Let’s do just what Rep. Ellington has suggested. Let’s look at the evidence from these places. Ellington is correct in saying there hasn’t been an exodus of “corporations or companies,” but there have been some negative outcomes.

 Washington D.C.

 D.C. passed the “Fair Shot Minimum Wage Amendment Act of 2016.” The amendment increases the district’s minimum wage to $15 by 2020 and then sets annual increases that are pegged to changes in the Consumer Price Index. Earlier this year, the Office of the Chief Financial Officer for the D.C. mayor’s office released a study that estimated the impact this will have on the city, and the findings aren’t anything to be bullish about.

 As one would expect, wages will increase. By 2021, the study’s authors estimate that “the average resident will gain roughly $5,100 more (20 percent higher) in wages as of 2021, but approximately 2 percent of impacted residents will experience job loss; this job loss estimate increases to about 3.4 percent by 2026.” Additionally, the study found that “average citywide prices will increase by roughly 0.2 percent and businesses will experience a 2.3 percent average reduction in profits as a result of this policy.”

 Seattle

The Seattle Minimum Wage Ordinance went into effect in 2015. From 2015 to 2016, the minimum wage increased from $9.47 to $13. This is roughly a 37 percent increase in a short amount of time. The ordinance has different provisions for different types of employers, but will gradually increase the minimum wage to $15. Earlier this year, a team of researchers from the University of Washington released a paper on the impact thus far. When the minimum wage went up, employers did what we would expect them to do; they reduced the hours of employees. The researchers suggest the increased minimum wage resulted in a reduction of 3.5 million working hours per calendar quarter. Low-wage jobs (jobs paying under $19 per hour) went down 6.8 percent.

 As economist David Neumark noted in his 2012 policy study for the Show-Me Institute, “Should Missouri Raise its Minimum Wage?,” there are clear tradeoffs with this policy proposal. Raising the minimum wage increases the wages for a select portion of the population: those earning roughly minimum wage who manage to not have their hours cut (or their jobs eliminated altogether). This increase comes at the expense of the low-skilled workers who are not able to enter the labor market or lose their jobs. This issue is particularly concerning in our border cities, where higher pay may attract people from neighboring suburbs in other states. As these individuals enter the job market, they may take jobs away from low-skill Missourians living in Saint Louis and Kansas City.

 The real question for Missouri lawmakers is: Do you want to increase unemployment for some Missourians to provide others with higher wages? 

The post On Raising the Minimum Wage in Missouri appeared first on Show-Me Institute.

Economists have written scores of papers on the topic dating back 100 years, and the vast majority of these studies point to job losses for the least-skilled. They are based on fundamental economic reasoning—that when you raise the price of something, in this case labor, less of it will be demanded, or in this case hired.

***

The broader research confirms this. An extensive survey of decades of minimum-wage research, published by William Wascher of the Federal Reserve Board and me in a 2008 book titled “Minimum Wages,” generally found a 1% or 2% reduction for teenage or very low-skill employment for each 10% minimum-wage increase.

That has long been the view of most economists, although there are some outliers.

Neumark himself conducted two policy studies on the effect of minimum wage laws right here in Missouri. These studies (from 2006 and 2012) examined the minimum wage increases being considered at the time. Both studies drew from a large body of existing research that suggests that minimum wage hikes do more harm than good.

Despite all of the research and hard evidence, some politicians and activists still push for minimum wage increases. In fact the “Fight for 15” movement, a campaign funded in large part by service industry unions, is still agitating for a 15 dollar minimum wage in Kansas City and St. Louis. 

Let’s not ignore what the evidence says: Unemployment is a clear downside to the minimum wage. And that downside is borne by the people minimum wages are usually thought to help.

The post Does It Matter What a Lost Job Would Have Paid? appeared first on Show-Me Institute.

                Economists across the political spectrum have been recommending this for years. The Congressional Budget Office, David Neumark, and even Christina Romer  find the EITC is a better policy option than the minimum wage for helping low-income households.

