Junk Research Distracts from a Serious Policy Discussion About Minimum Wage
Original Article: San Jose Mercury News
Author: Michael Saltsman
Publication Date: January 2013
Newspaper: San Jose Mercury News
Topics: Minimum Wage
Assemblyman Luis Alejo is a man on a mission: Raise California’s minimum wage from $8 per hour to $9.25 per hour, and link it to rise with inflation in future years. In service of this goal, he recently penned an op-ed for the Santa Cruz Sentinel to make the “pro-business” case for an additional wage mandate. He was joined in the Sentinel by a separate op-ed from attorney Peter Gelblum.
Unfortunately, these op-eds only demonstrated that the quality of the authors’ economic reasoning falls well short of their rhetoric.
Assemblyman Alejo runs into trouble early on, leading off with a lament on the tight profit margins of retailers. He’s right about the margins, and not just in the retail industry — restaurants and grocery stores face the same problem. But if that’s the problem, then raising labor costs is exactly the wrong solution.
Tight margins — keeping a few cents in profit from each sales dollar — means that an employer faced with higher labor costs can’t just absorb them. Raising prices isn’t typically an option, either, because higher prices means fewer sales in these cost-conscious times. Instead, they’re forced to provide the same product with less service. You might have already experienced this trend when bagging your own groceries or pumping your own gas.
The customer might enjoy the convenience, but it’s a convenience that used to be part of someone’s job description. And a state where teen unemployment is still above 30 percent can’t afford to shed additional opportunities for entry-level employees.
Both Alejo and Gelblum have argued that consequences like these are fictional, pointing to a series of studies from a union-aligned research outfit at UC-Berkeley. These studies find — contrary to the vast majority of published research that’s come before — that higher mandated wages don’t reduce employment.
Unfortunately, the Berkeley studies are bogus. A new report from economist and minimum wage expert David Neumark finds that “neither the conclusions of these studies nor the methods they use are supported by the data.”
This isn’t the only time that Alejo and Gelblum play fast and loose with the facts. Both op-eds argue that a minimum-wage increase can act as an economic stimulus; Gelblum even offers “proof,” pointing to a study from the Federal Reserve Bank of Chicago which (he claims) argues that wage hikes “immediately stimulate consumer spending and economic growth in large amounts.”
Gelblum should have read the study first. The economists who authored it warn up front that there’s “compelling” evidence that a wage hike reduces employment for less-skilled group like teens. They also find that the main boost from a wage hike is temporary, and mostly caused by a few households going into debt to buy vehicles — hardly the “stimulus” that Gelblum made it out to be.
Two disproven studies and a report that doesn’t say what Gelblum claims it does are hardly the sources that California legislators or readers of the op-ed page should be relying on to make informed decisions about wage mandates.
For hard and verifiable proof that wage hikes are a bad idea, look no further than Albuquerque, N.M., which just raised its minimum wage at the beginning of 2013. Already, news stories report that city employers — including a homeless shelter — are struggling with the law, and some have cut hours or opted not to hire new employees. Is this where Gelblum and Alejo want to take California?