A Different Way of Looking at the Minimum Wage

A couple of days ago I wrote about the minimum wage, and how it's gone down over the years. How much has it gone down? Well, that depends on what measure of inflation you use.

But there's another way of looking at it that doesn't rely on a computed inflation rate at all: just compare it to the median wage. Via the OECD, here's how we compare to other rich countries:

In countries like France, Australia, and Britain, the minimum wage is equivalent to about half or more of the median wage. In the US, it's equivalent to only 37 percent of the median wage. That's the lowest in the OECD dataset.

But it hasn't always been this way. Here's what the minimum wage in the US looks like over the past half century:

I had to massage the data a bit to get a wage series back to 1960, so this might be off slightly. But not by more than a couple of percentage points or so. The basic story is simple: Up until the Reagan era, the federal minimum wage was around 50 percent of the median full-time wage—or higher. Then it dropped for eight years running and has never recovered.

So what does this say about where the minimum wage ought to be? If we raised it to $10.50, we'd be back to 50 percent of the median wage. That would put us in the middle of the international pack, which seems perfectly reasonable. If we raised it to $15, we'd be at 72 percent of the median wage, far higher than any of our peer countries.

Obviously you can decide for yourself where we ought to be. But looked at this way, I'd be pretty happy with a minimum wage of $10-11, but pretty skeptical of $15. There's really not much precedent for a minimum wage that high, and I'm not thrilled with experimenting that far away from international norms.1 What's more, although I think the minimum wage serves a purpose, my preference is to combine a moderate but reasonable minimum wage with, say, a moderate but reasonable increase in the Earned Income Tax Credit.2 They serve different purposes and benefit different groups of people, and the combination would almost certainly benefit the working poor more than just one or the other.

1As we liberals point out endlessly, the bulk of the evidence suggests that moderate increases in the minimum wage don't have much effect on employment. And that's true. But the flip side is also true: large increases in the minimum wage probably do have an effect on employment. My guess is that a $15 minimum wage would have fairly significant disemployment effects.

2And an expansion of Medicaid. One thing that makes it hard to compare our minimum wage with other countries is that other countries have safety net features that we don't have. For example, universal health care, which reduces medical costs for the working poor to nearly zero. I would much rather have a $10-11 minimum wage + EITC increase + Medicaid expansion than a $15 minimum wage.

Here's the latest Pollster aggregate for the presidential race. Following the Democratic convention, Hillary Clinton now leads Donald Trump by nine points, 43-34 percent.

I'm putting this up because, hey, we deserve a little cheerful news for the weekend, don't we? But the usual warning applies, even if you like this chart better than last week's: It's something of an outlier due to a single poll conducted on Friday that shows Hillary 15 points ahead. So don't take it seriously. At the very least, the middle of next week is the earliest we'll have real data. And as usual, I recommend waiting until mid-August to see how things settle down before taking any poll seriously.

In the meantime, enjoy!

Friday Cat Blogging - 29 July 2016

Let's give Hopper the spotlight again. She deserves two weeks in a row, doesn't she? Here she is in one of her favorite places: plonked down against my arm when I'm lying on the couch. I do this frequently, using my tablet to peruse the web for news in order to minimize my time at the desk. The less time at the desk, the better my arm and wrist feel.

Needless to say, perusing the web on my tablet is a lot easier when there's not a cat plonked on my stomach, but them's the breaks. She usually doesn't stay very long. Unfortunately, when she leaves, Hilbert often takes her place. Blogging is a tough life.

I've mentioned before—only half jokingly—that I'm happy to see other people experiment with a $15 minimum wage. It's the best of all worlds: it provides us with test beds to see what happens, but if it's a disaster it won't affect me personally.

Seattle was one of the first to do this, and as a first step they raised their minimum wage to $11 about 18 months ago. It's probably still too early to draw any sweeping conclusions about what happened, but we do have some preliminary results from the Seattle Minimum Wage Study Team at the University of Washington. Their basic methodology is to compare Seattle with surrounding regions (plus a composite "Synthetic Seattle") to see how it compares. So what have they found so far?