                There a couple of reasons why the EITC is a better policy option than the minimum wage. First, it is specifically targeted to help low-income households. The minimum wage isn’t as well targeted. For example, a teen flipping burgers and making the minimum wage would benefit from a higher minimum wage even if both of her parents are surgeons. The EITC only goes to households making below a certain amount. Secondly, the EITC doesn’t increase labor costs. Increasing the minimum wage means employers will have to pay their employees more per hour. The EITC is a direct government benefit, so businesses won’t have those increased costs.

                The EITC is not a perfect program. It makes a lot of improper payments , costing taxpayers billions. Also, its complicated nature makes it necessary for many people to hire professional tax preparers so that they can receive the credit.

                Despite these drawbacks, the EITC is still a superior alternative to the minimum wage    

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If proponents are successful in raising the minimum wage to $15 an hour, there will be a lot of pain. First, such an increase will cause job losses. A Congressional Budget Office (CBO) report estimated that if the minimum wage went up to $9 an hour, 100,000 jobs would be lost. If the wage went up to $10.10 an hour, the number of jobs lost would increase to 500,000. If the CBO is correct about job losses, one shudders to think about how many jobs would be lost if the minimum wage went up to $15.

Is the loss of so many jobs worth the increase in wages for those workers who manage to keep their jobs? That’s a question for proponents to consider. They also should consider the fact that many people who work for minimum wage are not poor. Why mandate raises for them while risking job losses for the same people wage-hike proponents are trying to help?

There is a better way to help poor families. Both the CBO report and Professor David Neumark’s 2012 study on the minimum wage find that the Earned Income Tax Credit (EITC) is a better alternative for helping poor families than increasing the minimum wage.

The EITC is a refundable tax credit that provides direct cash assistance to low-income families. The tax credit is more effective at helping poor families because it is specifically targeted toward them. The minimum wage is not. For example, a teenager working a minimum-wage job whose father is a corporate attorney and whose mother is a surgeon would receive the same monetary benefit as a single mother of two working at McDonalds. That would not be the case with the EITC. If Missouri and other states really wanted to help poor families, expanding the EITC would be a more effective tool than increasing the minimum wage.

The post On a Scale of 1-10, It’s 15 appeared first on Show-Me Institute.

In an open letter released March 12, 2014, more than 500 economists voiced their agreement that increasing the federal minimum wage to $10.10 would not reduce poverty. The letter’s release coincided with hearings in the U.S. Senate’s Health, Education, Labor and Pensions (HELP) Committee to debate raising the federal minimum wage. The letter notes that poverty is a complex issue and simply raising the minimum wage is not “a silver bullet solution.” The letter’s signatories include Nobel laureates Eugene Fama, Edward Prescott, and Vernon Smith along with a number of previous administration officials, among them Glenn Hubbard, Greg Mankiw, and Harvey Rosen, all past chairs of the Council of Economic Advisors. (The full letter and list of signatories is available here.)

Raising the minimum wage costs jobs for the very workers it is supposed to help. A recent study by the Congressional Budget Office (CBO) found that the proposed increase would cost the economy 500,000 jobs by 2016. This outcome from raising the minimum wage agrees with previous work, including analysis that David Neumark and I wrote for the Show-Me Institute.

Missouri policymakers must consider the full impact of raising the minimum wage. It simply is not good public policy to raise wages for some individuals at the expense of other workers who are made even worse off than they are now. The minimum wage simply is not a viable policy tool to fight poverty.

The post More Than 500 Economists Oppose Minimum Wage Hike appeared first on Show-Me Institute.

Except for Illinois, where the minimum wage is $8.25 an hour, the states surrounding Missouri have a minimum wage of $7.25 an hour. Many current and future businesses in Missouri, especially those near the state’s borders, would have a large incentive to relocate to surrounding states if Missouri raises its minimum wage all the way up to $10 an hour.

