Testimony: A million Pennsylvania workers would benefit from a minimum wage increase to $10.10

Publication Date: 
January 22, 2014
Attachment: 

TESTIMONY OF MARK PRICE

House Democratic Policy Committee

Minimum Wage Hearing

Thursday, January 9, 2014

City Council Chambers Room 400

 

My name is Mark Price and I hold a Ph. D. in economics from the University of Utah.  I am a labor economist at the Keystone Research Center (KRC), a non-partisan economic think tank based in Harrisburg.  My body of work over the last decade at KRC has focused on labor market policy in Pennsylvania and I very much appreciate the opportunity to testify before you today about the minimum wage. 

In the quarter century that followed World War II the minimum wage in the United States tracked the growth in productivity. This meant that as the economy grew over this period the income of minimum-wage workers also grew and that minimum wage-workers shared equitably in in the nation’s steadily expanding economic pie.  In this era, in fact, the nation “grew together,” as the incomes of the middle class and the rich rose along with those of low-wage workers. 

In the last 46 years (since 1968), the minimum wage has not only failed to keep pace with productivity growth but it has not even kept up with the growth in prices – with inflation.   Had the minimum wage kept pace with inflation since 1978 it would be $10.75 per hour and had it kept pace with productivity it would be $17.10 per hour.[1] The falling purchasing power of the minimum wage is a key reason the bottom half of workers have seen very little income growth even as productivity has continued to expand.  The falling purchasing power of the minimum wage is thus widely acknowledged as an important source of rising income inequality.

Concern over rising inequality led to the emergence of local living-wage movements in the 1990s as communities enacted living-wage ordinances and individual states passed minimum-wage laws.  Another round of state-level action on the minimum wage in the 2000s – compensating for slow or no action at the federal level – included Pennsylvania minimum-wage increase, implemented to 2007, from $5.25 to $7.15. The last step in a phased federal increase in the minimum wage, in 2009, raised Pennsylvania’s minimum another dime, to $7.25 in 2009). 

In the last year, Connecticut, New Jersey, New York, Rhode Island and California all acted to boost their state minimum wage in 2014. As a result of laws passed prior to 2013, another nine states including Ohio also boosted their state minimum wage this January.  

 A Million Workers

Shifting our focus to Pennsylvania and a proposal to raise the minimum wage here to $10.10 let me review what we know about the workers likely affected by an increase in the minimum wage.  The figures I will recite come from a briefing paper released in December by David Cooper of the Economic Policy Institute. [2] Cooper’s analysis is of the impact of an increase in the federal minimum wage to $10.10 in three stages between 2014 and 2016.

  • In total, just over a million Pennsylvania workers would see their wages rise if the minimum wage was raised to $10.10 per hour by 2016.
  • 84% of the workers affected are adults (age 20 and older).
  • 81% of the workers affected work 20 or more hours a week.
  • A quarter of those affected are parents with children.
  • The parents affected by a minimum wage increase earn just over half of their family’s income.
  • Half a million Pennsylvania children live in households with a parent affected by an increase in the minimum wage.

An increase in the minimum wage would represent an important income boost for one in five Pennsylvania workers. 

 A Minimum-Wage Increase Would Boost Purchasing Power and Job Creation

Prolonged high unemployment following the Great Recession has reduced household incomes and put pressure on family budgets in the commonwealth. As a result, many businesses have seen fewer customers than they had hoped for, over four years after the end of the Great Recession, and thus struggle to expand – or even maintain – their current workforce. In current labor-market conditions, a minimum-wage increase is a small but important step toward breaking this vicious cycle. With more income, workers here will do things like have their car repaired at the local service station or make a long-delayed trip to the dentist. David Cooper (see footnote 2) estimates that, over the course of its full three-year period, a minimum-wage increase to $10.10 per hour would create 140,000 jobs nationally and 5,000 jobs in Pennsylvania.

A Minimum-Wage Increase Would Not Lead to Fewer Jobs

Of course a higher minimum wage will also mean businesses that use minimum-wage labor will have to pay more per hour of labor. Some observers claim that this will lead to layoffs and a total reduction in the number of jobs for low-wage workers. But in the real world, lots of things change when the minimum wage goes up, some of which increase jobs – such as reductions in worker turnover that reduces the number of unfilled vacancies at entry-level employees, or the increase in buying power of lower-wage workers and their families.

When individual states raise their minimum wage above the federal level it creates “natural experiments” that allow researchers to compare job trends in the state that raises its minimum wage with trends in other states and the nation. These natural experiments make it possible to sort out the net impact of factors that lead to more jobs and to fewer jobs. 

