A $15 minimum wage would also raise childcare prices
A new report by EPI is calling for a $15 minimum wage in order to help childcare workers, but that would also raise childcare costs for parents.
This afternoon, Center President John Hinderaker testified in front of the Joint Economic Committee of Congress in Washington D.C. on the impact of the Tax Cuts and Jobs Act on Minnesota’s economy. Below is our written submission to the Committee.
THE PASSAGE OF THE TAX CUTS AND JOBS ACT
It is early, of course, to judge the full impact of the Tax Cuts and Jobs Act on Minnesota’s economy. The Act was passed in December 2017, just over eight months ago, and it went into effect a month later. Further, it was not clear until a very late stage that the Act would pass. As late as November 6, 2017, the state of Minnesota’s own economic consultants released a forecast that removed from its baseline outlook the federal fiscal stimulus of the Tax Cuts and Jobs Act – the individual income and corporate tax rate cuts as well as increased infrastructure spending – because even at that stage it was deemed unlikely that the bill would pass.
So, compounding the short time that the Act’s measures have actually been in place, is the brief period of time prior to that in which businesses and individuals could plan for the new fiscal environment. Given those facts, is is remarkable how much impact can already be demonstrated.
We can interrogate several sources to gain insight into the effects of the Act on our state’s economy. First are news reports on actions taken by individual companies; second is official data; third are indexes of business sentiment; and fourth are forecasts.
News Stories About Individual Companies
The first source of evidence is news reports of companies that have raised wages, awarded bonuses, increased hiring, and so on, in response to the Act. We have documented at least 34 such instances in Minnesota, all specifically attributed to passage of the Tax Cuts and Jobs Act. They are listed in Appendix A. No doubt there are many more that have not been publicly reported.
For example, bonuses ranging from $200 to $2,000 were given to Minnesota employees from both large and small companies. Albert Lea Public Warehouse gave each of its 12 employees an extra $2,000. Larger companies, like U.S. Bancorp, gave $1,000 bonuses to each of its 60,000 employees. Employees also saw an increase in hourly wages. Hormel raised their hourly pay to $13/hr. Koch Companies increased driver pay from 41 cents to 45 cents per mile and raised the maximum driver sign-on bonuses from $5,000 to $7,000. Other employers expanded their retirement plan contributions, pension programs, stock grants, maternity and paternal leave, adoption assistance, and vacation benefits.
Companies are also investing in themselves. CIT Relay & Switch in Rogers increased its staff by 10% in January 2018 and have pledged to hire even more. 3M invested $1.9 billion in 2017 in research and development and have expanded that investment in 2018.
Utility companies passed their tax savings on to customers. Minnesota Power in Duluth is giving customers a 1.5259% credit on their monthly bills, a savings totaling about $10 million a year. Otter Tail Power is also reducing its rates. Residential customers will see savings of about $3.10 a month where commercial customers will have a $18.25 rate cut.
Minnesota companies have also donated more than $200 million to charity as a result of the Act. U.S. Bancorp made $150 million charitable contribution. Best Buy gave $20 million to their foundation. Ecolab made a $25 million contribution to their foundation.
Some official data sets are not updated often enough to reflect, at this point, the impact of the Tax Cuts and Jobs Act. For example, Bureau of Economic Analysis data on Gross Domestic Product and Personal Income at the state level have only been released through the first quarter of 2018. But we do have some significant data. In particular, the Bureau of Labor Statistics compiles monthly data on employment and wages.
Figure 1 is based on data from the BLS’ Current Employment Statistics and shows the net gain or loss of jobs in each month since January 2017. It shows that hiring goes through cycles in Minnesota. Jobs are added during the spring and summer months, and lost in fall and winter. Figure 2 shows that the peak net-gain of jobs in 2018, 52,000 in June, was nearly 20,000 higher than the peak month in 2017, April.
Figure 1: Monthly net change in Total Private jobs in Minnesota
Source: Bureau of Labor Statistics
The BLS also produces its Local Area Unemployment Statistics on a monthly basis. Figure 2 shows the net change in seasonally adjusted employment in Minnesota since January 2017. We see that an average rate of employment growth of around 4,000 jobs per month trended down from July and turned negative at the end of the year. However, it then rebounded strongly from December, with 10,000 new jobs added on net in February 2018, a rate not seen in this data since at least January, 2008.
Figure 2: Monthly net change in seasonally adjusted employment in Minnesota
Source: Bureau of Labor Statistics
The Current Employment Statistics produced by the BLS also provide data on weekly earnings. Figure 3 shows this data from January 2017 onward. We see a trend of wage growth in 2017 which abated from October to January. Since then, in nominal terms, average hourly earnings in Minnesota have risen by 2.7 percent, compared to a 1.2 percent increase in the same period of 2017.
