How Seattle provides a practical example of minimum wages leading to losses in income and employment
The Seattle Minimum Wage Study, a study supported and funded in part by the Seattle city government, is out with a new NBER paperevaluating Seattle’s minimum wage increase to $13 an hour and it finds significant disemployment effects that on net reduce the incomes of minimum wage workers. I farm this one out to Jonathan Meer on FB.
This is the official study that was commissioned several years ago by the city of Seattle to study the impacts of raising the minimum wage, in a move that I applauded at the time as an honest and transparent attempt towards self-examination of a bold policy. It is the first study of a very high city-level minimum wage, with administrative data that has much more detail than is usually available. The first wave (examining the increase to $11/hr) last year was a mixed bag, with fairly imprecise estimates.
These findings, examining another year of data and including the increase to $13/hr, are unequivocal: the policy is an unmitigated disaster. The main findings:
– The numbers of hours worked by low-wage workers fell by *3.5 million hours per quarter*. This was reflected both in thousands of job losses and reductions in hours worked by those who retained their jobs.
– The losses were so dramatic that this increase “reduced income paid to low-wage employees of single-location Seattle businesses by roughly $120 million on an annual basis.” On average, low-wage workers *lost* $125 per month. The minimum wage has always been a lousy income transfer program, but at this level you’d come out ahead just setting a hundred million dollars a year on fire. And that’s before we get into who kept vs lost their jobs.
– Estimates of the response of labor demand are substantially higher than much of the previous research, which may have been expected given how much higher (and how localized) this minimum wage is relative to previously-studied ones.
– The impacts took some time to be reflected in the level of employment, as predicted by Meer and West (2016).
– The authors are able to replicate the results of other papers that find no impact on the restaurant industry with their own data by imposing the same limitations that other researchers have faced. This shows that those papers’ findings were likely driven by their data limitations. This is an important thing to remember as you see knee-jerk responses coming from the usual corners.
– You may also hear that the construction of the comparison group was flawed somehow, and that’s driving the results. I believe that the research team did as good of a job as possible, trying several approaches and presenting all of their findings extensively. There is no cherry-picking here. But more importantly, without getting too deep into the econometric weeds, my sense is that, given the evolution of the Seattle economy over the past two years, these results – if anything – *understate* the extent of the job losses.
This paper not only makes numerous valuable contributions to the economics literature, but should give serious pause to minimum wage advocates. Of course, that’s not what’s happening, to the extent that the mayor of Seattle commissioned *another* study, by an advocacy group at Berkeley whose previous work on the minimum wage is so consistently one-sided that you can set your watch by it, that unsurprisingly finds no effect. They deliberately timed its release for several days before this paper came out, and I find that whole affair abhorrent. Seattle politicians are so unwilling to accept reality that they’ll undermine their own researchers and waste taxpayer dollars on what is barely a cut above propaganda.
I don’t envy the backlash this team is going to face for daring to present results that will be seen as heresy. I know that so many people just desperately want to believe that the minimum wage is a free lunch. It’s not. These job losses will only get worse as the minimum wage climbs higher, and this team is working on linking to demographic data to examine who the losers from this policy are. I fully expect that these losses are borne most heavily by low-income and minority households.
By Madeline Osburn • The Federalist
On Saturday, U.S. Sen. Josh Hawley addressed the class of 2019 at The King’s College in New York, where he called on the graduates to reject the Pelagian worldview that dominates our public way of life.
Hawley, who has also recently questioned the uses of social media and railed against Facebook for data and privacy violations, noted that Pelagius was loved by the wealthy, educated aristocrats of Rome, “because he validated their position and their power.” He called out the elites of Wall Street and Silicon Valley in his commencement address for the same Pelagian love of hierarchy enforced on Americans today.
Pelagius was a British monk and a moralist who rejected Saint Augustine’s views on sin and grace for a different view of human freedom and prosperity, in which freedom was earned. Hawley discussed how the elites of American society implement a Pelagian worldview, and ultimately threaten freedom for all humans.
