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,…
As the debate over Minneapolis’ $15 per hour minimum wage reaches a climax, two reports have emerged investigating Seattle’s experience.
A tale of two papers
According to the first of these, released last week,
Our results show that wages in food services did increase—indicating the policy achieved its goal— and our estimates of the wage increases are in line with the lion’s share of results in previous credible minimum wage studies. Wages increased much less among full-service restaurants, indicating that employers made use of the tip credit component of the law. Employment in food service, however, was not affected, even among the limited-service restaurants, many of them franchisees, for whom the policy was most binding. These findings extend our knowledge of minimum wage effects to policies as high as $13.
The authors of the second, which arrived this week,
…conclude 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.
It is not surprising that the two papers reached rather different conclusions, they used different methodologies. The first paper (Allegretto et al) looked at employment in the fast food industry as a proxy for low wage employment. The second (Jardim et al) actually looked at low wage employment.
Seattle’s search for a two armed economist
But Michael Saltsman at Forbes might have found something more curious.
The (first) report “was prepared at the request of the Mayor of Seattle,” according to the authors–apparently as a public relations prop. Less clear is why the study was done in the first place.
As Daniel Person at the Seattle Weekly puts it
To review, the timeline seems to have gone like this: The UW shares with City Hall an early draft of its study showing the minimum wage law is hurting the workers it was meant to help; the mayor’s office shares the study with researchers known to be sympathetic toward minimum wage laws, asking for feedback; those researchers release a report that’s high on Seattle’s minimum wage law just a week before the negative report comes out.
Politicians and economists
Harry Truman is supposed to have asked for a one armed economist so they couldn’t say “But, on the other hand…” Winston Churchill reputedly said “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” If all the economists in the world were laid end to end you wouldn’t reach a conclusion. The gags go on.
Discussing the two Seattle papers in the Star Tribune, Paul Sonn of the National Employment Law Project, said “The economic evidence that spurred cities and states to move ahead with significant pay increases remains the same.”
He’s right about thw weight of evidence, but wrong about the direction it points. Jardim et al support economists David Neumark and William L. Wascher who, in 2008, surveyed two decades of research into the effects of minimum wage laws. They found that “minimum wages reduce employment opportunities for less-skilled workers…a higher minimum wage tends to reduce rather than to increase the earnings of the lowest-skilled individuals…minimum wages do not, on net, reduce poverty…(and that) minimum wages appear to have adverse longer run effects on wages and earnings”.
Yet, when faced with evidence it didn’t like, Seattle’s council seems to have gone looking for evidence it did. If politicians mock economists for being indecisive, maybe that’s because politicians only hear the economics they want to hear.