New data on the minimum wage

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New York’s minimum wage has been increasing steadily since 2013, when an agreement in the state budget increased the minimum 24 percent to $9 at the end of 2015. In September of that year, Gov. Andrew Cuomo took executive action to increase the minimum wage for fast-food workers to $15 an hour by July 2021 (more than double the 2013 rate). Wages paid to fast-food workers increases to $13.75 at the end of the year. 

A comprehensive increase in the minimum wage was passed by the state Legislature as part of the 2016-17 budget, approving a phased increase to $15 an hour in most of downstate and $12.50 an hour upstate. Rates are higher downstate with distinctions made for location and firm size. (See here for the very detailed wage order.)

Winners and losers

Economists are nearly unanimous in observing that a minimum wage hike has both winners and losers among the groups it is intended to help. This is typical for public policy—only rarely can we make substantive changes that help all and hurt none. On the left, we’re led to believe that a minimum wage rise will significantly improve the well-being of the poor and that employment could actually increase as a consequence. The right declares that jobs for the most disadvantaged will disappear and that the increase might trigger a recession.

Policy must balance the two perspectives. A minimum wage set too high will price some workers out of a job. A minimum wage of $25 an hour, for example, will surely accelerate the adoption of “robot” clerks from self-checkout stations at Home Depot or Wegmans to ordering kiosks at McDonalds or Panera. Eliminate the minimum wage, however, and we open the doors to the exploitation of workers who cannot refuse a cut in pay.

The effects of a minimum wage change are also difficult to measure. Researchers must compare a “post-policy” reality with what might haveoccurred instead. Economists don’t have the luxury of setting up an experiment with two communities that are identical except for the minimum wage. The best we can do is to compare conditions in the same region before and after the change or compare different regions during the same time period. That labor markets vary by time and place makes any conclusions subject to criticism.

Seattle

The best study to date is one in Seattle, courtesy of unprecedented cooperation between University of Washington researchers and the state’s Department of Labor. Instead of relying on changes in aggregate employment or average wages, the Washington study is able to track the impact on individual workers. The researchers concluded that experienced workers did better—their pay increased while their hours didn’t change. The least-experienced workers found fewer opportunities after the wage increased, thus were worse off. (Listen to a discussion of the study and its findings here. )

Researchers’ key challenge in Seattle has been to discern the minimum wage impact within a booming labor market. In a period of economic expansion when labor is scarce (reflected in a relatively low unemployment rate), a wage increase will have a smaller impact on hours worked and total payroll. In a period of recession, the most vulnerable workers are more likely to lose hours. The Seattle findings are consistent with this expectation.

NY/PA border counties

The findings of a new study of the minimum wage increase in New York by the Federal Reserve Bank of New York was just released. The Fed’s researchers compared wages and hours in adjacent New York and Pennsylvania counties from 2010 through 2018, a period that overlaps significant minimum wage increases in New York while the Pennsylvania rate remained at the national level. The study looked workers in the leisure and hospitality and retail sectors separately.

The study concluded that average weekly earnings grew in New York without a loss in employment in leisure and hospitality. Consistent with national trends, the retail sectors in both states suffered substantial, but comparable, loss in employment, while weekly earnings in New York outpaced those in Pennsylvania.

Not the end of the story

While this study makes a useful contribution to the minimum wage debate, a few caveats are in order. My colleague E.J. McMahon at the Empire Center for Public Policy notes a significant problem: The leisure and hospitality sector includes casinos. In 2018, New York opened a large new casino in Monticello (Sullivan County) and expanded the Tioga Downs Racetrack (Tioga County). If you look at the chart, this is the year in which total employment diverged between the states. 

McMahon also observes that Orange County’s inclusion with the rest of the border counties is probably an error. Orange has participated in the general prosperity of New York City and its environs, thus its economy is very different than the Pennsylvania comparables. With Orange, Sullivan and Tioga counties excluded, job growth drops to 2 percent, less than half the 4.5 percent experienced in the Pennsylvania counties. See his excellent discussion here.

Other evidence points to a decline in the number of full-service restaurants in New York versus Pennsylvania. Michael Saltsman of the Employment Policies Institute looked at the impact of the tipped minimum wage increase on full-service restaurants and noted a distinct difference between New York and Pennsylvania after the rate began to rise. See his discussion here and his summary chart below. 

This, too, is consistent with what we would expect—there’s a pronounced shift in the restaurant business away from full-service restaurants in favor of labor-saving “fast casual” settings like Chipotle and Panera. Higher wages can be expected to accelerate the transition away from table service. 

Conclusion

Economists envy the ability of physical scientists to conduct experiments with perfect “control” groups—exact in all respects except for the factor of interest. We do not have sufficient evidence to know the impact of New York’s dramatic minimum wage increase with confidence. Nor do we have the tools to balance the “net benefit” of the inevitable wins to some and losses to others. That’s the domain of philosophers and political scientists, not economists. 

We can be certain that the increase will be good for some workers and bad for others, and that it will be benign for some employers and devastating for others. Consumers, too, can be winners and losers, depending on their individual circumstances.

