A Golden State Payout for Big Labor

California’s impending $15 minimum wage will take full effect by 2022-23. Evidence suggests that organized labor’s $1.6 million investment in the venture is already set to pay off.

Typically, unions support a higher minimum wage to achieve an indirect pay benefit . An analysis of union collective bargaining agreements available from the Department of Labor’s Office of Labor-Management Standards illustrates that many pin baseline wages to the federal minimum wage. For example, one SEIU local agreement states that, “[t]he minimum hourly wage rates shall exceed any statutory applicable minimum wage rate by fifty cents.”

California’s unprecedented $15 minimum wage promises a more direct benefit for unions. For example, Bureau of Labor Statistics data show that the median weekly wage for a unionized food-prep employee come out to just under $13 an hour full-time. (Other unionized occupations face a similar pay structure.)

Using Census Bureau data, the Employment Policies Institute estimates that roughly 223,000 union members in California will receive a direct pay bump by the time the law is fully implemented in 2022. (These estimates are based on data from Outgoing Rotation Groups of Current Population Survey between January 2013 and December 2015 and assume annual wage growth of 2.9 percent and 2.2 percent inflation annually.)

A majority of the affected employees are concentrated in four industries: Retail, health care, education and public administration (i.e. government.) Roughly 100,000 of the union employees work in the public sector, and 123,000 work in the private sector.

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Graph 1. Total Increase in Annual Earnings, 2022

According to our analysis, union members earning less than $15 an hour will receive an estimated bump in annual earnings of $883 million when the law is fully phased in.

Importantly, the cost borne by the state will differ from the public sector estimate above. Gov. Jerry Brown, in a May revision to his budget projection, estimated the combined cost of the $15 minimum wage to the state general fund at $3.4 billion, which includes an increase in the cost of in-home care reimbursements (among other cost increases).

For many union members, the higher earnings translate to higher dues payments.

A review of federal filings of California-based SEIU locals confirms that many set their dues payments as a percentage of employees’ wages, typically 1% to 2%. One percent of $883 million in additional annual wages for California union members would yield roughly $9 million per year in new dues dollars.

Raising the minimum wage may be all gain and no pain for union bosses, but that is not the case for California’s taxpayers and employees in the private sectors whose jobs are now at risk.

America’s Poor Need a Job, Not a “Raise”

Will raising the minimum wage to $15 an hour dramatically reduce poverty rates?

Setting aside the policy’s negative impact on jobs, a dramatic minimum wage hike faces a far more fundamental problem: A majority of Americans in poverty don’t work and can’t benefit from a “raise.”

The Employment Policies Institute used data from the 2013-2015 March supplements to the Current Population Survey to study the working age population living in poverty in each state and found a surprising result: In 41 of the fifty states plus Washington D.C., more than 50 percent of the working-age population living in poverty are not employed.

Click here for full analysis.

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Instead of raising the minimum wage in a misguided attempt to alleviate poverty, legislators should consider an anti-poverty measure with a proven track record, such as the Earned Income Tax credit. The EITC boosts wages without reducing job opportunities, and also creates an incentive for those not currently working to seek it.

Experts agree. A survey conducted by the University of New Hampshire found that the majority of surveyed economists(71%) believe that the Earned Income Tax Credit (EITC) is a very efficient way to address the income needs of poor families. (Only five percent believe the same thing about a $15 minimum wage.)

Meet The New Fast Food Crew Member

The SEIU-backed Fight for $15 takes to the streets again today to demand $15 and a union. In a full-page ad in USA Today, we highlight one of the most predictable consequences for less-skilled employees – job loss from automation.

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McDonald’s has already installed over 7,000 of these units in higher-cost European markets. They’ve also been testing these units here in the US, and recently began testing McCafe coffee kiosks in Chicago. Many other brands are taking the same approach to managing labor costs. At the San Francisco-based restaurant Eatsa, you can order and pay for your meal devoid of any human interaction.

It’s no surprise that raising the minimum wage will only accelerate the turn to automation. When customers balk at higher prices, more-costly employees can be replaced by self-service alternatives who don’t walk off the job.

Do Part-Time Employees Want “Fairness” or Flexibility?

Unions and the advocacy groups they fund in the District of Colombia have a new grievance: part-time schedules.

Legislation under consideration by the City Council – based on a similar ordinance passed in San Francisco last year –  would require employers to provide schedules three weeks in advance, and penalize them for changes which happen after that. While advocates argue that these changes are necessary to “promote full-time work”, our new analysis of the proposal suggests that they should proceed with caution.

Dr. Aaron Yelowitz of the University of Kentucky used Census Bureau data to create a profile of the part-time workers that would be affected by D.C.’s proposed law. He found that just one-in-seven are working part-time involuntarily, suggesting that those who are working a part-time schedule choose to do so because it accommodates their lifestyle.

Dr. Lloyd Corder and his survey research team at CorCom Inc spoke to 100 affected businesses in DC. A majority claimed that they would have difficulty complying with the new law’s requirements – especially the provision that requires four hours of pay for any schedule change made with less than 24 hours notice.

