Right-Wing Media Hype Flawed Study To Claim $15 Minimum Wage Would Cost New York Half A Million Jobs
Study Uses "Outdated" And "Deeply Flawed" Models To Bash Increased Minimum Wage
Research ››› ››› ALEX MORASH
Right-wing media outlets hyped the misleading research conclusions of the conservative Empire Center for Public Policy, which claimed the $15 minimum wage bill proposed by Gov. Andrew Cuomo (D-NY) would kill half a million jobs in the state and would hurt workers.
New York Governor Proposes Phased-In Minimum Wage Increase
Gov. Cuomo Proposes $15 Minimum Wage By Mid-2021. On September 10, Gov. Andrew Cuomo (D-NY) proposed raising the minimum wage in the state of New York to $15 an hour by July 1, 2021. The minimum wage would increase incrementally each year, reaching $15 an hour by the end of 2018 in New York City, and spreading to the rest of the state by mid-2021. [State of New York, Governor's Press Office, 9/10/15]
Conservative Think Tank Publishes Study Claiming That Raising The Minimum Wage Is A Job Killer
Empire Center For Public Policy: $15 Minimum Wage Would Destroy Jobs In New York. On November 5, the conservative Empire Center for Public Policy published a report in conjunction with the conservative American Action Forum claiming that between "200,000 to 588,800 fewer low-wage jobs would exist in 2021 ... if New York policymakers increased the state minimum wage to $15 per hour." The report, which reproduced the employment models of three other studies of proposed minimum wage increases at different levels, also estimated the job market impact of raising New York's minimum wage to $12 per hour and found a range of between 76,6000 and 290,400 fewer jobs after phased-in implementation. Despite the expected job losses, both minimum wage increases were found to create billions of dollars of new income for workers, ranging from $1.1 to $4.6 billion. [Empire Center for Public Policy, 11/5/15]
Right-Wing Media Spin Empire Center Study To Push Myth That Higher Minimum Wage Kills Jobs
New York Post: 200,000 to 588,000 Fewer Jobs If New York Raises Minimum Wage. In a November 5 op-ed for the New York Post, Empire Center president E.J. McMahon promoted the Center's study, which he claimed proves that the wage increase would be too costly for consumers, would hurt the low-wage labor market, and would not create enough new income for impoverished workers:
While a statewide minimum of $15 would be enormous by historical standards, the governor and other advocates frame it as win-win -- good for the economy in general and for low-wage workers in particular.
Enacting a statewide, all-industry $15 minimum would cost New York at least 200,000 jobs -- including 95,600 in New York City, with proportionately larger employment decreases in upstate regions. That's the key finding of a research paper to be released today by my organization, the Empire Center for Public Policy, and the Washington, DC-based American Action Forum.
Co-authors Douglas Holtz-Eakin and Ben Gitis drew from three different research models to estimate the impact of Cuomo's proposal. The projected 200,000-job loss is actually their lowball estimate, based on the methodology used in a recent study by the Congressional Budget Office (CBO), of which Holtz-Eakin is a former director. The two other minimum-wage impact models cited in the research paper say the employment impact could be even larger -- resulting in somewhere between 432,200 and 588,000 fewer jobs.
Under the worst-case scenario, net total wages would increase by just $1 billion. But even if wages rise by the $10.6 billion projected in the low-impact CBO scenario, barely $700 million would be pocketed by workers at the poverty line, who would need it the most (and who this legislation is intended to benefit). [New York Post, 11/5/15]
Fox Business' Varney & Co.: New York Will Lose 500,000 Jobs From Raising The Minimum Wage. On the November 5 edition of Fox Business' Varney & Co., guest host Ashley Webster noted that the "New York Post says a $15 minimum wage could cost half a million New York jobs." Contributor Elizabeth MacDonald claimed that the Empire Center's analysis demonstrated that low-wage employees will be harmed by the increase because "companies will let these people go" rather than paying them, while guest Mike Murphy argued that businesses will "close up and move elsewhere" in the face of a statewide wage hike:
ASHLEY WEBSTER (HOST): New York Post says a $15 minimum wage could cost half a million New York jobs. E-Mac, you're on this, this is the argument we make. Oh great, $15 for everybody. Guess what, you don't have a job so you get zero dollars an hour.
