportionately affected relative to the average. That’s what I was referring to in my comment. There is some research on that question.

        For example, Burkhauser et al in “Who Minimum Wage Increases Bite: An Analysis Using Monthly Data From SIPP and the CPS,” published in the Southern Economic Journal in 2000, tries to break out the effects. They find elasticities for the general group of young people of -0.2 to -0.25. However, high school dropouts have an elasticity of -.85 while high school graduates have an elasticity of -0.16. Thus, the least skilled are disproportionately affected by the minimum wage increase.

        If this is the case, then the minimum wage policy is at least in part a redistribution from the least skilled, who disproportionately lose jobs or have hours cut, to the workers with better skills who keep their jobs with increased wages.

        1. 2slugbaits

          Rick Stryker I don’t know why they would use teenagers as proxies for low wage workers when we have actual data for teenagers and actual data for low wage workers who are not teenagers. Sounds like an abuse of proxies. In any event, let’s suppose that the minimum wage does adversely affect employment among very low skill high school dropout adult teens (i.e., those who are 18 or 19 years old). Wouldn’t we see exactly the same group being adversely affected by free trade? I think so, but yet I don’t hear the Chamber of Commerce types and right wing think tanks arguing against free trade because it might adversely affect employment for 18/19 year old dropouts. I suppose a little concern for the unfortunate is always a good thing, but I don’t always trust selective concern. In general I also support free trade even though it hurts low skill workers; but that support also carries with it a recognition that losers should be compensated. If a higher minimum wage reduces employment among very low skill young adults, then why not correct for this by expanding community college opportunities and offering temporary employment while getting training? Or pick your own remediation. Judging by the elasticity numbers you cited, this should be a fairly narrow and easily targeted group. If the average elasticity is around -0.2 to -0.25 for young workers as a whole and the elasticity for high school graduates is only -0.16, then the weights on very low skill workers would have to be pretty small in order to get an elasticity of -0.85 for them. So that looks like a manageable problem if it’s even a problem at all.

  14. Rick Stryker

    2slugs,

    Free trade and the minimum wage are different issues with different concerns. The argument against free trade has been primarily based on its effect on high wage workers, particularly in manufacturing industries. See this briefing paper on the effects of NAFTA from the Economic Policy Institute for example.

    The argument against the minimum wage has been based on its disproportionate effects on low-wage, unskilled workers, teenagers, and young minority workers. One concern minimum wage opponents have is that unskilled workers may start out at a very low wage, but they obtain skills through on the job training and experience, and become higher wage workers. But the minimum wage breaks that chain. Also, note that Burkhauser et al report an elasticity of -0.18 for non-black young people and -0.85 for black young people.

    Not sure why you think that conservatives haven’t made these arguments. They certainly have. Thomas Sowell, for example, has been making these arguments for as long as I can remember. Here’s a recent article by him on this theme.

  15. Rick Stryker

    Menzie,

    By the way, I thought the form 990 of the Employment Policies Institute made for some rather boring reading. If you really want to see how to combine a think tank with lobbying, and amass great wealth and power doing so, then I recommend this article which is not only illuminating, but pretty entertaining as well.

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