Note, too, that New York’s minimum wage continues to increase into 2021. The New York Fed and others will have additional data to explore. I’m also interested in the implications of the indefensible difference between workers in fast food versus other sectors—$2.50 an hour by mid-2021.

If a recession takes hold—as some expect—low-skill workers and the marginal businesses that employ them will be more vulnerable. Yet higher earnings for more experienced workers may improve their ability to stay afloat in hard times. 

Kent Gardner is Rochester Beacon opinion editor.

8 thoughts on “New data on the minimum wage

  1. Kent Gardner has written a fair article that requires even more research on the effects of higher minimum wages . This work needs to continue as minimum wages rise in the future and possible affects continue and evolve . I am familiar with the Seattle study which seems to be much deeper than most and notes that though there are some immediate losers ,unemployment remains low .
    In the interests of full disclosure , I am a retired Labor Advocate of nearly a half century and not unbiased . A living wage , as the minimum wage was intended according to no less than FDR , is closely related to the anti-slavery statutes . Historically , the minimum wage of 25 cents only went to 30 cents during the war years . It was insignificant at that time due to the Keynesian economy created by Defense spending to defeat fascism . At the end of WW II it went to 40 cents . In 1950 as part of his Fair Deal Truman nearly doubled it to 75 cents . A year later unemployment had dropped fro 6.3% to 3.7% . How much do these figures have to do with the minimum wage as compared to meeting increased demand or the interest rate/ cost of money for capital investment to meet increased demand ? There seems to be no definitive answers on some questions , though there have been some studies on these questions for specific wage increases . It would seem in an economy that is 70% based on consumer spending would need real wage increases , but even that can be skewed by the availability of easy credit in the modern age for working people .
    The Fair Labor Standards Act (FLSA) of 1938 also created economic losers when it eliminated Child Labor . Incomes of workers , especially in mill towns and coal towns , went down . They were paid so little they needed this income . Agriculture was excluded and we still have about a half million children laboring on farms . In my view the fact some workers may not benefit on a temporary basis would not justify foregoing minimum wage increases or bringing back child labor .
    In the past year workers on average have seen a real wage increase of about 4 tenths of a percent . Inflation about 3% and wage increases to 3.4 or 3.5% . Though small there are more questions that need to be answered such as :
    Are the wage increases more in the 28 states that have a higher minimum wage?
    Most of the states with the higher minimum wage have higher median incomes , higher graduation rates , and a higher percentage with health care . Is that related to the minimum wage , tax structures , the types of industries , or the amount of federal dollars they receive ?
    A combination of all of the above?
    The research Mr. Gardner examines has much more depth than most past studies , but also shows how much more research need to be done on minimum wages and wages in general , to advance a society with an expanding middle class .

  2. These are all fair points and highlight how difficult this research can be. As I noted in the post, it’s clear that there’s a wage that’s too high and a wage that’s too low. Where you land personally depends on how you weigh the negative consequences of your choice.

  3. The “living wage” demand, in my opinion, ignores the fact that not all jobs should be jobs to raise a family on. A 16-year-old working for the first time isn’t going to be as productive as an adult, and shouldn’t expect to be paid like an adult. Working the counter at McDonald’s should be seen as a stepping stone, not a permanent destination. If we double the cost of hiring such a person, we are pushing companies to hire fewer. We’re having increasing problems of people dropping out of, or never entering, the workforce; making them more expensive before they develop skills isn’t going to help.

    Too many politicians have never run a business (other than, perhaps, a high-priced law firm). I remember back in the 1990s, Bill Clinton telling the head of Godfather’s Pizza, “I’d gladly pay another $1 for my pizza to give your workers a better wage.” Sure, Clinton has lots of money in his pocket. Not everyone does. And just because the other pizza parlors have to raise their prices too doesn’t solve the problem; a restaurant is also competing against eating at home.

    We should absolutely expect that if the wages for everyone are forced upwards, the most experienced and capable will gain the most, while the less experienced/capable, unable to reduce their price to compensate, will get left out. So the most vulnerable are the most harmed. So much for looking out for the little guy…

  4. So I go to NYC last week, and thus to my favorite breakfast place — usually a line outside. Now half empty. Pancakes cost $18. I call over my manager friend, ask what’s the deal? His reply is that the increased minimum wage is killing him — who’s going to pay $18 for pancakes? And I, an economist by training, sadly acknowledge that he’s verbalizing a refrain that’s already been proven to be true over and over and over again — this is not the first time we’ve raised the minimum wage — it most definitely hurts those at the lower end of the wage scale and by multiplier effect those who depend upon this segment of the working population. Nothing new here.

