The Problems With Seattle’s Minimum Wage Debate

Recently, a University of Washington study released on the impact of raising Seattle’s minimum wage from $11 to $13 in 2016 showed some disturbing effects. It revealed that the number of minimum wage jobs declined and while lower-income workers were making higher wages they were employed fewer hours, resulting in a net loss in wages.

The study, commissioned by the city, was so disheartening that the mayor of Seattle decided to get another study done that would show better results. But trying to come up with another study that proves an argument because the implications of the first are not what were expected won’t help the people impacted by the policy. It will keep the minimum wage debate alive, though.

That said, some limitations to the University of Washington study, as pointed out by economist Michael Strain, show that Seattle’s experiment won’t end any time soon.

The data it used make it difficult in some instances to determine whether a particular job is in the city of Seattle or elsewhere in Washington state, and the study attempts to deal with this challenge by limiting its scope to workers at single-location firms. The data also don’t include contractors.

To determine the effects of Seattle’s minimum wage increase, the study compares hours and wages in Seattle to those in neighboring counties, before and after the Seattle increase. This is reasonable, but one could also reasonably be concerned that those neighboring counties are not the best comparison group. To address this possibility, the study uses more complex statistical methods. There again, it’s reasonable to question those methods — but not the conclusion that the Vigdor study materially advances our understanding of the effects of the minimum wage. It’s hard for me to understand how any economist could conclude otherwise (emphasis added).

At the same time, the Vigdor study is just one study. Should it increase our confidence that minimum wage increases can hurt low-wage workers? Of course. Does it prove that point for all time in all places? Of course not. The Vigdor study covers only one city. The economics of city-specific minimum wage increases are probably somewhat different from that of state or federal increases. It’s also hard to be sure that what happened when Seattle increased its wage to $13 per hour in the context of getting to $15 per hour can be generalized to what might happen if, say, Kansas City increased its minimum wage to a different amount in a different context over different years.

So where does this leave the debate over minimum wages? Right where it was before: confused.

In other words, the University of Washington study was conducted as professionally and with the best methodologies available to economists to sort through the information. But circumstances are not static, and trying to prove an overall argument of the minimum wage debate based on one city’s experience is an instance where politics gets in the way of policy.

The rise in the wage was part of a three-year plan to get Seattle’s minimum wage to $15 per hour. The last bump took effect at the beginning of this year. Concerns that the impact of such a sharp minimum wage increase hurts lower income workers are legitimate even as the impact of the final increase have yet to be determined.

The Vigdor study does not subscribe to a social policy. It merely points out the effect of the social policy chosen in Seattle for Seattle are not what the engineers had hoped. As Strain points out, popular solutions are not necessarily the best solutions for the people the solutions are targeted to help.

When thinking about whether minimum wage increases are good or bad, you have to think clearly about the social goal you are trying to achieve. If your goal is to help reduce income inequality and to increase the earnings of some middle-class households, then the minimum wage is not a crazy policy.

But if your goal is to help the least skilled, least experienced, most vulnerable members of society to get their feet on the first rung of the employment ladder and to start climbing, then the minimum wage is counterproductive. Its costs are concentrated among those vulnerable workers. It is an obstacle in their paths. It is bad policy.

Read the complete Strain article at Bloomberg

Upward Mobility: New Routes in the Race For America’s Fastest Growing Cities

Wake up, America. We have a mobility problem. And we’re not talking about former First Lady Michelle Obama’s “Let’s Move!” campaign or the number of potholes on the highways to America’s fastest growing cities.

Yes, infrastructure maintenance and improving the physical health of children are important. But for the kids who sit in front of electronics for the better part of a day, as long as they live in the American northeast, much of the Midwest and a good portion of the West, they are poised for a better life than their parents.

For children who live in Appalachia and the “Rust Belt,” on the other hand, the cards are stacked against them — even if they never lay eyes on a digital screen, always eat healthy school lunches, are physically active. That’s because their future employment opportunities are dwindling, as is their ability or likelihood to pick up and move down the road to another city with a more promising employment future.

For these kids, “Let’s move” isn’t that simple. Why? Because America’s post-recession recovery is more one-sided than we would like.

