Berkeley researchers Get it wrong in L.A.

Original Article:

  • Author: Michael Saltsman

  • Publication Date: October 2014

  • Newspaper: Orange County Register

Los Angeles Mayor Eric Garcetti is the latest big-city mayor to embrace the populist battle cry of a minimum wage increase. He’s proposed raising the city’s minimum hourly wage to $13.25, a cumulative 66 percent increase from the $8 figure that prevailed in California until this summer.

To justify his policy proposal, Garcetti turned to a team of researchers affiliated with the University of California-Berkeley, who reliably churn out “reports” defending all manner of proposed or enacted minimum wage hikes. As expected, the Berkeley paper finds mostly gain and very little pain for Los Angeles from Garcetti’s proposal.

But a closer look at the report and its authors suggests that the case for $13.25 is less credible than Garcetti and his allies claim.

Though it was described as a UC Berkeley research product, the report’s authors are hardly neutral number-crunchers. Two of the study’s authors work at the Center for Labor Research and Education, which is supported by some of the same unions (SEIU and UFCW, among others) that are pushing for a higher minimum wage both locally and nationally.

The authors’ prior employment also gives a window into their point of view. Ken Jacobs, one of the study’s authors, was previously the co-director of the San Francisco Living Wage Coalition. Another, Annette Bernhardt, was previously the policy co-director at the National Employment Law Project – a labor union-backed group that boasts of “coordinating the campaign to lift the federal minimum wage to more than $10 per hour.”

In other words, the study’s authors had their minds made up before the first page was written.

The problems with this report extend well beyond the names on the front cover. The authors list what they believe are the benefits of a $13.25 wage floor in Los Angeles, including 567,000 people who will reportedly receive a raise of (on average) $3,200 per year. But the only way they obtain this rosy estimate is by making the faulty assumption that a $13.25 minimum wage will have no effect on employment opportunities.

To wit: An analysis using the Berkeley authors’ same methodology would show even greater benefits for Los Angeles from a $30 minimum wage – even though any reasonable observer would acknowledge that a mandate of this magnitude would cause severe disruption in the labor market.

After spending most of their press release and executive summary praising the benefits of the policy change, the authors briefly acknowledge that they “cannot rule out the possibility” that (for instance) “some apparel manufacturing jobs might relocate outside the city.” They’re no doubt cognizant of the unflattering contrast between shuttered apparel businesses and a study that claimed it wouldn’t happen.

Yet the Berkeley authors’ report still concludes that there would be little net negative impact on the city’s job market, pointing to a handful of studies that suggest you can raise the minimum wage with little impact on the job market.

But a forthcoming study in Cornell University’s respected labor and economic journal shows that these outlying studies have a credibility problem.

In a devastating 60-page rebuttal, David Neumark (UC Irvine), William Wascher (Federal Reserve Board) and J.M. Ian Salas conclude that “neither the conclusions of these studies nor the methods they use are supported by the data.” Neumark and Wascher also found that the vast majority of economic research on this subject – including 85 percent of the best studies since the early 1990s – conclude that a higher minimum wage will reduce job opportunities.

A recent Duke University survey of hundreds of the country’s chief financial officers adds even more credence to this concern. At a $10-an-hour minimum wage, roughly one-third of the financial decision-makers at companies in the manufacturing and service industry would reduce job opportunities. An even higher Los Angeles mandate of $13.25 would just exacerbate these consequences.

Mayor Garcetti tasked labor unions’ favorite researchers at the University of California-Berkeley with this study because he knew in advance that the results would be positive. But that doesn’t mean they’re accurate.