What Happens in California Stays in California; Why $15 Will Boost Employment Statewide

March 29, 2016 Goldy

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$15, california, Economics, Forbes, Michael Reich, Minimum Wage, Worstall

Experienced bloggers know that if you provide a block quote, few readers will click through the cited link — a rule of thumb that less scrupulous bloggers sometimes exploit to devious effect. For example, take this recent post from Forbes economic blogger Tim Worstall: “ California’s $15 Minimum Wage Deal Will Cause Unemployment–And We Have Proof Of This .” Worstall’s claim (as always!) is that a $15 minimum wage will cost many low-wage workers their jobs. Only this time, he kvells, he’s got a lefty economist to back him up: And we actually do have proof of this: a report about what a $15 minimum wage will do to employment in Los Angeles City. This is not, by the way, a report by some from market fundamentalist like myself. This is from Michael Reich et al at Berkeley, stout supporters of a rise to $15. And yet even their report states that the net effect will be fewer jobs. Go ahead. Click through the link above and read this Worstall quote in its full context. The “proof” mentioned in Worstall’s headline, that $15 “will cause unemployment,” is a cited study by Berkeley economist Michael Reich. That is the main thesis of Worstall’s post. There is absolutely nothing misleading or unscrupulous about my block quote. Alas, the same can’t be said for Worstall’s out-of-context quoting of Professor Reich: Los Angeles City: Combining costs and benefits and taking into account multiplier effects,we estimate a cumulative net reduction in GDP of $135 million by 2017 and $315 million by 2019, or 0.1 percent compared to a scenario with no city minimum wage increase. These effects on the level of economic activity correspond to a cumulative net reduction in employment in Los Angeles City of 1,552 jobs by 2017 and 3,472 jobs by 2019, or 0.1 and 0.2 percent of all employment, respectively. Yes, according to Reich’s model, it is true that a $15 minimum
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Overtime Rule Goes to OMB, 13.5 Million Americans Could Soon See Higher Wages

March 15, 2016 Goldy

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Economics, middle class, Overtime, President Obama

President Obama’s proposal to restore overtime benefits to millions of hardworking Americans cleared another hurdle last night when after months of considering public comments, the Department of Labor (DOL) transmitted the final rule to the Office of Management and Budget . We don’t know exactly what’s in the final rule, but there’s been no indication from the administration that the details have substantially changed. If approved as proposed, the income threshold above which salaried employees are exempt from time-and-a-half pay for every hour worked over 40 hours a week would more than double, from $23,660 a year to $50,440. According to an analysis from the Economic Policy Institute, 13.5 million Americans would directly benefit from the new rule. Overtime pay is like a minimum wage for the middle class. And just like the minimum wage, the overtime threshold has been allowed to erode away for decades: Back in 1975, 65 percent of salaried workers qualified for overtime; today only 11 percent do. But unlike the minimum wage, the Obama administration has the power to raise the overtime threshold without congressional approval through the DOL’s rule-making authority. It’s a long and drawn out process, but it looks like it’s on track to be completed by the end of summer. No doubt a Republican president would reverse this rule — something middle class voters might be thinking about when they cast their ballots in the fall.

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$15 Minimum Wage Would Boost Employment in New York State, Study Concludes

March 11, 2016 Goldy

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$15, Berkeley, Economics, Minimum Wage, unemployment

A new study from UC Berkeley’s Institute for Research on Labor and Employment concludes that raising the minimum wage in New York City to $15 by 2018 and in the rest of the state by 2021, would actually result in a net increase of jobs : Our estimate projects a cumulative net gain in employment of 3,200 jobs by mid-2021, which corresponds to 0.04 percent of projected 2021 employment. Sure, 3,200 jobs is a tiny gain within the context of a giant economy like New York’s, but the point is it’s not the catastrophic loss that the naysayers warn of. It’s not any loss at all. In fact, it’s the opposite. But more important is the “23.4 percent average wage increase for 3.16 million workers” in New York State. As The Donald would say, that’s yuuuge! How is this possible? “How can such a major improvement in living standards occur without adverse employment effects?” Simple, the researchers conclude: While a higher minimum wage induces some automation, as well as increased worker productivity and higher prices, it simultaneously increases worker purchasing power. In the end, the costs of the minimum wage will be borne by turnover reductions, productivity increases and modest price increases. As we’ve been saying all along: When workers have more money, businesses have more customers and hire more workers. Pretty obvious, right?