Because of these natural experiments, the debate about the minimum wage and jobs is no longer a case of “he said, she said,” or one in which policymakers need to be satisfied by anecdotes from individual low-wage employers or business lobbyists.  We can look at what actually happened.[3]

After New Jersey raised its minimum wage in the early 1990s, to take one famous example, no difference was observed in employment growth in fast food restaurants as compared with neighboring Pennsylvania.[4]

In the last several years researchers have generalized this case study approach in data sets that span several decades and track employment changes in adjacent counties that lie along state borders. Think of comparing employment in Camden County New Jersey to employment in Philadelphia County after the New Jersey state minimum wage is raised, and Pennsylvania’s minimum wage remains fixed – but then think of being able to make that comparison for every similar combination of counties in and contiguous to every state that increased its minimum wage since 1990.  This is what the latest research on the employment effects of minimum-wage increases does. This research finds no evidence of job losses for sectors most likely to be impacted by a higher minimum wage, restaurants and retail.[5] Follow up work focuses on teens - a demographic group most likely to be negatively impacted by a minimum wage increase, and again finds no reduction in teen employment associated with a minimum wage increase.[6]

The proliferation of individual studies into the impact of minimum wage has also made possible so called meta-studies which attempt to assess which direction the body of statistical work is heading on an issue.  As in the more recent individual studies briefly summarized above, a meta-study of 64 minimum-wage studies completed between 1972 and 2007 estimated that the employment impact of minimum wage increases was near zero.[7]

As the body and quality of economic research on the minimum wage has improved over the last quarter century the majority of economists no longer believe that modest increases in the minimum wage necessarily lead to job loss.[8]

Channels of Adjustment

The failure to observe large negative employment impacts from minimum-wage increases suggests that employers overall likely absorb the impact of a higher minimum wage through a wide variety of adjustment channels including but not limited to improvements in organizational efficiency, lower employee turnover, and changes in prices.

Of course, some individual employers may lose with a higher minimum wage just as others will gain.  Businesses are destroyed every day in response to oil price fluctuations, new technologies, and changing consumer tastes.  This process of creative destruction lies at the heart of our market economy: firms adapt to changing market conditions or they die. 

A minimum wage is a threat to employers who fail to use their workers as productively as their competitors.  More productive employers will absorb their demand.  That is a good thing.

The bottom line is that a higher minimum wage will boost wages for a group of workers that will likely spend that money boosting the local economy. And a higher minimum wage will also lead to more innovation in business practices. It's hard to find a more positive policy for the American entrepreneur and the American economy than that. 




[1] Janelle Jones and John Schmitt, “The Minimum Wage Is Not What It Used to Be,” Center for Economic and Policy Research Blog, July 17, 2013 available at http://www.cepr.net/index.php/blogs/cepr-blog/the-minimum-wage-is-not-what-it-used-to-be

[2] David Cooper, Raising The Federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide A Modest Economic Boost, Economic Policy Institute, Briefing Paper #371, December 2013, available at http://s2.epi.org/files/2013/minimum-wage-state-tables.pdf

[3] For a complete and readable review of the economic literature on the employment impact of minimum wage increases see John Schmitt, Why Does the Minimum Wage Have No Discernible Effect on Employment?, Center for Economic and Policy Research, February 2013, available at http://www.cepr.net/index.php/publications/reports/why-does-the-minimum-wage-have-no-discernible-effect-on-employment 

[4] David Card and Alan Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply,” The American Economic Review, Vol. 90, Number 5, December 2000, pp. 1397-1420.  See also, in general, David Card and Alan Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton: Princeton University Press, 1995).

 

[5] Arindrajit Dube, William Lester, and Michael Reich, “Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties.” Review of Economics and Statistics, vol. 92, no. 4, 2010, pp. 945-964.

[6] Sylvia Allegretto, Arindrajit Dube, and Michael Reich, “Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data.” Industrial Relations, vol. 50, no. 2, 2011, pp. 205-240

[7] See Hristos Doucouliagos and Tom Stanley “Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis.” British Journal of Industrial Relations, vol. 47, 2009, no. 2, pp. 406-428 and See also the forthcoming Paul Wolfson and Dale Belman, What Does the Minimum Wage Do? Kalamazoo, MI: Upjohn Institute for Employment Research

[8] Arindrajit Dube, Testimony, U.S. Senate Committee on Health, Education, Labor & Pensions, March 14th, 2013, available at http://www.help.senate.gov/imo/media/doc/Dube.pdf