Breach of trust in minimum wage debate

Original Article:

  • Author: Michael Saltsman

  • Publication Date: August 2014

  • Newspaper: The Hill

  • Topics: Minimum Wage

Even in the contentious debate over whether or not to raise the federal minimum wage, both proponents and opponents agree on a few basic principles. For instance, there’s broad agreement that a wage hike will create at least some new costs for employers.

Until recently, both sides of the debate were similarly united in the belief that you can’t measure the jobs impact of a minimum wage increase by simply looking at overall trends in employment. But the labor union-backed Center for Economic & Policy Research (CEPR) has recently garnered significant media coverage for an analysis that does just that. Unfortunately, it’s cheapening the debate for the rest of us.

CEPR’s analysis, which relies on state employment data from the Bureau of Labor Statistics, reported that “employment growth was faster in states where the minimum wage went up.” CEPR’s senior economist John Schmitt told the Associated Press that these numbers raise “serious questions about the claims that a raise in the minimum wage is a jobs disaster.” It’s an attractive thought for proponents of a wage hike, but the entire premise is so dishonest that not even Schmitt believes it.

Economists have been studying the minimum wage since at least the 1940s. The theory they’re testing, in a nutshell, is whether demand for employees earning at or near the minimum wage falls as the cost to hire them rises. In their comprehensive 2008 book Minimum Wages, economists from UC-Irvine and the Federal Reserve Board put it this way: The “prediction of a reduction in labor demand applies unambiguously only to less-skilled workers whose wages are directly raised by the minimum wage.”

That’s why young adults, for instance, are often the focus of research on the minimum wage—not because economists have a particular interest in their well-being, but because they’re disproportionately represented among those who earn the minimum wage. (Case in point: Bureau of Labor Statistics data show that about half of the people who currently earn the federal minimum wage are between the ages of 16 and 24.)

Here’s the problem: These young people, and their older counterparts who also earn the minimum wage, are raindrops in the 145-million person ocean that is the United States’ employed workforce. (In 2013, just over one percent of this workforce earned exactly the federal minimum wage of $7.25.) Any analysis of the impact of raising the minimum wage that focused on too broad a metric (e.g. overall employment) would produce meaningless results, because any impact on minimum wage earners would be dwarfed by trends in the broader economy.

This idea is so uncontroversial that even CEPR’s Schmitt, in a paper released last year, stated that “no researchers … believe that the minimum wage levels prevailing in the United States have had any impact on the overall level of employment.” It’s like finding that states with a higher minimum wage had more carrot sales, or TV purchases – it’s a curious fact, but it also has nothing to do with whether or not a minimum wage increase hurts less-skilled job seekers.

Today, however, Schmitt and his researchers are actively encouraging the conclusion that these overall employment numbers can tell us something about the impact of the minimum wage. Though they offer a weak caveat that the data “isn’t definitive,” the write-up and Schmitt’s accompanying quotes leave little room for nuance—as evidenced by the news coverage that picked up on CEPR’s desired spin, and advocacy groups that subsequently recycled the same talking point.

It’s easy to win an argument when you mischaracterize your opponents’ position. By intimating that opponents of a higher minimum wage have predicted an overall decline in job growth following an increase, CEPR has created a “straw man” to knock over with their analysis of state employment trends. In truth, roughly 85 percent of the careful, unbiased economic studies since the early 1990s confirm that a higher minimum wage does indeed have a negative employment impact on directly-affected employees.

CEPR’s recent release is a cheap media tactic, and little more. To judge whether or not a higher minimum wage impacts job growth for less-skilled employees, policymakers would do best to listen to the experts rather than CEPR’s advocates.