The Minimum Wage Debate Part II

Transcription

1 The Minimum Wage Debate Part II The Albany Times Union carried an article on March 24 detailing the connections between researchers who produced the reports for and against a minimum wage increase that I discussed in my post A $15 Minimum Wage for New York Benefits and Risks. The article points out that one of the authors of the study favoring the minimum wage, Ken Jacobs, was closely connected with the campaign to increase the minimum wage. In May 2014, an advocate for hiking the minimum wage in New York ed a University of California labor economist with a list of talking points we d love you to cover. The economist, Ken Jacobs, was set to testify before the New York state Senate s Labor Committee about the benefits of municipal minimum wage hikes in California. That works for me, replied Jacobs, chair of the Berkeley Center for Labor Research and Education. I will work on it tomorrow. During his trip to New York, a progressive public relations firm working for higher wages set up a meeting for Jacobs at The New York Times editorial board. Jacobs assisted an advocate rounding up New York union support, according to s. In one April , the relationship between academic and funder seemed explicit: Jacobs explained he was seeking grant money to support his unit s research for local groups engaged in work to raise the minimum wage in California. Jacob added that his Center would provide testimony/media work.

2 The article also points out that Two officials at the business-backed American Action Forum, another Washington, D.C.-based group, penned a November study on the $15 wage in New York. That nonprofit s funders, according to tax records, include the U.S. Chamber of Commerce Foundation, which paid the Action Forum $129,000 in 2014 to produce policy research. The Times-Union article points to a fact that has long been recognized, that the funding of public policy research is rarely truly independent. None of this proves that the research intentionally intends to mislead, but it does illustrate the connections between political and financial interests and those who study important policy issues. The kind of financial support that has been provided by labor and business interests in this case is found in the financing of other kinds of research studies. Pharmaceutical and food safety research are examples. There has been widespread publicity about the financial connections between researchers and the drug companies that could benefit from positive findings about the effectiveness of a drug. Why is this pattern so prevalent? The first reason is that the stakes attached to the outcomes of policy decisions, like those of decisions about food safety or drug efficacy, are high. For employers, a hike in the minimum wage could cut profits, or, for some small businesses, threaten their existence. For labor, a hike in the minimum wage could improve the lives of low wage workers. The second reason is that the entities that do research operate like businesses. Many years ago, I taught at a college, and one of the things that was made clear to me was that colleges and universities have limited resources to support research, and that if research is costly, faculty should look to outside entities to help pay the cost. From

3 the institutional perspective, outside funding provides the resources for additional personnel and needed equipment. Similarly, consulting firms are driven by the same logic. In the end, someone has to pay the cost of salaries and facilities. Very often the funding needed by these firms is most available from groups in society that have policy agendas. Some, like American Action Forum, appear to have been created to serve particular interest groups. None of this means that the results reported by researchers on each side are falsified. They represent real differences of opinion among economists who understand the impact of policy changes differently. But the funding of policy research by competing interests can lead to the exaggeration of differences in conclusions about policy outcomes. In my earlier piece, I pointed out that the Congressional Budget Office (one entity that does not receive funding that comes from a group for or against the minimum wage increase) in its research presented a range of possible outcomes in the case of a federal minimum wage increase, they projected the possible loss of a few to a million jobs, with a center point of 500,000 jobs. But neither the American Action Forum, or the the Center for Wage and Employment Dynamics at Berkeley presented a range of possible outcomes. Instead, each presented point estimates of impacts leading to sharply different conclusions about the employment costs of a minimum wage increase, suggesting a greater degree of certainty about conclusions than may be warranted. Finally, it should be noted that readers might conclude from the Times Union piece that the competing studies presented by business and labor interests fog the real answer to the employment impact question, in the way that tobacco companies funded studies in an attempt to shed doubt on data that showed

4 that smoking is harmful to health. In fact, that conclusion would be incorrect. The reality is that there is no consensus, and that in this case the competing studies represent real differences of opinion between experts. A $15 Minimum Wage for New York: Benefits and Risks Recently, a friend and colleague from the time when I worked at Empire State Development suggested that I take a look at Governor Cuomo s proposal to raise New York s minimum wage to $15 from $9.00. Like others, I m sure that he wanted to cut through the competing claims about the impact of the proposed increase. A columnist for the Albany Times-Union, Fred LeBrun, expressed the confusion felt by many, writing, The truth is I don t really know what the impact will be. I m not sure anybody does. Predictions vary wildly. Nor are the Cuomo administration and the Democratic Assembly making any serious effort to find out. The reason for LeBrun s confusion and frustration is that there is no certain answer to his question, nor can there be at this point in time, given the complexity of the factors involved in estimating the benefits of a minimum wage increase, and the lack of solid data available at the state level. As with many political issues, there are sharply divergent perspectives to the costs and benefits of raising the minimum wage. A well known Albany think tank, the Empire Center for Public Policy, released a report late last fall, Higher Pay,