A recent Economic Innovation Group (EIG) report shows that while the United States has been recovering economically as a whole, the individual areas where new businesses have popped up – and employed people – are very limited.

According to the report, 20 counties alone generated half of the country’s new business establishments.

Most children in the United States are growing up today in counties with a poor record of fostering upward mobility. As the geography of U.S. economic growth narrows, it may become even harder to prevent further retreat of economic mobility.”

How do we change this? How do we spread out new business ventures and incentivize entrepreneurs to start and grow successful companies in areas that are currently economically depressed? How do we tighten the gap that only seems to be growing as economically vibrant cities get stronger and blighted cities become more depressed?

A recent piece by AEI’s James Pethokoukis on “left behind” America cites some creative ideas, including relocating large federal departments that don’t need to be inside Washington, D.C. (which usually enjoys low unemployment) into cities that do need help building economic infrastructure.

Pethokoukis also explores “Universal Basic Service,” an idea that would focus on helping to build communities in areas where demand is high, but supply is low. He cites economist Diane Coyle, who says,

If teachers or nurses do not want to move to Detroit and West Virginia … then there should be a pay premium large enough to overcome their reluctance. And the quality of service in local transport networks should be as good in declining as in wealthy areas.”

A third proposal uses tax breaks as incentives to encourage private investment – a route most strongly favored by the EIG itself. Yeah, that sounds boring, but the implementation is a whole rethinking of how America is structured today, and looks at removing regulatory hurdles to create specialized regions like Silicon Valley for technology and Raleigh-Durham for biotech research. Quoting venture capitalist Marc Andreessen,

Imagine a Bitcoin Valley, for instance, where some country fully legalizes cryptocurrencies for all financial functions. Or a Drone Valley, where a particular region removes all legal barriers to flying unmanned aerial vehicles locally. A Driverless Car Valley in a city that allows experimentation with different autonomous car designs, redesigned roadways and safety laws. A Stem Cell Valley. And so on.”

These three very big ideas would likely take quite a bit of political maneuvering for the legislation to begin the restructuring, let alone passage of laws to begin implementation, but there are other ways, smaller ways, to help people in distressed areas seek employment and help propel themselves toward upward mobility.

Pethokoukis colleague Michael Strain suggested multiple proposals to address relocation, disability, minimum wage, immigration, entrepreneurial endeavors, and more.

Ultimately, if we want America – all of America – to enjoy the benefits of our economic recovery, we need to make changes that make it possible for all citizens to earn their success with hard work.

“Let’s move” can have a whole new, broader meaning when we consider how we can offer a hand up to those who want to climb and make a better life for themselves and their families.

Data Capture: Why Big Brother Isn’t Always Scary

About 0.20 percent of the federal budget is used collecting statistics by government agencies. We’re not talking about surveillance or data mining, but the actual work of determining numbers on labor participation rates and other information valuable to business, policymakers, and families.

This information, government collected, is extremely valuable to business. Companies like food store Kroger, chain store Target, and investment house like Charles Schwab use information from research by the American Community Survey or the International Energy Agency to determine prices, where to put their stores and what to fill them with, or how much to anticipate oil prices will rise or fall.

Government data are used in a variety of ways — for instance local cost of living determinations or expected future demand, even demographic data on where to put schools or whether distribution centers like Amazon belong in Dallas or Baltimore.

Yet, data, both the government’s collection of it and private industry research, are getting a bad rap. The surveillance culture has made people wary of data collection. People are sick of being followed on every website they turn by digital advertisements. And government data are recently seen as suspect or twisted to serve a particular political leaning.

But data are vital. Even the Founding Fathers thought so, says economist Michael R. Strain.