One reader who responded to the letter on the Post-Dispatch website asked what the effect on jobs was when Missouri increased its minimum wage in January from $7.35 to $7.50 an hour. First, it is too early to start making judgments about the effect of the recent minimum wage hike because it is only early March. Second, even if there isn’t much of an impact with this minimum wage hike, we must consider the degree of the increase. Going from $7.35 to $7.50 an hour represents a 2 percent increase in the minimum wage. A business might be able to absorb that increased cost and not feel compelled to move. However, the proposal in question would raise the minimum wage by 33 percent.

There are only so many additional costs a business can absorb before going out of business. Do we really want to risk these businesses leaving the state and taking the jobs they provide with them for something that even proponents say is a “blunt instrument” for helping poor people?

We all want to help the poor and truly disadvantaged, but there are better ways to do it. One thing to consider would be to follow the lead of 20 other states and establish a state Earned Income Tax Credit (EITC) to supplement the federal one. Both David Neumark, in his Show-Me Institute policy study examining the effects of the minimum wage, and the Congressional Budget Office’s analysis of federal minimum wage proposals acknowledge the EITC as a more cost-efficient way to help the working poor.

The post The Effects Of A Minimum Wage Increase appeared first on Show-Me Institute.

Helping people get out of poverty is a good thing and if these estimates are correct, an increase in the minimum wage could help do that. However, the question is, does this fact compensate for the large number of people who would lose their jobs? Possibly, but raising the minimum wage is not the only way to help combat poverty. In fact, while it might help some poor families, it also would give a pay increase to many suburban teenagers and students while costing jobs for the very people it is designed to help.

In his 2012 policy study, Neumark mentioned the Earned Income Tax Credit (EITC) as a possible tool to increase the incomes of low-wage workers. The CBO report found that, “To achieve any given increase in the resources of lower-income families would require a greater shift of resources in the economy if done by increasing the minimum wage than if done by increasing the EITC.” In other words, the costs associated with raising the minimum wage greatly exceed the costs of expanding the EITC. This is true because many minimum wage workers are not from low-income families. On the other hand, the EITC only goes to low-income families. Even proponents of raising the minimum wage admit that the minimum wage is a “blunt instrument” for helping low-income families. Missouri should consider establishing a state EITC alongside the federal one.

The new CBO report projects that raising the minimum wage could help some people get out of poverty at the cost of hundreds of thousands of people losing their jobs. If policymakers want a way to combat poverty, there are more effective means to doing so, including expanding the EITC.

The post Raising The Minimum Wage Will Cost 500,000 Jobs appeared first on Show-Me Institute.

The study linked to above talks about average productivity. Average workers do not earn the minimum wage. This study does not track changes in the productivity of workers who make at or below the minimum wage. Isn’t it possible that the largest increases in productivity have been among more skilled employees who already earn above the minimum wage?

Also, if workers do not feel that they are being fairly compensated, they are free to look for employment elsewhere.  In non-monopolies, employers have to compete for workers and thus offer a competitive wage in order to attract and keep talent. Christina Romer, President Barack Obama’s former chair of economic advisers, made this point in her analysis of increasing the minimum wage: “Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.”

Minimum wage laws simply amount to “compulsory unemployment,” as they make it illegal to hire a worker below the prescribed minimum. At an hourly minimum of $22, an employer loses money if he or she hires anybody who produces less than $22 of value an hour. One Missouri small business owner stated that he “would fire one employee, maybe two” if the minimum wage increases to $22. That is quite a lot, given that he only employs three people. Politicians understand all of this, which is why they typically propose only modest increases. After all, if the forgoing economic critique is flawed, why not raise it to $100 an hour?

Raising the minimum wage is an attractive idea to many voters (at least on the surface). Yet, it really is not an effective way to help poor families. According to David Neumark, in his 2012 study for the Show-Me Institute, “. . . minimum wages may do little or nothing to help poor and low-income families.” People from both sides of the ideological spectrum have issues with raising the minimum wage, and increasing it all the way to $22 an hour would just be silly. Let’s focus on ways to truly help the poor.

The post The $22 (An Hour) Question appeared first on Show-Me Institute.