A society that is divided by class, where one class has all the advantages, is a society gripped by hierarchy. It is also a society defined by elitism. Of course, our elites don’t use that word. They say their privileged position comes from merit and achievement. They point to their SAT scores and prestigious degrees. They talk about economic efficiency.
How Pelagian of them.
The truth is, the people at the top of our society have built a culture, and an economy, that work mainly for themselves. Our cultural elites look down on the plain virtues of patriotism and self-sacrifice. Things like humility and faithfulness. They celebrate self-promotion, self-discovery, self-aggrandizement. Self. Self. Self.
And then when industry shifts jobs overseas they say, well, workers should find another trade. I mean, capital must be allocated to its most efficient use.
When workers without college degrees can’t get a good job, they say, that’s their fault – they should’ve gone to college.
Now, I rather suspect – it’s just a hunch – that if globalization threatened America’s tech industry or it’s, say, banking sector, that we would hear a different tune. I slightly suspect we would hear that these industries are the lifeblood of the American economy and must be defended at all costs. And that’s just my point. The elites assume that their interests are vital, while everyone else’s can be done without. They assume their value preferences should prevail, while denigrating the loves and loyalties of the great middle of America. That’s the nature of elitism. And at the end of the day, this hierarchy, and this elitism, threaten our common liberty. For the steady erosion of working-class jobs and working-class life for millions of Americans means losing respect, it means losing their voice, it means losing their standing as citizens in this nation.
Our Pelagian public philosophy says liberty is all about choosing your own ends. That turns out to be a philosophy for the privileged and for the few. For everybody else, for those who cannot build an identity around what they buy, for those whose life is anchored in family, and home, and nation, for those who actually want to participate in our democracy, today’s Pelagianism robs them of the liberty that is rightfully theirs. And we cannot afford to let it to happen any longer. The age of Pelagius must end.
By Liz Peek • Fox News
Alexandria Ocasio-Cortez promises that going green – removing all fossil fuels from our energy mix – will “establish economic, social and racial justice in the United States.”
In fact, her proposal would cripple our economy and hurt our poorest citizens.
Ms. Ocasio-Cortez has admirable passion, but needs some schooling in energy economics. The cost of renewable energy is dropping fast, but is still more expensive in many applications than traditional fossil fuels like coal or oil. That’s one reason that adoption of wind and solar power has been slow, and that many countries, including the United States, underwrite renewables with subsidies and tax credits. The International Energy Agency predicts in its 2018 report that “the share of renewables in meeting global energy demand is expected to grow by one-fifth in the next five years to reach 12.4% in 2023.” Continue reading
By Samuel Hammond • National Review
The ability of businesses to grow rapidly is a one of the most defining and precious features of the American economy. Amazon went from a fledgling online bookstore to an “everything store” and the second-largest employer in the United States in just two decades. Uber emerged from nowhere less than ten years ago to become a dominant transportation option in cities around the world. And earlier this month, Apple became the first U.S. public corporation to reach a $1 trillion valuation — a far cry from its sorry state in 1996, when it looked doomed to fail.
It’s not just the information sector. The United States is home to 64 percent of the world’s billion-dollar privately held companies and a plurality of the world’s billion-dollar startups. Known in the industry as “unicorns,” they cover industries ranging from aerospace to biotechnology, and they are the reason America remains the engine of innovation for the entire world.
Unless Elizabeth Warren gets her way. In a bill unveiled this week, the Massachusetts senator has put forward a proposal that threatens to force America’s unicorns into a corral and domesticate the American economy indefinitely.
Dubbed the “Accountable Capitalism Act,” Warren foresees Continue reading
Everyone’s still talking about the dramatic tumble in the price of Facebook stock which, if the estimates are reliable, had left its founder – Mark Zuckerberg – more than $10 billion poorer than he was at the start of the month.