5 Fewer Jobs, written by Douglas Holtz-Eakin and Ben Gitlis of the American Action Forum, the policy arm of the American Action Network, a group that has provided substantial support for Republican candidates for Congress. The report presents three models of the impact of the proposed increase in the minimum wage to $15, and finds that the proposal would reduce employment in the state by at least 200,000 jobs, with proportionately larger employment decreases in upstate regions. The report also estimates that the proposal would increase wage earnings by $4.6 billion. On the other side, the Center for Wage and Employment Dynamics (CWED), at the Institute on Labor and Employment at the University of California, Berkeley issued a report, The Effects of a $15 Minimum Wage in New York State, by Michael Reich, Sylvia Allegretto, Ken Jacobs and Claire Montialoux. CWED has received funding from the Fiscal Policy Institute, a union funded think tank. That report concluded that a $15 statewide minimum wage would generate a 23.4% average wage increase for 3.16 million workers in the state, with a net value of $14.4 billion and would create an increase in jobs of 3,178. Finally, Governor Cuomo, through the State Department of Labor issued a report in support of his proposal entitled Built to Lead Analysis: Raising New York s Minimum Wage to $15. The report claims a benefit from increased wages of $15.7 billion and argues that, A review of 70 studies on minimum wage increases found no discernible negative effect on employment. Problems Estimating Number of Employees Affected Perhaps a good place to begin understanding how difficult it is to understand what impact an increase in the minimum wage might have is by looking at the question of how many people might be affected by the proposed change. This is important, because the number of people affected impacts both the amount of wage benefits received in aggregate, and the number of

6 people who might be affected by layoffs that could result from the proposed increase. Here, there are differing estimates. Governor Cuomo s report argues that 2.4 million people would benefit from a minimum wage increase. The Empire Center report estimates 3.1 million workers would be directly affected by the increase. The CWED report estimates that 2.4 million workers would be directly affected, with an additional 1.2 million indirectly affected. How can there be such a large disparity in the estimates of the number of people affected? The answer is that researchers seeking information about the number of people who would be receiving less than $15 per hour at the time of the proposed increase could not find data that directly answers the question, and had to develop estimates using other data that does not directly measure wage distributions at the state level. In both cases, the authors used data from the Census Bureau s American Community Survey, and because they used different techniques to estimate the percentage of the employed population from the available data, they arrived at significantly different answers. Problems Estimating Possible Job Losses The bigger problem associated with evaluating the effects of an increase in the minimum wage involves estimating the impact of the change on employment. Until about 20 years ago, there was near unanimity among economists that there was a trade-off between employment and minimum wage increases, particularly for young and low skilled workers. For example, a number of studies found that for a 10% increase in the minimum wage, teenage employment decreased by 1%-3%. For adult workers, the impact was estimated to be smaller perhaps 1% for a 10% increase. Since almost 90% of minimum wage workers are 20 years old or older, the largest impact of a minimum wage increase is on adult workers, even considering the fact that a larger portion of teenage workers are paid at the minimum wage

7 rate. From the perspective of these studies, a minimum wage increase of $9 to $ 15, or 60%, as has been proposed by the Governor, would have a relatively large negative impact on jobs. In New York s case, with roughly 9,000,000 workers, about 550,000 could be expected to lose their jobs, if the estimate is correct. The report from the Empire Center presents three study models, one which is consistent with an analysis by the Congressional Budget Office, that estimates a loss of 200,000 jobs, a second by two economists, Jonathan Meer and Jeremy West, that estimates a loss of 432,500, and a third by economists Jeffrey Clemens and Michael Wither, that projects a loss of 588,800 jobs. How is it possible that the Center for Wage and Employment Dynamics could conclude that increasing the minimum wage could result in a small increase in jobs? The answer is that some more recent research has found no significant employment effect from increases in the minimum wage. For example, Alison Wellington in Effects of the Minimum Wage on the Employment Status of Youths: An Update. found that a 10% increase in the minimum wage reduced teenage employment by only 0.6%. In 1992, David Card and Alan Krueger studied the impact of a minimum wage increase in New Jersey on fast food restaurants by comparing their employment with those in nearby Eastern Pennsylvania and found that the wage increase was associated with slightly increased employment. They also examined a set of more recent studies of a 1988 increase in the California minimum wage and the 1990 increase in the federal minimum wage and found no impact. Subsequent studies have shown mixed results. Some have shown employment decreases with increases in the minimum wage, others have not. A better approach than providing a single estimate of job losses associated with increasing the minimum wage would

