Later On

A blog written for those whose interests more or less match mine.

A tale of two studies: poor research leads to poor findings on minimum wage

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Marilyn Watkins reports for the Economic Opportunity Institute:

Seattle’s economy is booming: construction everywhere, crowded streets and transit, housing costs soaring, bustling neighborhood restaurants, and a 2.6% unemployment rate. Much of this growth is driven by high wage-tech jobs and the spillover effect of all those workers eating out, shopping, and paying premium prices.

It’s in this context that Seattle instituted its higher minimum wage ordinance in 2015. In the past week, two studies have come out with very different conclusions on the impacts of those wage increases on low wage work – one says it’s positive, and the other negative. But the two studies are not created equal.

The first study, led by Michael Reich and Sylvia Allegretto based at the University of California, Berkeley, concludes that the 2015 and 2016 increases to $11 and $13 an hour had the intended effects of raising incomes for low-wage workers without having discernible impact on the number of jobs. These findings are consistent with the bulk of economic studies of minimum wage increases over the past couple of decades.

In the second, a University of Washington team concluded that the 2016 wage increase reduced the number of low-wage jobs by 9% and actually lowered the incomes of low-wage workers. This diverges from the majority of economic research. Across the U.S., city, state, and federal governments have changed minimum wages dozens of times over the past two decades. Multiple economists from across the ideological spectrum have studied these changes, and even opponents of minimum wage increases have not found impacts anywhere near the scale of the UW team.

The UW’s counter-intuitive findings underscore several methodological flaws:

  • They limit their study only to single-site establishments, because their data could not distinguish whether employees of multi-site chains – think Molly Moon’s, Mud Bay, Mod Pizza, Starbucks – actually worked inside or outside the city limits. That leaves 40% of workers excluded from their study. It also means that leaving a job at small business for a job at a larger company counts incorrectly as a job loss.
  • The UW team created a control by comparing Seattle’s employment statistics with other parts of the state. But there is no place in Washington that has a similar economy to Seattle. Seattle has an economy more like San Francisco or New York than Everett or Spokane. The Berkeley team used the more accepted methodology of generating a control from similar areas across the country, rather than just the state. Moreover, the Berkeley team compared numbers for the previous 5 years, while the UW only looked at the previous 9 months.
  • The UW study focused on jobs paying $19 an hour or less, making the assumption that fewer jobs in this bracket meant lost opportunity for workers who used to be in this pay range. But what we’re seeing in Seattle is that jobs that used to pay $18 an hour now pay $20 due to competition for employees. In the UW study, this was unaccounted for and incorrectly counted as job loss.

The quality of a study hinges on the quality of its methods. But . . .

Continue reading.

Written by LeisureGuy

5 July 2017 at 4:49 pm

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