  5. Mr. Smith’s comment mixes in another variable not specifically examined in the original article , such as whether their should be say a training wage for those who are part time and not adults . Compromises in that area may be worth carving out in future legislation but have not been a core issue because we know that more than two thirds of minimum wage jobs are held by adults and the majority of these adults are head of household women . Though labor issues tend to be ignored in the media we saw labor statistics this year during the government shut down that about 40% of workers in this country make $15 an hour or less , and half of workers do not have a thousand dollars in the bank . Joseph Stieglitz from Columbia and a Nobel prize winner in economics has documented that over 90% of the wealth created in the last decade has gone to the richest 10% , with the majority of that going to the top 1% . Capital investment is necessary , but more and more of that comes from taxpayers , while productivity is what creates wealth . The crisis of the middle class are wages that are too low , coupled with for profit health care now nearly $3.7 trillion , or $11,000 for every person , and college costs that have gone higher than health care . When more than two thirds of the economy is consumer spending , this is disastrous and getting worse . Your example of pizza places is relevant as we have seen a national pizza chain , Papa Johns , go out of business here blaming increases in the minimum wage . Since then we have seen more pizza places open with much better product in my opinion . That used to be known as free market competition . Capitalism will always look to lower costs , including Labor costs . In my working life that began more than 50 years ago I have seen and experienced mostly manual labor , to mechanization , to automation and the start of artificial intelligence . This has all been driven by greatly reducing Labor costs , same as offshoring for cheap labor , now called “Trade ” . I will conclude with how I began my previous comments , the anti-slavery statutes . I believe that if your business cannot pay a living wage and allow you to make a decent living , then there is just not enough demand for what you are selling to stay in business . It used to be called free market competition . As with any competition not everyone wins and some will lose .

  6. Interesting . As a non-economist I checked the NY State Comptroller web site on NYC employment .The latest stats are for 2018 and count 4.55 million NYC jobs , the highest on record .This is the largest and longest NYC job expansion since the end of WWII . Leisure and hospitality grew the fastest and restaurants were responsible for two thirds of the job gains in this sector . Anecdotally , the last seven years of this nine year plus expansion was during the “Fight For Fifteen ” movement . Maybe your experience is atypical , or there is a downturn going on as the 2019 statistics are not out yet . Even without end of year employment stats I would think a large reversal would have been reported .

  7. I don’t know where Mr. Bertolone got his information on female heads of household, but it doesn’t sound right. A GAO report from Sep. 2017 on low-wage workers indicates that about 80% of those who earn the minimum wage live in families that are not in poverty. This would include youth/young adults who work part-time while in school (47% of minimum wage workers are under age 25), spouses taking a side job while relying on another breadwinner, and people adding a part-time job to their primary occupation. It’s hard to square that with the claim that over a third of minimum wage workers are female heads of household.

    It might also be noted that not all “minimum wage jobs” really provide just minimum wage. Tipped workers may make minimum wage or below officially, but take home a much healthier income. Some of them have been fighting against raising the minimum wage, because they know it’ll hurt them overall. They were successful in D.C. in repealing an initiative that would have raised the minimum wage for tipped employees to match the regular minimum.

    If we need to assist people at the low end of the economic ladder, let’s target them for help, not spread it all over and expend much of it in unnecessary and often counterproductive ways. Limiting people’s liberty to make their own decisions should be a last resort, not the first.

  8. Well Mr. Smith some of my stats are older and may go back to the beginnings of the Fight For Fifteen , nearly seven years ago . That movement began with fast food workers not tipped workers , and then moved to minimum wage workers in retail .The claim that 80% of minimum wage workers do not live in poverty is hard to believe , though I’m sure their are households were a second and even third wage earner working minimum wage keeps a family above the poverty level . Many believe where the poverty level income level is set has been too low for years . Many national stats also differ from NY where over 20 states still have a $7.25 minimum wage . We saw stats reported in the press earlier this year , with the 35 day government shutdown , that revealed nearly 40% of workers in the country making less than $15 an hour and half of workers not having a thousand dollars in the bank . Many household income stats are also different depending on whether all income is averaged or just the bottom 90% to more accurately reflect hourly worker households . One thing I see in the Federal Budget year after year is that 70% to 73% , depending on the year , of federal welfare goes to households with one or more people working . This is food stamps , Medicare , and the Earned Income Tax Credit .
    Rochester’s David Cay Johnston has documented in his books , as well as his Pulitzer Prize journalism , that the average worker is making , adjusted for inflation , about $10 a week more than they were when Reagan was President . Columbia’s Joe Stieglitz , a Nobel Prize winner in economics , has documented that for a decade 91% of all new wealth has gone to the richest 10% with the majority of that going to the 1% .
    Shortly before my retirement I represented Labor on the then new Rochester and Monroe County Poverty Commission . The problem of low wages is huge as most poor people work and always have . One major problem with higher wages , that are not really middle class wages if supporting one or more children , is people raising them selves up with education and training often reach a zone where they can be worse off . Their incomes can cause the loss of Medicaid and childcare subsidies . We are now heading over $20,000 a year for family health insurance plan . This is a major reason , more than any other in my view , that employer labor costs have gone up , but workers wages have remained flat . This is $10 an hour and rising for a full time worker . This is the biggest cost for NY business , according to the NY Business Alliance , with taxes second . When one figures the amount in our taxes for Medicare , Medicaid , Public employees like police , fire , schools etc.’ it’s the biggest cost .
    All the evidence I see is wages for all workers have fallen way behind the wealth their productivity creates and minimum wage workers are not doing well in the wealthiest nation on earth by almost any standard .

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