ELIZABETH MACDONALD: Yeah, it makes a $10 minimum wage idea coming out of the administration moderate. Listen, people are really hurting out there. It's striking that we are talking about minimum wage jobs, it shows you how bad this economic recovery has been. A new analysis out that tried to model, used CBO models to basically say, yeah nearly half a million New York jobs lost, a lot of them, nearly 100,000 in New York City as well, essentially saying the low-wage, lower-paid workers will get hurt because those companies will let these people go. That's unfortunate.
WEBSTER: That is the reality, Mike, I mean you know it sounds great, and these people will walk around with a placard, and oh, yeah, yeah - they are going to be out of work.
MIKE MURPHY: It sounds great on paper, maybe, I don't even think it sounds great because when you start forcing business owners, and a lot of these are small business owners, to take more of their money to pay their workers that maybe they are paying fairly already, they're going to close up and move elsewhere. So like you say, these people are going to be out of work. Having government involved in businesses and telling businesses what they have to pay and raising those rates when the businesses themselves may or may not be more profitable - it's a great way to lose businesses and Mayor de Blasio here in New York City is doing a great job of losing businesses right now. [Fox Business, Varney & Co., 11/5/15]
Daily Caller: Minimum Wage Increase "Could Cost The State Half A Million Jobs." On November 5, The Daily Caller also picked up the Empire Center report, claiming that "businesses may have to close" in the face of increased wages while asserting that in Seattle, which passed a $15 minimum wage in June 2014, "businesses have already reported problems because of the increase":
The report, "Higher Pay, Fewer Jobs" was released by the Empire Center for Public Policy and the American Action Forum. It addresses a Sept. 10 proposal by Democratic Gov. Andrew Cuomo to raise the state minimum wage to $15 an hour. If passed by local lawmakers, it would phase in gradually eventually hitting $15 throughout the state by 2021.
If true, businesses would have few options to offset the added cost of labor. They could increase prices or hire less workers. In some cases, the businesses may have to close. Seattle became the first to pass a $15 minimum wage back in June 2014. Some businesses within the city have already reported problems because of the increase. [The Daily Caller, 11/5/15]
New York Daily News: Governor Cuomo's Plan "Would Cost State Up To 588,000 Jobs." On November 6, the New York Daily News highlighted labor market projections for New York City, glossing over the study's margin of error, to claim the city alone "would lose between 95,600 and 273,800 jobs" under the $15 minimum wage plan. However, the Daily News did include a rebuttal from the Cuomo administration:
New York City would lose between 95,600 and 273,800 jobs as employers cut back on hiring to offset the costs of paying higher wages to existing workers, according to the report released Thursday by Empire Center for Public Policy and the American Action Forum.
"It's no surprise this report mirrors the world view of an organization backed by the very forces that fight against every minimum wage increase and runs counter to the findings of the U.S. Labor Department, noted economists and past experience in New York," said Cuomo spokesman Rich Azzopardi. "The Governor and a majority of New Yorkers believe that if you work full time you shouldn't be condemned to a life of poverty." [New York Daily News, 11/6/15]
Empire Center Study And Research Methods Riddled With Problems
Empire Center Claimed To Test Three Different Economic Models "To Provide A Range Of Estimates For The Impact" Of A Minimum Wage Increase. The Empire Center for Public Policy's anti-minimum wage study, "Higher Pay, Fewer Jobs," claimed job losses ranging from 200,000 to 588,800 if New York raised its minimum wage to $15 per hour. The Empire Center reproduced the methodologies of three independent minimum wage studies to arrive at this conclusion:
We utilize research by the CBO (2014), Meer & West (2015), and Clemens & Wither (2014) to provide a range of estimates for the impact of a $12 and a $15 minimum wage on New York state employment and total wage earnings. These studies examined different labor-market aspects of the minimum wage, resulting in different conclusions regarding the policy's impact on employment and wage earnings. Using these three studies, we consider the effects of the minimum wage under three scenarios -- low, medium and high employment impacts. [Empire Center of Public Policy, 11/5/15]
NELP & FPI Joint Statement: Empire Center Study "Uses Outdated Economics." In a November 5 response to the Empire Center study, the National Employment Law Project (NELP) and the Fiscal Policy Institute (FPI) issued a joint statement highlighting multiple flaws with the economic models the Empire Center used to discredit increasing the minimum wage. The joint statement explained that the Empire Center estimates are based on a 2014 CBO projection "that relied in substantial part on the findings of the former body of less sophisticated and less accurate research" and another study by Meer & West "that has been discredited by more careful economists":
James Parrott, Deputy Director and Chief Economist of the Fiscal Policy Institute: "The Empire Center/American Action Forum report uses outdated economics that ignores both the troubling gap between wage and business profit growth in New York and the reality that low-wage business practices force New York's taxpayers to subsidize low-wage employers to the tune of billions of dollars annually."