  • Wages up. For starters, they spend a surprising number of pages confirming that, yes, wages went up. Apparently Seattle employers are complying with the law. However, the Seattle economy has been booming recently, so it's hard to know how much of the increase is due to the minimum wage law and how much would have happened anyway thanks to the tight job market. They conclude that the law was responsible for an average hourly increase of 73 cents among workers who were previously making less than $11.
  • No impact on availability of jobs. But what about jobs? Did the number of low-wage jobs go down? Yes it did—but less than in areas that didn't increase their minimum wage: "The half-percentage-point reduction in persistent jobs at these businesses between mid-2014 and late-2015 is actually a positive development, as these businesses contracted more slowly than usual in the historical record. We find the exact same pattern in Synthetic Seattle, suggesting that the minimum wage had little or no net impact on the number of persistent jobs."
  • Hours worked decreased. How about hours worked? Did low-wage employers reduce their hours? Yes: "We estimate that hours per employee declined between 7.5 and 9.9 over a quarter, or 35-40 minutes per week."
  • Employment decreased. How about employment of low-wage workers? Unsurprisingly, it went down: "While these low-wage workers increased their likelihood of being employed relative to prior years, this increase was less than in comparison regions. We estimate that the impact of the Ordinance was a 1.1 percentage point decrease in likelihood of low-wage Seattle workers remaining employed."
  • No effect on business closures. Did more establishments go out of business? Not really. It was a wash: "For single-location establishments that paid more than 40% of the workers less than $15 per hour at baseline, we find a slightly larger negative impact of 1.0 percentage points. Yet, this modest increase in business closure rates was more than offset by an increase in the rate of business openings....The net effect is an estimated 0.9 percentage point increase in business openings as a result of the Minimum Wage Ordinance. This increase in both business closures and business openings perhaps should not come as a surprise. A higher minimum wage changes the type of business that can succeed profitably in Seattle, and we should thus expect some extra churning."

Bottom line: wages went up, but employment went down. This is about what you'd expect. However, I'm a little unclear on how to reconcile this employment decrease with the finding that the number of persistent jobs didn't change. Perhaps there was a decrease in seasonal or intermittent jobs? It will probably all become clearer in future reports.

Needless to say, the real test will come over the next few years, as the minimum wage climbs to $15.

Horrible North Carolina Voting Law Struck Down

Rick Hasen reports on an appellate court decision rejecting North Carolina's horrible 2013 voting law. Most importantly, they rejected it by clearly finding discriminatory intent on the part of the legislature:

A partially divided panel of 4th Circuit judges reversed a massive trial court opinion which had rejected a number of constitutional and Voting Rights Act challenges to North Carolina’s strict voting law, a law I had said was the largest collection of voting rollbacks contained in a single law that I could find since the 1965 passage of the Voting Rights Act....This decision is the third voting rights win in two weeks.

....The 4th Circuit goes out of its way to commend the trial court for its carefulness and thoroughness (something I noted in my own analysis). But “In holding that the legislature did not enact the challenged provisions with discriminatory intent, the court seems to have missed the forest in carefully surveying the many trees....Although the new provisions target African Americans with almost surgical precision, they constitute inapt remedies for the problems assertedly justifying them and, in fact, impose cures for problems that did not exist. Thus the asserted justifications cannot and do not conceal the State’s true motivation.”

In previous cases like this, we've seen courts uphold restrictive voting laws on the grounds that they're partisan, not racist. If Republicans want to try to restrict likely Democrats from voting, that's OK. Alternatively, if you can't show any outright racial animus, then the law isn't discriminatory. The court rejected both arguments:

Later there is this key part: “Our conclusion does not mean, and we do not suggest, that any member of the General Assembly harbored racial hatred or animosity toward any minority group. But the totality of the circumstances...­cumulatively and unmistakably reveal that the General Assembly used SL 2013-381 to entrench itself....Even if done for partisan ends, that constituted racial discrimination.

....Here is the key language on why the 4th Circuit found the district court clearly erroneous on the intent question: “The district court failed to take into account these cases and their important takeaway: that state officials continued in their efforts to restrict or dilute African American voting strength well after 1980 and up to the present day....These cases also highlight the manner in which race and party are inexorably linked in North Carolina....The district court failed to recognize this linkage, leading it to accept ‘politics as usual; as a justification for many of the changes in SL 2013-381. But that cannot be accepted where politics as usual translates into race-based discrimination.

This is tentatively good news. "Tentative" because I assume the next step is the Supreme Court. Will they uphold the 4th Circuit's decision to strike down North Carolina's law, or will they ignore the obvious and pretend that this is, indeed, just politics as usual?