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Their Job Losses Are Hypothetical; Our Minimum Wage Gains Are Real

March 4, 2016 Goldy

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$15, Economics, Forbes, Minimum Wage, Worstall

I can’t actually bring myself to read all the way through Tim Worstall’s latest word jumble at Forbes, because I already have a slight headache, and Jesus, folks, it’s Friday afternoon, so gimme a break. But I would like to comment briefly on his disclaimer at the top: Before we go any further, as with other minimum wage rises that have been discussed here, no, I am not claiming that the rise is about to destroy the economy of that fair state, nor that all that will be left is a howling wasteland as the unemployed desperately search for scraps. I also agree entirely that the macroeconomic issues of what happens to the whole national economy are going to have far more to do with the employment and unemployment rates in Oregon than this change to the minimum wage will bring about. … The claim is this and only this: That a higher minimum wage will lead to fewer jobs than the absence of that higher minimum wage would have led to. Good on Tim for being up front about what he is claiming; not all trickle-downers are so forthright. But let’s be clear about what the core neoclassical claim is: it’s not that raising the minimum wage will destroy existing jobs, but rather that it will lead to fewer jobs in the future than there otherwise might have been. In other words, it is a claim that, no matter the empirical evidence, has the inherent advantage of being impossible to ever disprove! How convenient. Of course, the neoclassical models back Tim up. Run the models, and they’ll always project at least some theoretical job losses (in the future!) associated with minimum wage hikes large and small — despite the fact that the actual data from hundreds of local, state, and federal minimum wage hikes over
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Mutually Assured Obstruction: McConnell’s SCOTUS Gambit Leaves Dems No Choice but To Go Nuclear

February 25, 2016 Goldy

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Filibuster, Mitch McConnell, News, President Obama, Supreme Court, US Senate

Not only are Republicans refusing to consider any Obama appointment to replace the late Justice Antonin Scalia, Senate majority leader Mitch McConnell has even refused to commit to confirming a nominee put forth by the next president — you know, should that president be a Democrat. And for all the chatter about what this means for the future of the United States Supreme Court, I’d like to take a moment to consider what this means for the future of the US Senate. Um… BOOM!!! If a Republican Senate majority sets a precedent by denying a Democratic president his constitutional authority to appoint a SCOTUS justice, then given a similar opportunity, a Democratic Senate majority must return the favor in kind. The failure to retaliate would only incentivize the Republicans to do this again and again, leaving them exclusive control over the ideological balance of the Supreme Court. So Democrats must vow to reject the nominees of all future Republican presidents. And I don’t just mean during an election year — I mean ever. Republicans must be made to understand that if they deny this president his right to appoint a justice to this particular Supreme Court seat, the Republicans will assure that no president with an opposition Senate will ever be able to appoint a justice again. Sounds pretty dysfunctional, right? So given the current rules (whereby a single spiteful member can pretty much block any bill or motion from coming to a vote), how could such a pathologically partisan Senate ever hope to function again? Of course, it can’t. That’s why, should the Democrats regain control of the Senate this November, the first thing the new majority must do is eliminate the body’s longstanding super-majority rules. In other words, Democrats must choose the “nuclear option” and kill the filibuster. And should the Republicans retain their majority in the face of a justifiably angry and indignant Democratic opposition, McConnell
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Here’s Why Unemployment Is Not the Best Measure of the $15 Minimum Wage