America’s desire to collect data for the common good dates back to the founding fathers, when James Madison argued that reliable data on agricultural, commercial and manufacturing interests would allow Congress to represent the interests of its citizens more effectively. Hard numbers would be useful to Congressional debaters “in order that they might rest their arguments on facts, instead of assertions and conjectures.” Indeed, collecting data is a specifically enumerated requirement of government in Article 1 of the U.S. Constitution. …

We’ve come a long way since the 19th century. Today, the modern economy is especially reliant on data, and in this era of “big data,” businesses collect and analyze vast quantities of their own internal data to forecast sales, predict staffing and inventory needs, and weigh all sorts of decisions. The big data revolution is rightly celebrated as a great social and economic achievement. But a firm’s own data are not adequate to serve society’s larger purposes. Instead, private-sector data should be thought of as a fantastic complement to official statistics.

So what’s the big deal? Why should government be responsible for collecting data?

One reason: Consistency. It’s the same information being run year after year and decade after decade. Another: It’s free to everyone to access and use. A third reason: Credibility. The statistical methods and practices are designed to return high quality and impartial data — and to be shielded from political influence.

For example, the Bureau of Labor Statistics, which produces statistics on employment and unemployment, has only one political appointee. The rest are dedicated career civil servants. Helping to maintain that credibility is that many data elements are carefully scrutinized by outsiders, whether the market — which reacts to certain regular data releases as important measures of economic health — or researchers.

Still a fourth reason: Confidentiality. Unauthorized use by government workers is punishable with prison terms while at the same time it can’t be used to prosecute providers of the information. Lastly, the ability to get it done. The public is more willing to respond to “direct requests for information from the government, with its strict confidentiality standards for data, than to a private firm.”

Finally, if government policymakers and lawmakers are going to decide on issues like how taxes are to be spent, it’s good to have data that are accurate.

Of course, when it comes to government, it’s not all rosy. Federal data collection is subject to shortcomings and limitations like the failure to capture information on new trends. Another problem is the refusal of people to participate in the data collection.

But failing to collect the data will never get us to learn where there’s room to make improvements, something we should always expect our government.

How Trump Can Improve Antipoverty Programs

With the presidential election in the rear view mirror, Washington and the rest of the country are now turning attention to what President Trump will mean for public policy. What would Trump do for antipoverty programs? Given Trump’s early focus on relieving child care costs for working mothers, that could be an early achievement for his administration.

A Trump administration may also be willing to require more labor force participation among SNAP and disability program recipients and could expand work-based tax credits.

After an election that showed the country is unsatisfied with the status quo, if Congress and the next administration are willing to put in a little work of their own, reforms to antipoverty programs could help more Americans get back to work.

Poverty studies researcher Angela Rachidi sketches an outline of a potential Trump antipoverty agenda.

Included should be a top-to-bottom review of existing safety net and job training programs. Ripe for reform are food, disability, and housing assistance programs — all of which could do more to support work among recipients. Additionally, workforce development programs, many of which have limited evidence of success, expansions to work-support programs, such as the Earned Income Tax Credit and child care assistance, and efforts to improve the quality of education from birth to college, all deserve a serious look.

This is not a new concept for fans of TPOH. Indeed, apprentice training programs, gradual replacement of benefits as individuals climb the income ladder, and changes to disability programs have long been concepts discussed by TPOH to help the most vulnerable get on their own two feet.

For instance, the Earned Income Tax Credit (EITC) provides that if a household doesn’t bring in a lot of money, then the government can supplement its earnings to help people stay on their feet and in their homes. However, childless households receive only $500 for a credit, not much of an incentive to encourage people to aspire to greater levels of achievement. It may seem counter-intuitive, but if individuals don’t develop an aptitude toward work, they won’t work, and will become dependent on welfare, so it makes sense to encourage work until people can develop the skills and interest in participating in the job market. EITC has shown that it has a positive effect on workforce participation.

As for apprenticeship programs, the original job training, who better to encourage that then the host of the 14-yearlong show called, “The Apprentice”? If exempted from minimum wage requirements, apprenticeship programs could be an area where companies feel encouraged to pick up and train employees in the areas where they need help. While getting on-the-job training from real-life employers, the government could use existing job training and college aid budgets to subsidize salaries, making sure individuals in these programs have enough money to live on while they develop their skills.

Finally, as labor economist Michael Strain explains, Social Security Disability Insurance was originally designed to help people who could no longer work after spending years in physically demanding jobs. Automation has reduced the number of physically exhausting jobs, yet the number of working-age adults on SSDI doubled between 1989-2009. This program has effectively discouraged work when it need not do so.