Paul Sonn, General Counsel and Program Director of the National Employment Law Project: "More careful economists like Nobel Laureate Paul Krugman have spoken in favor of a $15 minimum wage for New York. Economic modeling and evidence from other cities and states indicate that New York's wage can be phased up to $15 with tremendous benefits for the state's workforce."
In particular, the Empire Center / American Action Forum estimates are reportedly based on a 2014 Congressional Budget Office projection that relied in substantial part on the findings of the former body of less sophisticated and less accurate minimum wage research. The Empire Center / American Action Forum estimates also rely on research by Meer and West -- research that has been discredited by more careful economists. [Joint statement by the National Employment Law Project and the Fiscal Policy Institute, 11/5/15]
CBO Does Not Analyze Effects Of Job Growth From Greater Demand Generated By Higher Incomes. In the Empire Center study, the methodology that produced the smallest employment changes at various minimum wage levels was from the Congressional Budget Office's (CBO) February 2014 analysis of a proposed increase of the federal minimum wage. In testimony submitted before Congress on the CBO's methods of studying raising the federal minimum wage, director Douglas Elmendorf explained that the CBO considers a wide range of effects on employment but does not analyze potential job growth from greater demand created by higher incomes as a result of raising the minimum wage:
If employment increased under either option, in CBO's judgment, it would probably be because increased demand for goods and services (resulting from the shift of income from higher-income to lower-income people) had boosted economic activity and generated more jobs than were lost as a direct result of the increase in the cost of hiring low-wage workers.
CBO has not analyzed the effects of either option on the number of hours worked by people who would remain employed or on the decision to search actively for work and join the labor force by people who would not otherwise be working. Therefore, the agency has not reported the effects of the options on full-time-equivalent employment or on the unemployment rate. [Congressional Budget Office, Testimony, 3/12/14]
Meer & West Study Did Not Predict Job Losses Due To Increased Minimum Wage. The methodology that produced the mid-range job loss estimates in the Empire Center study was an analysis by economists Jonathan Meer and Jeremy West. According to an August 2015 review of the employment effects of increasing the minimum wage by Meer and West, raising the minimum wage could lead to a reduction in potential job growth but would not lead to "an immediate drop in relative employment levels." The numbers from their study do not actually predict job losses, but rather the potential for jobs to grow at a slightly slower rate over many years:
We argue that the minimum wage will impact employment over time, through changes in growth rather than an immediate drop in relative employment levels. We show that commonly-used specifications in this literature, especially those that include state-specific time trends, will not accurately capture these effects. Using three separate state panels of administrative employment data, we find that the minimum wage reduces job growth over a period of several years.
We examine whether the minimum wage impacts employment through a discrete change in its level or if it is reflected over time. Much of the previous literature on the topic has assumed that an increase in the minimum wage would result in a relatively rapid adjustment in employment. Many have viewed a lack of such a finding as indicating that the minimum wage has minimal effects on employment, yet there are theoretical reasons to believe that this change may be slower. [Journal of Human Resources, August 2015]
Clemens & Wither Study Used Jobs Numbers From Midst Of Great Recession. The methodology that produced highest job loss projections in the Empire Center study was a November 2014 paper by economists Jeffrey Clemens and Michael Wither. Their model was based off of a study looking at the employment effects of a 3-step minimum wage increase that took place between 2007 and 2009, in the midst of the Great Recession, which they blame for a significant proportion of the declining employment-to-population ration observed from December 2006 through December 2012. [University of California San Diego, 11/24/14]
Labor Economist: Clemens & Wither's Study "Deeply Flawed." According to a December 23, 2014 op-ed in The Voice of San Diego written by retired labor economist Irv Lefberg, the Clemens and Wither paper is "deeply flawed" for "[t]rying to evaluate the impacts of a small, gradual increase in minimum wage affecting a small portion of the workforce in the midst of an earthshaking set of economic events," which Lefberg described as "pure scientific folly":
Jeffrey Clemens and Michael Withers' minimum wage study, featured at length on the most recent episode of the Voice of San Diego podcast, is so deeply flawed, it shouldn't have even received a National Bureau of Economic Research "working papers" definition.