February 22, 2016 Goldy

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$15, Economics, Minimum Wage, Seattle, unemployment

There are a handful of anti-minimum wage propagandists who jump on any monthly uptick in Seattle’s already low unemployment rate (or whatever statistic they’re obsessing on this month) as evidence that Seattle’s $15 minimum wage ordinance is an unmitigated job killer. Sure, anybody who actually lives here knows firsthand that Seattle’s economy is booming, but, you know, statistics don’t lie, or something. Of course, it will take years to tease out the real impact of Seattle’s higher minimum wage, so all this short term analysis is just so much bullshit. But let’s for the sake of argument assume that the righties are right, and that a modestly higher minimum wage does in fact result in a modestly higher rate of unemployment. Would that necessarily be a bad thing? If you think about it, if you’re unemployed, what really matters to you personally is unemployment duration, not the unemployment rate — that’s the amount of time it takes you to find a new job. You know, the time during which you might expect to be unemployed. Historically, the median unemployment duration has tended to be about 5 weeks, while the average came in somewhat higher at about 15 weeks, with both figures rising and falling somewhat in line with the unemployment rate. Likewise, the rate of longterm unemployment (defined as 27 weeks or more of unemployment) has tended to average about 1 percent, again, fluctuating somewhat in line with the overall rate of unemployment. (The exception to all this was the Great Recession, when the rate of longterm unemployment soared compared to past downturns. Given that the number one predictor of your likelihood of finding a job is the length of time you’ve been without one, many Americans who lost jobs during the Great Recession may never work again.) Seattle’s seasonally adjusted (though preliminary and uncorrected) unemployment rate has
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New Study Finds Higher Wages, No Disemployment from Local Minimum Wage Hike

December 9, 2015 Goldy

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$15, Minimum Wage, restaurants, San Jose

A new working paper out of the Institute for Research on Labor and Employment at the University of California, Berkeley, significantly adds to our understanding of the impact of local minimum wage hikes by analyzing a previously untapped reservoir of economic data: online restaurant menus. “ Are Local Minimum Wages Absorbed by Price Increases? Estimates from Internet-based Restaurant Menus ” compares prices at 884 restaurants in and around San Jose, CA before and after that city raised its minimum wage 25 percent, and found that yes, the higher labor costs are largely absorbed through price increases and turnover cost savings—and with no citywide disemployment effect or negative impact on restaurants close to the border. We detect a statistically significant increase in wages for the combined limited- and full-service sector in San Jose at the time (quarter) of the minimum wage increase, but no such structural break in wages in the rest of Santa Clara County. We also do not detect a structural break in restaurant employment in San Jose or for the rest of Santa Clara County. These wage and employment trends are further confirmed by difference-in differences estimates. This finding of wage increases but no detectable employment effects motivates our analysis of whether restaurants absorbed the payroll cost increases through price increases. … Our estimated price elasticities fall with restaurants that have larger workforces, suggesting the presence of more adjustment margins among larger businesses. In a novel finding, price increases were less where restaurants face greater local competition—as estimated using a restaurant density measure. Our overall estimated price elasticity of 0.058 is nearly identical to our preferred estimate of cost pressure elasticity (0.59). This result indicates that minimum wages are largely absorbed by price increases, as well as by turnover cost savings, even when the minimum wage increases in one swoop by 25 percent. Our study of border effects indicates that market spatial areas
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Aisle 15 Now! New Walmart Ad Shows We’re Winning the Narrative on Wages

November 6, 2015 Goldy

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$15, Economics, Minimum Wage, Walmart