In today’s services economy, disability is often more a continuum than a binary state — a person may be disabled in the sense that he can’t stock shelves, but not disabled in the sense that he can’t sit behind a desk for 25 hours per week. SSDI should be modified to reflect this, covering individuals who truly cannot work, as a just society should, while encouraging others to do what work they can.

In other words, the safety net is becoming a hammock, discouraging people from working when it would be better used and more economical to help those who truly need a lift. Individuals with limited mobility can work in jobs that require fewer physical demands. As Mike Zelley, founder and president of the Disability Network, states, a half-million people with disabilities, including the 43 percent of whom have a college degree, are disincentivized to work because of federal disability programs.

The reality is that, due to his lack of specific proposals or experience in government, it is unknown what President-elect Trump intends to do to fight poverty. Will he be a strong fiscal conservative who focuses on requiring work, reducing fraud, and holding the line on the size of government; a Rockefeller Republican content to increase spending; or something else entirely?

Hopefully, the “wait-and-see” mode will soon be over.

Getting Back to Work: Not Merely Happiness, But Human Fulfillment

Work is often unpleasant in our fallen world. But it contains within it the seeds of its own redemption, and ours. It often fails to make us happy, but happiness is a fleeting emotion. Work gives us something more lasting and sturdy than happiness: fulfillment.

Thus begins a manifesto called “Getting Back to Work” by economist Michael Strain on how the U.S. federal government can help workers succeed and achieve self-actualization. The essay is part of the “Room to Grow” series by the Conservative Reform Network, which began in 2014 with the goal of developing innovative solutions to challenges facing the U.S., challenges largely created by an overindulgence among politicians to engineer social outcomes.

Strain, who studies labor force participation rates and work incentives, argues that public policy does play a role in job creation by enabling a vibrant job market. He acknowledges that a safety net is critical to ensuring that those on the bottom rung of the economic ladder have a support system. But he also notes that the support system has made it harder for people to get off that first rung.

He starts with a somewhat poetic look at the roots of man’s love and need for work before discussing how public policy has gone down the path of diminishing the value of labor.

(M)illions of people doing their particular jobs a little bit better than anyone else can create enormous wealth and, more important, improve the opportunity for individuals to lead truly flourishing lives.  Work helps us to flourish by allowing us to provide for our children. (Not all of this work, of course, is paid.) And work is a cure for boredom, one of the worst parts of modern, comfortable life.

Work creates community, something all humans need for flourishing lives. Members of your work community often become lifelong friends. Work educates our passions, directing them to productive ends, emancipating us from them. Work allows us to express ourselves, and in its proper understanding is deeply spiritual: In the Abrahamic faiths, the Supreme Being works, creating the world out of nothing. Saint John Paul writes that we are ‘called to work,’ arguing that we find ‘in the very first pages of the Book of Genesis’ the ‘conviction that work is a fundamental dimension of human existence
on earth.'”

Strain also suggests multiple solutions:

  • Expand the Earned Income Tax Credit, a federal earnings subsidy for low-income households, to homes without children.
  • Expand Work-Based Learning Programs that include apprenticeships and retraining worker who have been displaced by technology or globalization.
  • Modify the safety net so that it better encourages work and doesn’t define disability as a a binary state rather than a continuum.

A person may be disabled in the sense that he can’t stock shelves, but not disabled in the sense that he can’t sit behind a desk for 25 hours per week.”

Other suggestions from Strain include cutting payroll taxes as well as commute times, making it easier for former prisoners to find jobs, and reducing occupational licensing rules. Strain also breaks through some myths about barriers to work, and points out polling that demonstrates the benefits of his positions.

In all, bringing back the sense of American pride is one key to getting people back into the labor force. Included in this, according to Strain, is the effort to recover “a culture wherein more Americans feel an obligation to build a career, even from a low starting point,” a position that has been hampered by politicians creating policies that are intended to ease the burden of job loss but have resulted in building barriers that make it harder for people to return to the workforce.

Read more from Michael Strain’s report on Getting Back to Work.