8 recognize a variety of possible outcomes. The Empire Center study does this to an extent, by presenting the outputs of several models. But the study only presents one set of possible outcomes, reflecting the views of economists who believe that minimum wage increases are associated with job losses. And, while the Empire Center presented a single estimate for job losses for the approach used by the Congressional Budget Office, the CBO itself said that a range of outcomes is possible. In its study of a possible federal minimum wage increase from $7.25 to $10.10, it predicted a very slight job loss to one million jobs, with a central point of 500,000. From my perspective, the best approach would recognize the uncertainty of any job loss estimate, and present a broader range of possibilities. So, unfortunately for my friend, and for Fred LeBrun, who wanted to know what the impact of an increase to the minimum wage would be, there is no definite answer. We do know that the proposal does have a positive economic impact on workers affected estimates range from about $5 to $15 billion. And, we know that it is not true that most beneficiaries would be teenagers flipping hamburgers at fast food outlets in fact, they represent a small minority of workers who would be affected. What we don t know is whether there would be a significant trade off in lost jobs. But, there are some significant reasons to be cautious about the impact of a proposal as large as the one that has been proposed by Governor Cuomo. Many economists are concerned about the size of the proposed increase an increase from $9 to $15 is much larger than previous increases, and is more likely to impose worker dislocations than a smaller increase to $12 for example. Alan Krueger, former Chair of President Obama s Council of Economic Advisors, and the author of the New Jersey study that found no negative impact of a minimum wage increase, wrote, But $15 an hour is beyond international experience, and could

9 well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking Failing Schools Bill Hammond s follow up discussion Bill Hammond s piece may be found here: Bill Hammond: Why New York s Failing Schools Fail and How We Can Turn the Tide Income Inequality and Minority Group Status in Upstate Metropolitan Areas In an earlier post, I pointed out that residents of upstate metropolitan areas actually have incomes that are somewhat higher than the average for other cities in the so called

10 rust belt cities located in the old manufacturing regions of the Northeast and Midwest. But, the largest upstate cities Buffalo, Rochester and Syracuse have greater concentrations of poverty than average, while their suburbs have lower levels of poverty than comparable cities, creating a high degree of economic segregation. Minority group status and location within an upstate central city are strongly related to economic disadvantage. Large income differences exist between minority group residents of central cities, and white residents. Nationally, the median[1] family income was $68,426 in Nationally, black/african-american families averaged $42,711, while families identifying as Hispanic or Latino averaged $44,013. Families identifying as white (not Hispanic or Latino) averaged $73,974.[2] But in one upstate city, the median income for Hispanic and Latino families was only $18,149, while in the suburbs of another upstate city, white[3] families averaged $91,693. Median Family Incomes in Upstate Cities Median Family Income 2014 Black Hispanic White Albany $39,077 $29,268 $84,422 Buffalo $29,155 $21,803 $55,516 Rochester $28,752 $23,717 $56,178 Utica $22,975 $18,149 $51,043 Syracuse $27,902 $23,438 $57,246 Troy $21,563 $20,061 $60,843 Schenectady $27,338 $25,111 $62,818 There is a large gap between the median incomes of minority families in upstate cities and those of minorities nationally, and a huge gap between minority incomes in upstate cities and