Figure 3: Average hourly earnings, Minnesota
Source Bureau of Labor Statistics
Figure 4 shows data for average hourly earnings seasonally adjusted by the Federal Reserve Bank of St. Louis. Wages more or less stagnated between July 2017 and February 2018. Since then, however, wage growth has picked up and hourly earnings in Minnesota have risen by 2.1 percent compared to 1.1 percent over the previous twelve months.
Figure 4: Average Hourly Earnings of All Employees: Total Private in Minnesota, Dollars per Hour, Monthly, Seasonally Adjusted
Source: Federal Reserve Bank of St. Louis
Our third source of information is surveys of business sentiment.
In January 2018, the Federal Reserve Bank of Minneapolis reported on sentiment among manufacturers in the Ninth District, which covers Minnesota, Montana, North and South Dakota, and portions of Wisconsin and Michigan. They found that 2017 had been a better year than 2016, when manufacturing activity had been more or less flat. Looking to 2018, the Minneapolis Fed reported that:
The outlook for 2018 is upbeat, with more respondents predicting growth than were expecting contraction this year. Orders, total production and exports were expected to increase. Companies forecast greater productivity and profits, as well as higher prices for their goods. Capital investment was also expected to increase.
Firms’ optimism about their own performance was mirrored by a positive view of the economic outlooks for their respective states. The majority of respondents expected their state economies to grow and foresaw increased employment, business investment, consumer spending and corporate profits over the coming year.
Figure 5: Manufacturing activity increased in 2017; more growth expected in 2018
Source: Federal Reserve Bank of Minneapolis
In July, the Minneapolis Fed reported that a survey of Ninth District consultants, engineers, staffing agents, advertisers, and other professional services firms indicated that these business services firms grew over the 12 months from mid-2017. The Minneapolis Fed also reported that:
Looking ahead, services companies are optimistic about the coming year. More firms anticipate increased sales revenue and profits over the next four quarters than expect declines. Productivity and employment are also expected to increase…
Most anticipate moderate wage increases. Over the next four quarters, firms expect wages per worker to increase by an average of 2.5 percent and benefits by 2.1 percent.
Asked about their outlooks for the broader economy, the number of professional services firms expecting employment in their states to increase over the next year was six times the number predicting a drop. Corporate profits and consumer spending were also expected to increase across district states.
Figure 6: Professional services firms expect more growth
Source: Federal Reserve Bank of Minneapolis
Our fourth and final source of information is state-specific economic forecasts.
The first of these comes from the Tax Foundation. The Tax Foundation estimates that the Tax Cuts and Jobs Act will add 6,789 full time equivalent jobs to Minnesota’s economy and yield a gain in after-tax income of $722.40 for each of the state’s middle-income families.
There are also estimates from the House Ways and Means Committee of the tax cut accuring to families in each Congressional District. These range from $2,388 annually for a married couple with two kids in the 7th District in western Minnesota, to $5,081 in the Rep. Paulsen’s 3rd District.
Table 1: Tax Cuts by Congressional District
Source: House Ways and Means Committee
We also have the forecasts of the state government’s own economic consultants, IHS Markit. In February 2017, IHS Markit produced an economic forecast which included the stimulus from proposed cuts to individual and corporate tax rates. But, in their November 2017 forecast, they removed these effects. At the time, Minnesota Management and Budget wrote
The outlook for U.S. economic growth has weakened since Minnesota’s Budget and Economic Forecast was last prepared in February 2017. The U.S. economic data coming in this year has been mixed, with slowdowns in residential and business construction, but improvements in net exports and business equipment investment. Minnesota’s macroeconomic consultant, IHS Markit (IHS), has removed from their baseline outlook federal fiscal stimulus—in the form of individual income and corporate tax rate cuts and increased infrastructure spending— that in their February outlook was expected to support economic growth starting in 2018.
In February 2018, an updated forecast was released with the effects of the Tax Cuts and Jobs Act once again factored in. This new Budget and Economic Forecast document discussed the higher forecast state government revenues, explaining that “This forecast reflects increased U.S economic growth arising in part from short term stimulus from federal tax law changes.” It went on, somewhat grudgingly:
The short-term outlook for U.S. economic growth has improved since Minnesota’s Budget and Economic Forecast was last prepared in November 2017. The economic data coming in since November has been solid, with strong consumer spending and business equipment investment, as well as rising employment and disposable income. In addition, Minnesota’s macroeconomic consultant, IHS Markit (IHS), has incorporated into their February baseline outlook the impact of federal fiscal stimulus from the Tax Cuts and Jobs Act (TCJA). Relative to November, this change has modestly improved the U.S. economic outlook.
More time will be required for the positive effects of the Tax Cuts and Jobs Act on Minnesota’s economy to be fully measured. Already, however, we can see the impact of the Act on employment and wages in the state. The official data reinforce what was already obvious from many news reports: Minnesota companies are hiring, raising wages and otherwise contributing to Minnesota’s economy as a result of the Act.
John Phelan is an economist at the Center of the American Experiment.