If a new economic report commissioned by the city of Minneapolis is to be believed, a proposed $15 minimum wage in the city will bring mostly gain and very little pain for the workforce. The authors optimistically estimate that over one-fifth of the city’s workforce will receive a pay boost, with the cost offset through minor price changes and insignificant impacts on the job market.
It’s a pleasant story. But just like the Minnesota-based “Fargo,” it’s more fantasy than fact.
The problem starts with the authors themselves, who came to the project with conflicts of interest the size of Lake Superior. This includes employees of the Economic Policy Institute, which has received over $3 million from labor unions since 2014. This includes donations from AFSCME, UNITE HERE, UFCW and SEIU — locals of which are involved in the coalition to raise Minneapolis’ minimum wage.
What’s more, one of the principal investigators, William Spriggs, is also chief economist at the AFL-CIO. He previously has authored pieces with titles such as “Raising the Minimum Wage Has a Negligible Effect on Jobs.” While Spriggs is surely qualified to make labor’s side of the argument in the $15 debate, he should have been disqualified from participating in a purportedly neutral study.
Not surprisingly, the views of the authors are confirmed in the study’s conclusions. Their PowerPoint presentation confidently states that “most models find no identifiable change in employment” from a $15-per-hour minimum wage — a conclusion promptly echoed by the pro-$15 coalition, which praised the study for countering “big business scaremongering.” But the fine print matters here: The only way the Minneapolis study achieved these rose-colored results is by cherry-picking the economic models to highlight.
The minimum wage is one of the most-studied topics in labor economics. A recent summary of the literature published by the Federal Reserve Bank of San Francisco concluded that the research points to negative impacts on employment following an increase. There are outliers, of course — a group of researchers whose work has tended to find no employment effect. Predictably, it is the work of these researchers that the Minneapolis team emphasized in its report to the City Council.
This is faulty for many reasons, not the least of which is that even the outlying researchers have said their conclusions do not apply to a $15 minimum wage. Rather, past studies are based on much smaller increases to wage levels far below $15. Arin Dube, an economist whose work is referenced through the Minneapolis report, put a fine point on this in an interview with the Washington Post: “We just do not know what a $15/hour minimum wage would do based on the type of careful research designs that have become the hallmark of modern labor economics, and ones I strive to use in my work.”
Dube was interviewed in 2013, before the $15 movement had really caught hold on the West Coast. With a few years of evidence, we now have an early glimpse of the policy’s impact. In Seattle, for instance, a city-supported research team at the University of Washington (which included a former Economic Policy Institute researcher) found clear evidence of negative impacts on the city’s less-skilled employees, relative to areas outside the city. Notably, these consequences came in response to the first stages of the wage hike, far below the final $15 figure.
We also have voluminous anecdotal evidence now from the California cities that were early adopters of much higher minimum wages.
In Oakland, a minimum-wage increase from $9 to $12.25 prompted the closure of restaurants and grocery stores in and around Chinatown, and forced numerous other businesses to lay off staff members. In neighboring Emeryville, an even more extreme hike forced otherwise healthy businesses to lay off employees. And in Berkeley, businesses such as Black Oak Books, Café Clem and Mokka coffee shop have closed this year, each citing the city’s higher minimum wage as a factor in its closure. (Dozens of additional stories are available at FacesOf15.com.)
This evidence should be the proverbial canary in the coal mine for a City Council inclined to view $15 as a harmless way to boost employees’ paychecks. A University of New Hampshire survey of 166 labor economists last year found that nearly three-quarters oppose a broad $15 mandate. Even notable alums of the Obama and Clinton administrations have declined to support $15, describing it as “risky.”
Instead of relying on research funded by the same unions backing the $15 drive, the council should talk to the businesses (and employees) in Minneapolis who will wind up paying the tab.
Michael Saltsman is research director at the Employment Policies Institute, which receives support from businesses, foundations and individuals.