First, the study period begins in 2007, just before the financial collapse and Great Recession, and ends in 2009, not quite before the recovery begins, but more like when the uncontrolled bleeding stops.
Trying to evaluate the impacts of a small, gradual increase in minimum wage affecting a small portion of the workforce in the midst of an earthshaking set of economic events is pure scientific folly.
Under the best of conditions - meaning a period of economic stability with few or no cataclysmic events - it is extremely difficult to reach "conclusions" about the impact of a change in a single economic variable, like minimum wage. But trying to do that when the sky is falling is really bad social science. That's why the research out there on minimum wage impact is peppered with cautions, caveats and qualifications.
Trying to study this over the precise period of the Great Recession is like trying to study the environmental effects of fracking during a brief period that coincided perfectly with a major earthquake. It doesn't even pass the laugh test.
A second flaw is that any two-year time frame for examining the impact of a change in minimum wage, quite apart from the fact that it coincided with the great recession, is painfully too small to reach any valid conclusions.
You are always going to find some (at least short-term) negative employment impacts from an increase in the minimum wage. But a minimum wage increase also puts more money in the pockets of the workers who don't lose jobs.
They spend the extra dollars in the local economy, creating some jobs elsewhere in the region. That's why many studies show no or negligible job loss, and sometimes even small job gains. You need a little time for that effect to show up. I acknowledge that large and precipitous changes in the minimum wage can be very destabilizing and even lead to permanent job loss, but that's not at all the nature of the changes examined in this study.
A third, serious flaw in the study concerns the source of its data: the Survey of Income and Program Participation. Self-reported income and wages in surveys are notoriously faulty. Administrative data, like unemployment insurance and social security administration, is not perfect, but decades of research on the quality of the Survey of Income and Program Participation and other survey data for wage reporting overwhelmingly conclude that survey data significantly understates wages, compared to administrative data. [Voice Of San Diego, 12/23/14]
Economic Research Shows Positive Or Neutral Impact Of Raising Minimum Wages On Job Market
CEPR: Increasing The Minimum Wage Has "No Discernable Effect" On Employment. In an exhaustive February 2013 report, the Center for Economic and Policy Research (CEPR) concluded that local, state, and federal minimum wage increases had a negligible effect on job creation:
Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. [Center for Economic and Policy Research, February 2013]
CEPR: Hiring Response To Minimum Wage Hikes "More Likely To Be Positive Than Negative." In a March 2011 report, CEPR concluded that minimum wage increases are "more likely" to result in job creation than job loss. According to CEPR's analysis, employment effects tended to "cluster near zero," with no major employment losses or gains tied to wage increases:
Our estimated employment responses generally cluster near zero, and are more likely to be positive than negative. Few of our point estimates are precise enough to rule out either positive or negative employment effects, but statistically significant positive employment responses outnumber statistically significant negative elasticities. [Center for Economic and Policy Research, March 2011]
IRLE: Rise In Earnings Had Zero Effect On Employment. An April 2012 report by the University of California, Berkeley's Institute for Research on Labor and Employment (IRLE) looked at the link between raising minimum wages and job creation. The IRLE found no change in job growth tied to raising minimum wages:
Summarizing to this point, we find that our border-discontinuity estimates find strong positive responses of earnings to a minimum wage increase. This rise in earnings is met with a change in the employment stock that is indistinguishable from zero. [University of California, Berkeley, Institute for Research on Labor and Employment, April 2012]