It’s a big loss to be sure, but not as potentially significant as the one experienced at Tesla, the electric car company founded by Elon Musk. The price Tesla stock has dropped over 21 percent since the middle of June, and could spend the rest of the summer on a roller coaster ride that leaves investors dizzy.
It not only investors who should be cautious. The U.S. government has partnered, may partner, or is thinking about partnering with Musk on projects financed by tax breaks and tax dollars. That translates to our money, and we’re right to expect Uncle Sam to take good care of it.
by Steven Horwitz • Foundation for Economic Education
Critics of liberalism and the market economy have made a long-standing habit of inventing terms we would never use to describe ourselves. The most common of these is “neo-liberal” or “neo-liberalism,” which appears to mean whatever the critics wish it to mean to describe ideas they don’t like. To the extent the terms have clear definitions, they certainly don’t align with the actual views of defenders of markets and liberal society.
Economists have never used that term to describe their views. Another related term is “trickle-down economics.” People who argue for tax cuts, less government spending, and more freedom for people to produce and trade what they think is valuable are often accused of supporting something called “trickle-down economics.” It’s hard to pin down exactly what that term means, but it seems to be something like the following: “those free market folks believe that if you give tax cuts or subsidies to rich people, the wealth they acquire will (somehow) ‘trickle down’ to the poor.” Continue reading
by Bill McMorris • Washington Free Beacon
Restaurants in the nation’s capital experienced their worst hiring period in 15 years, fueling speculation that wage hikes are reducing employment opportunities.
Employment in the food service industry fell in Washington, D.C. even as it continued to increase in the region. Restaurants shed 1,400 jobs in the first six months of 2016, a three percent decrease and the largest loss of jobs since the 2001 recession, according to an analysis from American Enterprise Institute scholar Mark Perry.
The steep drop was isolated to D.C. Neighboring suburbs in Virginia and Maryland added nearly 3,000 jobs over the same period, a 1.6 percent increase in hiring. Continue reading
37 percent of businesses say they would increase the price of goods
Thirty percent of businesses said they would eliminate jobs if the minimum wage were increased to $15 an hour, according to a survey from Express Employment Professionals.
The survey asked 390 businesses in the United States and Canada what effect the increase in the minimum wage would have on their operations.
Thirty-seven percent of businesses said they would increase the price of goods, 30 percent of businesses said they would eliminate positions, and 20 percent of businesses said they would increase other wages in the company.
A majority of the businesses surveyed, 82 percent, said they do not pay the current minimum wage for some positions while 18 percent of respondents said they do.
“A $15 minimum wage has certainly become a political hot topic,” said Bob Funk, CEO of Express Employment Professionals. “There’s no doubt it makes for a good talking point, but the real question is whether it makes good economic sense.”
“While some workers will see a raise, which is good news, this survey shows that there are clear negative consequences for raising the wage to $15,” said Funk, who was also a former chairman of the Federal Reserve Bank of Kansas City. “Policymakers should always keep in mind the unintended consequences of their actions.”
America dodged the Asian financial crisis of 1997-98, but much has changed. Today’s world economic slide is starting to hurt us.
by Ruchir Sharma • Wall Street Journal
Plunging stock prices and slowing economic growth in China have raised anew the question of how much events abroad really matter to the U.S. Many of the answers are quite placid, drawing on the precedents of the 1997-98 Asian financial crisis, when there was similar concern about impacts at home, which never came. The U.S. grew at a 4.5% annual pace during those two years. For much of 2015, when U.S. growth remained steady despite volatile and weak growth in the rest of the world, the optimists said it was like 1997-98 all over again.
That may be, but the world has changed a lot in two decades. After 1998, the U.S. share of global GDP topped out at 32% but has since fallen to 24%, based on my analysis of raw data from the International Monetary Fund, while the emerging-world share bottomed out at 20% but has since doubled to nearly 40%. In that time, China has supplanted the U.S. as the largest contributor to global growth. Continue reading
by Michael Pento • CNBC
The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis.
Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don’t expect them to warn of the impending global recession and market mayhem.
But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.
Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety. Continue reading
We used to make sure all Americans could lead a pretty good life
by Jon Margolis • Pittsburgh Post Gazette
One day last winter, Tom Ashbrook and his guests on his “On Point” public radio call-in program were talking about jobs and wages when a caller from Omaha named Valerie asked a blunt but valuable question.
Half the people, Valerie said, have an IQ of less than 100. “What do we do with all the ‘dumb’ people?” she wondered.
That sounds heartless, but Valerie didn’t seem to be scorning anyone as much as sympathizing with the increasingly bleak prospects some people are facing.
Valerie’s was not an original insight. Years earlier, the late columnist Murray Kempton noted that ours was a “society which, more lavishly than any in history, has managed the care and feeding of incompetent white people.” Continue reading
by Meg Sullivan • UCLA Newsroom
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.” Continue reading
By Philip Bump • Washington Post
During Tuesday night’s Republican debate, Gerard Baker, editor in chief of the Wall Street Journal, posed a question to Sen. Rand Paul (R-Ky.): “Does it matter at all that the gap between the rich and everyone else is widening?”
It does, Paul replied. And then he pointed a finger.
“I think that we ought to look where income inequality seems to be the worst. It seems to be worst in cities run by Democrats, … states run by Democrats and countries currently run by Democrats,” he said.
Data from the Census Bureau suggests that — at least on the states — he’s correct. (Since most large cities are run by Democrats and only one country has a Democratic leader, we’ll set those aside.) At right is a chart showing each state’s Gini coefficient in 2014, from the Census Bureau. Continue reading
by Kenneth Bloomquist
Standing before an audience of college students, President Obama remarked that “As Americans, we can and should be proud of the progress that our country has made over these past six years. This progress has been hard, but it has been steady and it has been real. And it’s the result of the American people’s drive and their determination and their resilience, and it’s also the result of sound decisions made by my administration.” These remarks sound more defensive than confident. The President asserted that Americans should feel proud of the modest economic gains his administration frequently cites, but given that over half of Americans still consider the economy to be meandering through a recession it seems they have overwhelmingly rejected his outlook and chosen to remain humble instead.
Perhaps they’re being overly pessimistic? In the President’s defense, the metrics commonly used to measure the duration of recessions do indeed place the end of the Great Recession in 2009. Since then, GDP has risen slowly, but steadily, at an adjusted rate of just over 2% per year. The unemployment rate has fallen from its 2009 high of just under 10% to just under 6%, and new jobs are being created at a pace which is improving with time. And yet despite the graphs and charts, Americans refuse to be optimistic no matter how often they are told to be. The economy as described in press conferences doesn’t seem to be same one which most Americans live and work in, where family and friends remain unemployed or underpaid, where they have been passed over for raises, and where there just isn’t enough income leftover to save. Americans may not all have advanced economics degrees, but they are intuitively aware when times are good and when times are bad, and they remain skeptical even when bombarded by a steady stream of rose-tinted statistics. Continue reading
You have to ignore many variables to think women are paid less than men. California is happy to try.
by Sarah Ketterer • Wall Street Journal
This bill, which the California senate unanimously passed in August, is a state version of the Paycheck Fairness Act that the U.S. Congress rejected in 2014. Like its national counterpart, it is an aggressive attempt to eradicate a wage gap between men and women that is allegedly due to discrimination in the workplace. But this wage gap is illusory, and the legislation will have unintended consequences, including for women.
The Fair Pay Act will prohibit employers from paying men and women different wages for “substantially similar work.” At first glance, this prohibition might appear reasonable: Government data for 2014 show that women in California earn, on average, 84 cents for every dollar earned by men. (Nationally, women earn about 79 cents for every dollar earned by men.) Continue reading