Lara Granich, of Missouri Jobs with Justice, supports raising the minimum wage in Missouri and presumably throughout the country. Granich contends that in Missouri, “the modestly higher wages received by low-paid workers in Missouri this year will go right back into the economy, generating economic growth as these workers put food on their tables and raise their families.” On the contrary, Romer contends that “. . . economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty.”

That is the same conclusion that David Neumark reached in his 2012 study for the Show-Me Institute examining whether Missouri should raise its minimum wage. Neumark stated in his study that “. . . research fails to establish that higher minimum wages help poor or low-income families.” Neumark also stated that “there is simply no evidence” to conclude that raising the minimum wage will stimulate the economy.

Raising the minimum wage is an appealing idea to many voters. However, that is not the case with many economists. There are better ways to help alleviate poverty; increasing the minimum wage is not one of them.

The post Agreeing About The Minimum Wage appeared first on Show-Me Institute.

This an appealing sentiment, but Prof. David Neumark’s 2012 study for the Show-Me Institute, “Should Missouri Raise Its Minimum Wage?” found that “research for the United States on state minimum wage increases generally fails to find evidence that minimum wages help the poor.” This is because the minimum wage targets low-wage workers and not low-wage families.

In 2008, 12.7 percent of all workers earning the federal minimum wage ($7.25) were in poor families, while 44.6 percent of workers earning less than $7.25 were in families that earned more than three times the poverty line. In their book “Myth and Measurement: The New Economics of the Minimum Wage,” authors David Card and Alan B. Krueger admit that the minimum wage is a “blunt instrument” for reducing poverty.

Not only would raising the minimum wage be ineffective in helping poor families, it would also mean that many businesses will hire fewer workers because of increased labor costs.

On the surface, increasing the minimum wage is an attractive idea. However, doing so does not help those who need it. The market should set wages, not the government.

The post Here We Go Again . . . Raising The Minimum Wage appeared first on Show-Me Institute.

Who is right? According to research conducted for the Show-Me Institute, David Neumark, an economics professor and director of the Center for Economics and Public Policy at the University of California-Irvine, found that there is no evidence to suggest that increasing the minimum wage will help stimulate the economy. Nor is there a basis for concluding that minimum wages help reduce the proportion of families living at or near poverty. In fact, according to Neumark, “Minimum wages can have unintended harmful distributional effects — possibly increasing the number of poor or low-income families.”

A 10-cent increase in the minimum wage is not going to change things much one way or another. However, even if the minimum wage were to increase by $1 an hour, there are still better ways to help poor people. In Neumark’s paper, he suggests expanding the Earned Income Tax Credit (EITC) as one way to help poor families. Patrick Ishmael and I think eliminating the corporate income tax and the tax on small business income will enable Missouri businesses to further expand their businesses and create jobs.

Despite what a majority of Missouri voters thought at the time, the automatic increases to Missouri’s minimum wage are not good for the state. Markets should determine wages, not government. The state would be better served if, at the minimum, it would desist with the automatic wage increases.

The post A Minimum Wage Hike . . . Good for Missouri? appeared first on Show-Me Institute.

At their core, the solutions so often pushed ahead for both issues — like capping loan interest rates and raising the wage floor — share a common problem of policy. First, payday lending exists in large part because its customers cannot get credit anyplace else; payday loans are very, very expensive, but if the alternative is having your gas or electric flipped off for lack of money, it is an option many of the working poor would want to remain available. Cap payday interest rates, which are basically set to account for the risk of default, and you will have fewer payday loans, which leads to other, potentially more difficult, problems for the lenders’ former customers. One way or another, those bills have to get paid. Payday loans serve that need and risk, for a price.

Raising the minimum wage presents a similar problem. By raising the floor for what workers must get paid, employers are incentivized to hire only the most skilled labor. In fact, studies show that raising the minimum wage harms the very people it is supposed to help — those on the bottom rung of the pay scale. As David Neumark wrote for the Show-Me Institute in 2006:

When a minimum wage goes up, the higher wages don’t always go to the workers who need them most. Minimum wage laws create winners and losers — the winners see their wages and incomes rise, while the losers are unable to find jobs or to work as many hours as they would like. If the winners were mostly unskilled workers in poor families, a minimum wage increase might be worthwhile. Unfortunately, this doesn’t seem to be the case.