If enacted, businesses anticipated taking several steps to adapt to the costs. Nearly three of four respondents said they’d offer less flexibility to make schedule changes. Half of surveyed employers indicated they would offer fewer part-time positions, and change the hiring composition of full-time vs. part-time employees.

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Click Here For The Full Analysis

About Those Economists Who Support Cuomo’s $15 Wage Proposal

Governor Cuomo’s $15 minimum wage proposal has been criticized by a diverse group of legislators, small businesses, nonprofits, and newspaper editorial pages, all of whom have pointed out the obvious: A $15 wage mandate will have serious consequences.

But recently, a group of 79 economists came to Cuomo’s defense, declaring their support for a $15 minimum wage and claiming that it will be “good for the health and sustainability of the overall state economy.”

The list of signers – organized by the labor union-backed Fiscal Policy Institute – aims to provide some much-needed credibility to an argument backed by rhetoric rather than economic reality. But this begs the question, how credible is the list itself?

Upon closer inspection, its flaws bear a striking resemblance to the list of 600 “experts” the White House paraded in support of their $10.10 proposal in 2014. Many of the signers have affiliations, research interests and political views that fall considerably outside of the mainstream.

For instance, almost a third of the signers are affiliated with labor unions and union-supported organizations. Among the names on the list are also several members of the Union for Radical Political Economics – an organization promoting schools of economic thought (e.g. neo-Marxism) that are far outside the mainstream. One of the signers – Paul Zarembka of SUNY Bufflo – is even a well-known advocate for “9-11 truth.”

The moral of the story is this: You can cherry-pick “experts” who will sign on in support of any number of policies, but that doesn’t mean it’s a good idea. In this case, these 79 economists’ opinions are at odds with the consensus of 72 percent of U.S. based labor economists and the majority of empirical research on a higher wage.

A History Lesson for Minimum Wage Proponents

Today, labor advocates are celebrating the 20th anniversary of David Card and Alan Krueger’s controversial book Myth and Measurement. The best-known research it contains found that a wage hike increased employment in New Jersey relative to neighboring Pennsylvania.

It’s a convenient story for proponents, but it’s also incomplete: This infamous study was eventually refuted in the same academic journal where it was originally published. In the Wall Street Journal today, we make this point in a full-page ad:

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(Click To Enlarge)

After the minimum wage hike, the economists and their student researchers conducted telephone surveys at fast food restaurants to compare localities in New Jersey –  that now had higher labor costs – with similar localities right across the river in Pennsylvania. Unfortunately, the research assistants working for the economists had posed questions to restaurants that were too ambiguous in their phrasing: “Full-time” and “part-time” employment weren’t defined. The type of burger the researchers were seeking a price for wasn’t described either.

As a result, the data showed unrealistic changes in employment in stores—75 percent decreases in part-time staff, for instance, and an increase in full-time workers from 0 to 35 in a single year. At one outlet, they reported an 88 percent increase in the price of a hamburger. When the study was later re-estimated using payroll records rather than the original faulty telephone surveys, the data told a different story: New Jersey’s decision to increase the state’s minimum wage in 1992 had in fact caused job loss.

Read the full story in our op-ed in The Hill. 

Cuomo’s Reckless Drive for $15

Governor Andrew Cuomo’s RV trip around the state to pitch his $15 minimum wage proposal has been fueled with lofty claims and misleading facts. In an ad in today’s New York Post, we take on his boldest claim, that there’s “no credible evidence” that his proposed minimum wage will hurt the state’s businesses and the people they employ.

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This is simply not the case. In fact, while some outlying studies of past minimum wage increases find no impact on employment, a majority of the research — including the latest and most credible reports — reaches the conclusion that there is a negative impact on jobs. In a University of New Hampshire survey of US labor economists, 72 percent opposed a broad $15 wage standard.

Even a supportive new study on Gov. Cuomo’s $15 minimum wage, authored by union-affiliated researchers at the University of California-Berkeley, estimates that 77,000 jobs will be lost on the road to $15.

The Governor also turned to experts for support – citing a list of 600 economists who support a higher minimum wage – but he neglected to mention a key detail: Those 600 economists were supporting a much lower $10.10 minimum wage. Embarrassingly for the Governor, some of the signers on that list have vocally opposed $15. The includes alumni of both the Obama and Clinton administrations. 

Most importantly, the Governor ignores the stories of real businesses in the state that have already been hurt by recent wage hikes. This includes  businesses like Longway’s DinerBetty’sP.J. Clarke’s, and Medici House that have reduced hours and jobs or closed entirely in response to this misguided policy. (Read more specific stories at Facesof15.com.)

The Governor encourages New Yorkers to “focus on the facts, not fear” when evaluating this issue. On that point, we agree–which is why it’s so important to see through his populist rhetoric.