If there is a comic book villain in the Fight for $15 it is Walmart, a company as famous for low wages as it is for low prices. The discount retailer’s 1.4 million mostly low-wage employees are icons of the working poor, costing US taxpayers an estimated $6.2 billion a year in Medicaid, food stamps, housing assistance and other public subsidies. And so when Walmart announced earlier this year that it was raising its starting wage to $9 an hour in April, and to $10 an hour in 2016, it was big news. Walmart had been plagued by high employee turnover, stagnant same-store sales, and a reputation for poor customer service. But in a recent blog post , Walmart CEO Doug McMillon says that his new wage strategy is already paying dividends: “We have seen associate engagement and customer satisfaction scores increase dramatically over the past eight months and comp sales are increasing,” writes McMillon. “Bottom line – it’s working.” But after learning the $1.5 billion cost of next year’s raise would temporarily lower 2017 profit-per-share forecasts, Wall Street handed Walmart’s stock its largest single-day price drop in 15 years. Corporate short-termism is hard for a CEO to resist, and in past years, McMillon might have caved in to the demands of disgruntled shareholders. But thanks in large part to the Fight for $15 and its dramatic victories in Seattle, San Francisco, Los Angeles, New York, and elsewhere, the national narrative about wages has changed. And so rather than reversing its strategy, Walmart is responding to investor criticism by re-airing a TV ad touting its “Raise in Pay.” “Because a raise in pay raises us all,” the narrator concludes, just as the light over aisle 15 winks on. Get it? Aisle 15? It would be downright subliminal if it wasn’t so obvious. Of course, even at $10 an hour Walmart will still
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The Economic Models Always Predict that a Minimum Wage Hike Will Cost Jobs, and the Models Are Always Wrong

November 6, 2015 Goldy

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$15, Economics, Minimum Wage, NY Post

Hey thanks, New York Post, for printing this how-to guide to classic trickle-down bullshit: “ A $15 wage could cost half a million NY jobs .” 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. Okay, sure. I don’t doubt that your “research models” predict that a $15 minimum wage would cost as many as 588,000 jobs. That sounds about right. Because that’s what the models always predict. Except the thing is, it never happens! Because the models are always wrong. According to a letter signed by more than 600 economists , including 7 Nobel Prize winners, the weight of the evidence now shows that “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.” In fact, the economists concur, studies of the effect of actual minimum wage increases (rather than models of theoretical ones) suggest that minimum wage hikes have a “stimulative effect.” So line up all the economists you want to insist that your economic models are right, but 75 years of minimum wage hikes tells us otherwise.

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A Property Tax Primer (or Why Prop 1 Opponents Don’t Know What They’re Saying When They Say Property Taxes Are Too High)

October 21, 2015 Goldy

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Policy, Seattle, taxes

One of the most frustrating things about covering property tax measures like Seattle’s Proposition 1 is that most people don’t understand the way property taxes work. From a budget writer’s perspective, the property tax is the best tax ever, because if done correctly, it almost always brings in exactly the amount of money projected. That’s because, unlike the stupid, stupid sales tax, budget writers don’t actually set a rate and just cross their fingers hoping that the money comes in; they request a specific dollar value—for example, about $95 million a year over nine years for Proposition 1’s “ Let’s Move Seattle ” transportation levy—and then the county assessor adjusts the property tax rate annually based on current assessed value (subject to statutory limits) in order to generate the requested revenue. If property values rise from year to year, the rate goes down; if property values fall as they did when the real estate bubble went pop, the rate goes up. But if passed, Prop 1 is almost guaranteed to generate that $95 million a year. Over the long run, nominal property values will almost certainly rise. So while the voters guide projects a tax rate of $0.62 per $1,000 of assessed value in year one, even a relatively modest 5 percent average annual rise in home values would leave the rate at about $0.39 per $1,000 of assessed value by year nine. But unfortunately for city budget writers, as reliable as the property tax is, it is subject to two very important limitations. The first is known as the “statutory dollar rate limit”: the City of Seattle’s property tax authority is limited to $3.60 per $1,000 of assessed value. That is the maximum theoretical rate the city can levy without voter approval. But thanks to the second limit, known as I-747’s “101 percent limit” (or more accurately: “Tim Eyman’s Revenge”), the city’s actual regular levy authority falls far short
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