Here's the lead story in this morning's LA Times:

Donald Trump has gotten a significant boost from his party’s nominating convention last week; now, Hillary Clinton will try for her own....In Trump’s case, the post-convention bounce started to show up in a significant way on Sunday in the USC Dornsife/Los Angeles Times Daybreak tracking poll of the presidential race. The boost continued to build for several days and Trump now holds a 7-percentage-point lead, 47% to 40%.

This has already been disappeared from the front page of the web edition, perhaps out of sheer embarrassment. The problem it represents is a widespread one: because this poll is sponsored by the Times, they give it big play and act as if no other poll of the race exists. In fact, it's a major outlier. The other three most recent polls (Rasmussen, CBS, CNN) basically show the race tied.

This is a bad media habit. They like to hype their own polls without telling their readers what other polls say. It's understandable, but in this day and age it's also inexcusable. The Times has almost certainly badly misled its readers here.

POSTSCRIPT: And one other thing. Even in the LAT poll, Trump is up 46.7 percent to 40.6 percent. That's a 6-point lead, not a 7-point lead.

The "War on Cops" Is a Right-Wing Invention

From Andrew McCarthy:

The War on Cops Continues

Several news services are reporting that one San Diego police officer has been killed and another badly wounded (but expected to survive) after a driver they pulled over late Thursday night opened fire on them. The suspected shooter is in custody. After an intensive manhunt in the city’s Southcrest neighborhood, the police department has indicated that they believe the shooter acted alone.

Can we stop this? It's horrible when a police officer is killed, but it's the nature of the job. Sometimes criminals open fire on cops. On average over the past decade, about one police officer is killed by gunfire every week.

The mass shootings in Dallas and Baton Rouge recently were especially horrible, but I hope we're not going to go through this "war on cops" nonsense on a weekly basis, whenever some gangbanger somewhere takes a shot at a police officer. Let's keep a clear head about this stuff.

Real GDP grew by only 1.2 percent in the second quarter. Political scientists everywhere are now rushing to plug this number into their models in order to come up with new estimates of who will win the election in November.

Long story short, consumer spending was healthy, but business and residential investment was horrible. Fixed investment was down 3.2 percent and residential investment was down a whopping 6.1 percent. Apparently the new housing market has screeched to a sudden halt.

Hoo boy. Tonight is national security night at the Democratic convention. Retired General John Allen just gave a stemwinder of a speech delivered in the tones of a drill sergeant and about as hawkish as anything you've ever seen at a Republican convention. As Paul Begala put it, he opened up a huge can of whup-ass on Donald Trump. Allen's speech came right after a very good speech from the father of a Muslim soldier who died in Iraq, and right before a speech by a Medal of Honor winner. The convention floor was practically shaking for all three.

Given Donald Trump's wishy-washy attitude toward military intervention, the Democrats have really stolen the national security mantle from the Republicans, who own it outright in most years. From an electoral standpoint, this is obviously great for Democrats. From an overseas intervention standpoint, it might be a little scary. It's great to steal the GOP's thunder, but do we really want to encourage Hillary Clinton's already hawkish instincts?

No matter what it does, the Bank of Japan just can't seem to generate any inflation. The BOJ meets on Friday to decide on its next move, and Prime Minister Shinzo Abe upped the ante yesterday by announcing a large spending increase prior to the meeting. He hopes to get the BOJ to coordinate more monetary easing with his stimulus package, something that might finally push inflation up.

So what's going on, anyway? Obviously I don't know, but the whole thing is peculiar because Japan's economy has actually done reasonably well since the Great Recession. As the chart on the right shows, real GDP per working-age adult has grown about as much as it has in the United States.

Why have I carefully shown GDP growth this way? Because Japan's population is shrinking: over the past two decades, the number of working-age adults has declined from 86 million to 78 million. This means that GDP will shrink too. But that's pretty meaningless. Obviously a lower population means a lower GDP. What you want to know is how much economic activity you generate per person.

So if economic growth is OK, why the inflation problem? Perhaps it's inevitable when a population shrinks and ages. If retired workers are too cautious to increase their spending, then stimulus is working against a huge headwind—and one that gets bigger every year as the population ages even more.

But it's not as if everyone doesn't know this already, and even so nobody can figure out quite what Japan needs to do to avoid a deflationary spiral. Maybe helicopter money will be next?