11 those of white residents of those cities the median income of whites in upstate cities is two to three times that of blacks and Hispanics. To give a sense of just how poorly minority families are doing in upstate cities, in every city, except for black families in Albany, minority median family incomes are below what would be earned by a worker making the minimum wage proposed by the Governor $15 per hour, working 40 hours each week. In five of seven upstate cities, the median incomes of white families were more than twice those of Black and Hispanic residents. In Buffalo and Rochester, white median incomes were 1.9 times those of black residents, and more than two times those of Hispanics. In each upstate city, except Albany, the median income of black families was less than half of the national median. In two cities Utica and Troy, the median income for black families was one-third of the national median. For Hispanic families in Utica, the median family income was only one quarter of the national median for all races/ethnicities. In Buffalo and Troy, the median family income for Hispanics was less than one third of the national median for all races. White families in upstate cities had median incomes that were below the national median for all races in most cases (except Albany, which was above the national median. But in each case, median incomes of white city families ranged from 75% to 90% of the national median. Compared to the median income for all black families in America ($42,711), black families in upstate cities had substantially lower median incomes. The average black family income median in upstate cities was $28,019. In Troy, black families had a median income of $21,563, only half of the national median. In Utica, the median income for black families ($22,975) was only 54% of the national black family median.

12 The picture was just as grim for Hispanic families living in upstate cities. For Hispanic families, the average upstate median income was $22,047. In Utica, the the median income for Hispanic families $18,149 was only 40% of the national median for Hispanic families, and only 26.5% of the national median for all races and ethnicities. In Buffalo and Troy, median Hispanic family incomes were less than half of the median income for all Hispanic families in the nation. Hispanic families in Troy and Buffalo had median incomes that were less than one third of the median income for all races and ethnicities. Median Family Incomes Outside Upstate Cities Families living outside central cities in upstate counties had substantially higher median incomes than central city residents regardless of racial or ethnic background. In the case of blacks and Hispanics, suburban families had median incomes that were approximately twice those of black and Hispanic families in cities. But, racial and ethnic differences were significant in suburban areas as well minority families had median incomes that were substantially lower than those of white families. Note that the estimates of median family incomes outside central cities have been estimated from available county and city median income data.[4] Most residents of the counties where upstate cities are located live outside the cities. Even outside the cities, there are significant disparities between the median incomes of minority and white families. However, median incomes for minority and white families within counties outside central cities are significantly higher than those in the cities. Median Family Income 2014

13 Outside City Black Hispanic White Albany $67,400 $78,594 $91,693 Buffalo $39,001 $44,463 $77,996 Rochester $44,716 $44,179 $81,432 Utica $50,785 $34,792 $70,457 Syracuse $48,187 $57,778 $80,714 Troy $47,521 $67,381 $84,992 Schenectady $65,062 $52,505 $88,674 Black families in outside of central cities in upstate counties had median incomes ranging from $39,001 in Erie County, outside of Buffalo, to $67,400 in Albany County outside of Albany, averaging $51,810. While these incomes were substantially below those of white suburban residents for example the median income for white families in Albany County outside Albany was $91,693, and $77,996 in Erie County outside Buffalo, they were substantially above the median incomes for black families in central cities. For example, the median income for black families in the city of Albany was $39,077, while in Buffalo, it was $29,155. On average, the median incomes of white families living outside central cities in upstate counties was 62.8% higher than that of black families. The median family income of black families living outside upstate cities was lower than that of all families nationally ranging form 57% of the national median in Buffalo to 99% of the median in Albany. Compared to the national median income for black families ($42,711) black families living outside central cities median incomes were higher in all upstate counties, except Erie County outside Buffalo. For Hispanics, the pattern was similar. Hispanic family median incomes averaged $54,342 in counties outside upstate central cities. Hispanic families in Utica had a median income

14 of $18,149, but Hispanic families outside Utica had a median income of $34,792. The median income of white families living in Oneida County outside Utica was $70,457. On average, the median incomes of white families living outside central cities in upstate counties was 59.1% higher than for Hispanic families. Hispanic families living in upstate counties outside central cities, other than in Oneida County outside Utica, had median incomes that were higher than the national median for Hispanics. Where Minority and White Families Live Given that most residents of upstate metropolitan counties live outside central cities; a reader might conclude that because minority families living in suburban communities have substantially higher incomes than minority families, there are many minority families who have relatively high incomes. In fact, the level of residential segregation is very high in suburbs outside upstate central cities. Minority families make up very small percentages of suburban populations in upstate metropolitan areas. Percent of Population Outside City Black Hispanic Albany 2.7% 2.7% Buffalo 3.3% 2.0% Rochester 4.3% 3.0% Utica 0.9% 1.0% Syracuse 2.3% 1.8% Troy 0.9% 2.0% Schenectady 1.4% 1.4% In the counties surrounding upstate cities, minority families make up substantially less than 10% of families in Oneida County, less than 2% of all families. Outside Syracuse, only

