Report on minimum wage gets it all wrong

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2018

  • Newspaper: The Gazette

  • Topics: Minimum Wage

It’s deja vu all over again in Johnson County.

County leaders tout a new and misleading report as proof that their recent experiment with a higher minimum wage benefited local businesses. Of course, basic economics holds that buyers generally demand less of a product when the price of the product increases, and higher minimum wages make labor more expensive. But Johnson County leaders ignore this principle, and less-skilled workers stand to suffer as a result.

Johnson County’s minimum wage experiment began in 2015, when county officials voted to raise the minimum wage by nearly 40 percent to $10.10 an hour between November 2015 and January 2017. The increase was rolled back in March of last year, when Governor Branstad signed a law setting one minimum wage at the state level, rather than individual local wages.

Don’t tell that to Johnson County. The county’s officials charged forward with an impact report and will recommend further “increases,” which are now voluntary for local businesses.

For its impact report, the county turned to two researchers who already had their minds made up: John Solow, an economics professor at the University of Iowa who was supportive of wage increases, and Peter Fisher, a researcher with the labor union-supported Iowa Policy Project. The authors presented a report to the Johnson County Board of Supervisors that summarized the county’s sixteen-month minimum wage experiment.

Not surprisingly, they highlighted the positive and downplayed the negative, pointing to data which suggested the increase had no effect on employment within the retail and leisure and hospitality sectors.

A more granular analysis reveals a different story. Take restaurants: Johnson County’s restaurant industry enjoyed steady employment growth for five years before the wage hike, averaging five percent over this time period. In 2016, however, the 40 percent increase in the county’s minimum wage brought this growth to a halt. In fact, employment in the country’s restaurant industry turned slightly negative.

While this kind of industrywide data isn’t conclusive, it certainly suggests that caution is in order.

The anecdotes also back up this evidence: Food service businesses like North Liberty’s Orange Leaf tell a similar. They stopped serving frozen yogurt to local Iowans for the sole reason that they could not keep up with Johnson County’s minimum wage increase. Other local business owners like Leo Young, owner of Popcorn Shoppe, were determined to stay open despite the wage increases. But high labor costs have left them “hanging by a thread,” according to a local news outlet.

The stories and data coming out of Johnson County are not surprising. Recent studies of similar minimum wage policies in San Francisco and Seattle, conducted by economists at Harvard Business School and the University of Washington, found that the new mandates increased restaurant closures and significantly reduced employees’ work hours. As if those results weren’t sufficiently conclusive, results from more than 90 studies over the last two decades agree: Pursuing a higher minimum wage threatens entry-level employment. Why should the Johnson County Board of Supervisors expect their constituents to be immune to these effects?

On the minimum wage increase, Johnson County Supervisor Rod Sullivan said, “The most important thing that we are trying to do is get more low-wage workers with money in their pockets.” But to view minimum wage hikes as Sullivan does, one must ignore the newly-unemployed Iowans who definitely didn’t find more money in their pockets. They found themselves out of a job.