Put more succinctly, raising the minimum wage makes it more difficult for low-skilled workers to find employment. While raising the wage sounds on the surface like compassion, in practice, it oftentimes means anything but.

These are serious issues that deserve serious debate from both sides of the issue. For now anyway, it appears public votes will have to wait.

The post It’s Official: Payday Lending, Minimum Wage Initiatives Off November Ballot appeared first on Show-Me Institute.

During the debate surrounding the 2006 minimum wage law, the Show-Me Institute released a study by University of California, Irvine, economist David Neumark showing that minimum wage laws decrease employment among unskilled workers and prevent them from acquiring the skills they need to climb the socioeconomic ladder. When the minimum wage increases, businesses respond by hiring fewer low-wage employees. The employees who keep those jobs are more likely to be teenagers from relatively affluent families than minority workers from poorer households.

In essence, a higher minimum wage destroys jobs for the most vulnerable workers in the labor market and redistributes a portion (but not all) of the lost wages to workers who frequently live in families that make more than four times the poverty level. Neumark’s thorough review of the literature demonstrated that a 10-percent increase in the minimum wage (about 70 cents, at present) caused teenage employment to drop by 1 to 2 percent and increased poverty by three quarters of a percent. It is a peculiar type of anti-poverty program that throws poor people out of work.

A 1994 study by economists David Card and Alan Kreuger purported to show an increase in employment in New Jersey’s fast food industry after the passage of a higher minimum wage. However, Card and Kreuger relied on telephone surveys for their employment information. Subsequent studies using payroll documents from the restaurants themselves showed that employment fell after the minimum wage was increased, just as standard economic theory predicts.

Business owners generally do not employ people or give employees raises out of the goodness of their hearts — nor could they, without bankrupting their enterprises. If the government forces a business to pay workers more than the owner believes their labor is worth, those workers will soon be out of a job. Wages do not rise because of government mandates, they rise as workers acquire more skills and create more goods and services at lower costs. We can boost wages across the board with improvements like better education or greater investment in technology, but simply waving the wand of government and expecting low wages to rise magically is no solution at all.

John Payne is a research assistant at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post The Minimum Wage Hurts Those It Is Designed to Help appeared first on Show-Me Institute.

Before I explain the factors that cause wages to increase, let’s look at two factors that do not increase wages but are commonly assumed to do so: minimum wages and unions. Elementary economics holds that a price floor will cause a surplus; in this case, the minimum wage sets a price floor for labor and results in excess unemployment. Throughout the 1990s, supporters of the minimum wage frequently trotted out a study by economists David Card and Alan Kreuger that purported to show an increase in employment in New Jersey after the passage of a higher minimum wage. Unfortunately, Card and Kreuger relied on surveys of business owners to establish employment data, and when other economists attempted to replicate their results by looking at the actual payroll data, employment was found to have fallen after the increase in the minimum wage, just as standard economic theory predicted.

More recently, David Neumark and William Wascher wrote the book Minimum Wages, published by MIT Press in 2008, analyzing more than 300 studies of the minimum wage. They found that the vast majority of the studies showed a negative effect on employment. As Neumark wrote in a 2009 Wall Street Journal editorial:

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence — from scores of studies, using data mainly from the U.S. but also from many other countries — clearly shows that minimum wages reduce employment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I’ve done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.

The minimum wage can raise the wages of some low-skilled workers, but others will lose their jobs altogether because they lack sufficient skills to make their labor worth the higher legislated price. This more than wipes out any societal gains that might result from an extra dollar or two per hour for the workers who remain employed. The minimum wage’s effect on aggregate wages is neutral at best — merely transferring wages from some low-income workers to other low-income workers who possess better skills. More often, the effect is negative.

