Inflation: What did cause it?
Yesterday I looked at popular explanations for America’s current inflationary woes and explained why they weren’t, in fact, its causes. So what did cause it? As I wrote last October,…
Public policy should be based on evidence, not fantasy. This is a lesson Kshama Sawant would do well to learn judging by her Editorial Counterpoint last week.
Referring to warnings about the adverse effects of minimum wage hikes, Sawant writes “As an economist myself, I can tell you that none of these claims is motivated by fact” and that “On the contrary, there is overwhelming evidence that minimum-wage increases lift workers out of poverty”.
As an economist myself, I can tell you that both of these claims are false. There is, indeed, a substantial body of empirical research into the effects of minimum wage increases and it runs precisely contrary to what Sawant claims. In 2008, economists David Neumark and William L. Wascher surveyed it and found that “minimum wages reduce employment opportunities for less-skilled workers … (that) a higher minimum wage tends to reduce rather than to increase the earnings of the lowest-skilled individuals … (that) minimum wages do not, on net, reduce poverty … (and that) minimum wages appear to have adverse longer-run effects on wages and earnings.” In 2014, along with economist J.M. Ian Salas, they examined the subsequent literature and concluded “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
Sawant goes on to claim that “Seattle’s restaurant industry, and other One Fair Wage cities and states, have faced no negative impact from a $15 minimum wage for tipped workers”.
This, too, is false. Last year – in a study commissioned and funded by the City of Seattle itself – economists Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething of the University of Washington used a new, comprehensive data set from Washington’s Employment Security Department to investigate the effects on Seattle’s labor market of raising the minimum wage. They found that “the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.” That’s $1,500 per annum.
Finally, Sawant claims that St. Paul’s workers are “on the home stretch of a fantastic campaign to put the needs of working people above the profit margins of big business”
This claim is false as well. A Citizens League report released earlier this year found that most of Saint Paul’s large employers such as Allina Health, Ecolab, HealthPartners, and Securian already pay the majority of their workers at least $15 per hour and that the employers who would be impacted by a $15 minimum wage are primarily nonprofits and franchise and small businesses. It isn’t “big business” that will be hit by this measure, it will be the independent bookseller whose margins are being squeezed by Amazon, the immigrant store owner competing with Target and Walmart, or the nonprofit trying to give a disabled worker a break.
This final false claim reveals the fantasyland which Sawant inhabits. It is a land where greedy capitalists, probably in top hats and smoking cigars, ruthlessly exploit downtrodden workers. It is the land of the Robber Barons. It is not Saint Paul in 2018. This is not to deny that there are problems with pay and living expenses. But the evidence shows that minimum wage hikes will not help. Indeed, they will hurt those they are intended to assist.
But, as comforting a place as fantasyland might be, it is not an appropriate one to fashion policies that will affect people’s lives. Sawant’s claims about the impact of minimum wages generally and on Seattle specifically, are wrong according to the empirical research. We owe it to Saint Paul’s workers to listen to the data, not fantasies.
John Phelan is an economist at the Center of the American Experiment.