15 2.3% of families identified themselves as black/african- American, while 1.8% identified themselves as Hispanic. Outside Rochester, 4.3% of families identified themselves as black and 3% of families were Hispanics. These numbers stand in stark contrast to the percentage of minority families in upstate cities. Percent of Population Central City Black Hispanic Albany 35.2% 8.0% Buffalo 40.5% 10.4% Rochester 44.8% 18.2% Utica 13.6% 10.0% Syracuse 33.4% 8.0% Troy 16.6% 8.8% Schenectady 19.0% 9.7% While 7.4% of families living in Monroe County, outside Rochester were blacks or Hispanics, 63% of Rochester families were members of these minority groups. In Syracuse, 41% of families were black or Hispanic, while in Onondaga County, outside Syracuse only 4.2% of families were black or Hispanic. Implications Upstate New York metropolitan areas are not post-racial communities. White families living outside of central cities in upstate counties are the majority of county families. Minority group members constitute a tiny fraction of suburban populations. Median incomes of white families living in suburban communities are substantially higher than the medians for all families and for white families nationally. Minority families are concentrated in central cities few enjoy the benefits of suburban housing and school systems. Typical black and Hispanic families bear a heavy burden of

16 economic inequality. Median family incomes for minority city residents are very low only one quarter to one third of the median incomes of white suburban residents. The contrast between the relative affluence of suburban families and minority residents of central cities is extreme. Consider that in Rochester, the median black family income was $28,752 in 2014 and of Hispanic families $23,717 while white families in Monroe County outside Rochester had a median income of $81,432. In Schenectady, the median income for black families was 27,338 and for Hispanic families $25,111, but the median for white families in Schenectady County was $88,674. The causes of minority group members privation have been discussed elsewhere weak educational backgrounds that lead to limited job-skills, single parent families that can t get good jobs, high levels of incarceration, and limited access to public transportation, among others. There are no easy solutions to these problems, but there are many approaches to helping low income people in central cities. Among them are: Strengthen early child development interventions that promote better parenting, and provide more resources to help low income families access early childhood education options. Help low income parents access better child care options by providing access to all disadvantaged children. Consider adopting classroom management approaches used by successful charter schools in center city public schools. Reduce the concentration of economically disadvantaged students in central cities though strategies like interdistrict magnet schools. Employ dual-generation assistance models for low income families that integrate a range of health, social and other services in local schools. Leaders should emphasize to targeted audiences how

17 difficult it is to raise children without a committed co-parent. Offer a range of birth control measures, including long acting forms for free. Strengthen SNAP (food stamp) administration. Because of wide variability in food stamp usage rates among eligible populations, consider state administration and increase the number of sites for in-person verification. Consider providing a state supplement to the SNAP program to ensure more adequate support for nutrition. Enhance support for community college programs that provide industry specific skills in high demand fields. Support efforts to provide community college training with flexible class scheduling, and short modules outside traditional AA or certificate programs. Increase or supplement the Earned Income Tax Credit the program is an effective work incentive. Increasing benefits would provide more adequate support for low income families. Expand or supplement the Child Tax Credit make it fully refundable. Consider increasing the minimum wage. Though trade-offs are likely in the form of increased unemployment if the minimum wage is raised to $15, a more moderate increase would provide a better balance between assisting low income workers, and potential lost jobs. Address the negative impacts of high levels of incarceration in the minority male population. Consider ways to reduce the impact of stop and frisk policing strategies, reduce penalties for non-violent crimes, reduce barriers to employment for those who have completed prison sentences. Focus on developing better public transit access to work sites and community college locations for central city residents. Despite the stark reality of the economic and residential

18 segregation of minority groups in upstate metropolitan areas, little attention has been paid to this problem at the state level. The question is why political leaders haven t made the economic deprivation of minority residents of central city residents a top policy priority, and how the needs of low income inner city residents can become a priority for them. [1] The income at which half the families have greater incomes and half the families have incomes that are lower. [2] Source: U. S. Census Bureau, American Community Survey , 5 year average data. [3] Henceforth I will refer to voters who identify as white, not Hispanic or Latino as white. [4] The products of median incomes and the number of families were calculated for counties and cities. City totals were subtracted from county totals, and the result divided from the number of outside city families to derive median income estimates for outside city families.