Unions are not necessarily as detrimental as a minimum wage, but they are still a zero-sum game at best. A union’s gains must be another group’s loss. One commenter on my previous blog entry, Dempster Holland, admitted as much when he wrote that “Unions have hist[o]rically shifted money from business owners to the workers who make their business work.” That’s certainly possible, and I even agree that sometimes unions have been useful in achieving greater equity for themselves. However, those gains come at a cost, and therefore cannot explain generally rising standards of living. If George Vanderbilt’s employees took everything he owned for themselves, they might be personally wealthier than they would have been otherwise, but society would still have the same amount of wealth — redistribution of existing wealth doesn’t create new wealth. It is simply not possible that we achieved a standard of living for the average American that is higher than Vanderbilt’s in many ways simply by dividing up his wealth, or the wealth of others like him, among far greater numbers of people.

Furthermore, a union’s ability to redistribute money from business owners is limited. In most enterprises, there aren’t many owners relative to workers, so taking money from them to give to the workers would yield limited dividends. More commonly, unions benefit their members by dividing a given amount of wages among fewer people, by limiting the labor pool. A large survey of unions and employment in 17 OECD countries from 1960 to 1996 revealed that although unions increased the wages of prime age men, they led to greater unemployment among women, youth, and older men. In short, union activity does not result in wages going up across the board — it merely reshuffles existing wealth, from workers outside the union to those inside it.

If unions and minimum wages don’t make us richer as a society, what does? Higher productivity. In order for people to enjoy more goods and services, we have to produce more goods and services, and that means more capital — both physical and human. Faster computers, more efficient machines, improved delivery techniques, and more efficient methods for synthesizing drugs all enable each worker to produce more wealth than he could otherwise, and businesses need no encouragement from the government to pursue any of those strategies. Thanks to the profit and loss system, businesses have an automatic incentive to do more with less, because in the short run this will increase their profits. However, as their competitors also adopt the same innovations, those profits are competed away and instead translate into both higher wages for workers and lower prices for consumers, which also contributes to an increased standard of living.

It’s important to note that this process of maximizing efficiency in order to produce more with less is a positive-sum game, unlike the zero-sum (or negative-sum) game of redistribution through minimum wage laws or unions. That means that new wealth is created where there was none before, rather than simply moving existing wealth from one person or group to another. Only through this kind of positive-sum activity can the standard of living increase throughout society over time. There are policies that government officials can pursue that help to maximize productivity gains, but there is no magic wand that they can wave to make everyone richer by fiat. Economic growth is a dynamic process that cannot be planned or controlled from the top down.

The post Why Do Wages Increase? appeared first on Show-Me Institute.

The Show-Me Institute has released two major studies on this subject. From David Neumark’s conclusion:

Where does all of this evidence leave us regarding the wisdom of raising the minimum wage? The evidence suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Although in principle the gains to those who keep their jobs could offset the losses to those who bear the disemployment effects, minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, minimum wages may also have longer-run adverse effects, lowering the acquisition of skills through various channels and therefore lowering wages and earnings even beyond the age at which individuals are most directly affected by a higher minimum.

Without the minimum wage, there would be more total jobs and more total hours available. Kenneth Troske and Aaron Yelowitz describe how this would help poor families:

The key difference between poor workers and the typical adult worker is in hours of work—workers are poor because, on average, they work 1,120 hours per year compared with 1,853 hours per year for all adult workers. As we will show in Table 4, the poverty rate could be dramatically lowered if poor workers worked full-time throughout the year.

The only good thing I can say about Missouri’s current minimum wage is that it is the same as the national wage (it can be higher than the national wage). But we would all benefit from more jobs, and reducing or eliminating the minimum wage is one certain way to accomplish that.

The post The Beacon Ignores the Elephant in the Room Regarding Teenage Employment appeared first on Show-Me Institute.

Related research that looks interesting is this working paper by David Neumark (author of another SMI study) and William Wascher about the effects of the EITC and minimum wage laws on employment and earnings.

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