A new study conducted by Dr. David Macpherson of Trinity University and Dr. William Even of Miami University was released on Thursday by the Employment Policies Institute (EPI).
The study set out to "measure the empirical effects of minimum wage increases in California from 1990 to the present, and estimate the impact of California’s current minimum wage law," according to the abstract. Additionally, "the authors employ[ed] 24 unique variations of their original model to ensure as fair a treatment of the evidence as reasonably possible."
Here’s what they found:
... the economists’ preferred model show that past minimum wage increases in California have caused a measurable decrease in employment among affected employees. Specifically, they find that each 10% increase in the minimum wage has lead to a nearly five-percent reduction in employment in industries with a higher percentage of lower-paid employees. Across all industries, their findings imply that each 10% increase in California’s minimum wage has reduced employment for affected employees by two percent.
The authors apply these estimates to the state’s forthcoming $15 minimum wage. By 2022, approximately 400,000 jobs would be lost as a consequence. (This estimate is conservative, as it measures the impact of California’s state minimum wage but does not covering the impact of local minimum wages.) Industries with the greatest number of affected employees are most severely affected by job loss, according to Even and Macpherson; nearly half of the observed job loss occurs in foodservice and retail industries."
The Daily Wire spoke with Michael Saltsman, the managing director of the Employment Policies Institute (EPI), for clarification about the study. For background, Saltsman received degrees in economics and political science from the University of Michigan, and was a field economist for the Bureau of Labor Statistics (BLS) from 2006-2009. In addition to his position at EPI, Saltsman is the vice president of Berman and Company, a public relations firm.
According to Saltsman, California is an ideal state in which to conduct a study like EPI’s because "there’s been a tremendous amount of minimum wage activity, both at the state level and then at the local level." This didn’t come without difficulties, however. Saltsman noted that the team had to account for the impact of other economic factors on certain industries, like apparel manufacturing, which has been harmed by factors other than rising minimum wages:
One of the struggles is finding ways to account for some of those broader changes in the economy while still identifying the minimum wage impact. What the economists in this case tried to do is stand on the shoulders of what’s come before them. There’s been a lot of good research in the last couple years on minimum wages, specifically the challenge that comes with isolating the impact of the minimum wage and separating that from other economic trends.
Saltsman stated that Macpherson and Even "threw the kitchen sink" at this issue, running "models a number of different ways, accounting for different economic factors and trends that might have influenced the kind of employment trends we’re seeing absent a minimum wage." Additionally, they looked at data "county by county," omitting material they believed was weak or possibly unreliable.
Those hardest hit by minimum wage increases tend to work for businesses that "don’t have a tremendous ability to absorb new labor costs," according to Saltsman. Restaurants, for example, tend to have incredibly narrow profit margins, and government-mandated wage hikes force these businesses to cut costs. Unfortunately, cutting costs often means letting go of "less skilled or less experienced employees," replacing them with machines, and self-service options.
The best thing to do with government-mandated minimum wages, Saltsman says, is freeze them. That way, the issue would become "less and less relevant" to the conversation.
There are some who argue that a $15 to $20 an hour wage is necessary for basic survival. Saltsman counters this contention with a sobering fact: "You can either have a $15 minimum wage, or you can have have the same number of jobs you have right now. You can’t have both."
Saltsman believes in a more targeted approach to helping the working poor:
Let’s find policies that help low-wage workers specifically so we don’t pass an industry-wide mandate or a national or statewide mandate that has the net effect of increasing business closures, and reducing the number of available jobs.
A more generous Earned Income Tax Credit (EITC), suggests Saltsman, is one way to help low-wage workers, as "it has been more effective at reducing poverty than a higher minim wage, it’s better targeted, and creates an incentive to work." Moreover, "because it’s targeted through the tax code instead of a mandate on employers, you don’t get some of the same unintended consequences" that come with mandatory minimum wage increases.
Saltsman also rebutted the progressive argument that businesses – both small or franchise-based businesses as well as large corporations – should absorb the costs of wage increases, saying that such an idea is "a pretty dramatic misunderstanding of how these businesses work."
"It’s not as if there’s some pot of corporate cash that franchise businesses are able to tap into," Saltsman stated, adding that franchisees essentially operate as small businesses:
We actually did a study that we put out in 2016 that looked at the likely impact of a $15 minimum wage – it was based on a nationwide representative survey of franchise and non-franchise business owners – and franchise business owners were actually more likely to be negatively impacted than non-franchise business owners. That speaks to the fact that a lot of them are these kind of independent small business owners.
While larger corporations might be better able to absorb certain costs, profit margins are still relatively narrow, according to Saltsman. Additionally, it’s easy to forget that these companies employ thousands and thousands of people, and face overhead costs.
Regarding the seemingly excessive pay of company executives – something brought up frequently by progressive activists – Saltsman offered a rebuttal:
We’ve done the math on this. You could take the compensation of the entire executive team at Walmart, and you could try to redistribute it to the part-time employees, and at the end of the day, you end up giving people a couple cent increase in their pay.
He added that the fantasy of "confiscating a company’s profits and redistributing it to the employees" is one that might work one year, but would not be feasible the following year.
In conclusion, and to further illustrate the speciousness of the minimum wage argument, Saltsman ran through a common scenario:
I was looking at the numbers recently for a grocery store – and a large grocery store may earn half a billion or a billion in profit on a much larger number in sales – but in the grocery store industry, the profit per employee is about $1,500. So if you want to pass a law that increases the cost per employee by $3,000, that eats up the profit per employee a couple times over. You can see how the economics just don’t work in that context.
As the "Fight for Fifteen" activists continue to push for higher minimum wages, it might benefit them to step outside of their bubble, examine EPI’s latest study, and consider the possibility that there are other, better solutions to the issues they’re trying to solve.