The Impact of a $12 Minimum Wage in Maine

Proponents of a higher minimum wage in Maine, led by the state AFL-CIO, have gathered enough signatures to put their proposed $12 minimum wage to a vote this November. But earlier today a coalition representing approximately ten thousand Maine business owners announced their support for a competing $10 minimum wage proposal.

Last year, residents and businesses of Portland faced a similar situation. They rejected a $15 minimum wage proposal and opted to maintain their $10.10 wage. Even left-of-center voters recognized that a $15 wage would be devastating to small businesses in Portland, and it was defeated by a nearly 20-point margin.

But would a $12 minimum wage have the same harmful impact statewide? The evidence suggests so. Economists William Even of Miami University and David Macpherson of Trinity University replicated the methodology used in the non-partisan Congressional Budget Office’s 2014 report on raising the minimum wage, which was informed by the latest and most up-to-date research on the subject. They estimate that roughly 3,800 jobs would be lost in Maine if a $12 minimum wage was implemented by 2020. (This estimate is conservative, as it doesn’t include the impact of the change in the tipped minimum wage.)

READ THE FULL ANALYSIS HERE.

Maine has been here before. The state raised its minimum wage during the past decade, along with 27 other states, and subsequent research from economists at American and Cornell University found little impact on poverty rates. With little to gain, and thousands of jobs to lose, the state’s voters may want to think twice before endorsing a dramatic hike in the starter wages.

Even Proponents Agree: Wage Hikes Cause Job Loss

Erica Payne is the President of an organization called Patriotic Millionaires, which made a name for itself during the lame duck session of Congress in 2010 when they demanded higher taxes for America’s wealthy, themselves included.

More recently, the millionaires have taken to supporting a higher minimum wage as a means of battling economic inequality. In a recent opinion piece defending this position, Payne made the following argument:

“Some will temporarily lack for work, which is unfortunate. But overall, the positives greatly outweigh the negatives.”

It’s the classic “you have to break some eggs to make an omelet” rationale that allows proponents to sweep any negative evidence under the rug by claiming a higher wage will be better for society as a whole.

This justification has been used early and often in the minimum wage debate. In 2001, economists Peter Hall and Michael Reich of UC Berkeley University made a similar argument in their report “A Small Raise for the Bottom” when they claimed:

“On the negative side [of a higher wage mandate], some employment growth might be curtailed among the youngest minimum wage workers. Since employment to population rates among those under 18 are already quite high by historical standards, some decline might be acceptable and well worth the overall benefits.”

More recently, this argument was used to justify the closure of a New York restaurant, Medici House, due to New York’s increase to the tipped wage last year. Sam Magavern, the Co-Director of the Partnership for the Public Good, stated:

“I’m sure individually, there will be restaurants that might close, but big-picture, the restaurant sector does seem to be able to absorb higher wages for its workers,”

By taking the utilitarian approach, knowingly signing away thousands of jobs for hardworking Americans or turning your back on the country’s youth and mom-and-pop restaurants is permissible if you do it in the name of the greater good. But even if you buy this twisted rationale, the majority of evidence suggests that a higher wage fails here too.

A recent study conducted by Dr. Joseph Sabia and Thanh Tam Nguyen of San Diego State University  examined 35 years of government data across a number of different datasets and determined that, on net, minimum wage increases have little to no net effect on participation in welfare programs.

Perhaps Payne should stop trying to justify her actions by attacking conservatives and face the facts: In addition to killing jobs, the minimum wage has proven to be an ineffective means of eliminating poverty and often harms those that it intends to help.

Busting Myths About the Minimum Wage

Proponents of a higher minimum wage are determined to make their case no matter how much evidence piles up against them. But in doing so they conveniently avoid the evidence that directly challenges their arguments. We looked at several of the popular arguments proponents of a higher wage make, and the facts tell a different story.

Check out the full infographic here or below.

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Myth #1 Raising the minimum wage stimulates the economy

Fact: Research has found no link between higher minimum wages and economic growth. Dr. Joseph J. Sabia used data from the Census Bureau and the Bureau of Economic Analysis to measure the Gross Domestic Product (GDP) and employment response associated with an increase in the minimum wage. He found that an increase in the minimum wage has no discernible impact on overall GDP and could actually hinder growth in certain low-wage sectors.

Myth #2 Raising the minimum wage won’t reduce jobs

Fact: According to the non-partisan Congressional Budget Office, a $9 national minimum wage would cost 100,000 jobs; a $10.10 minimum wage would cost a half-million jobs. And according to a follow-up analysis using the CBO methodology, a $12 minimum wage would destroy 770,000 jobs.

Myth #3 Raising the minimum wage will save taxpayers money

Fact: Dr. Joseph Sabia of San Diego State University and Thanh Tam Nguyen examined 35 years of government data across a number of different datasets and determined that, on net, minimum wage increases have little to no net effect on participation in (or spending on) a range of means-tested programs.

Myth # 4 Most minimum wage earners are single parents with kids

Fact: Census Bureau data shows that just one in 10 of those affected by a $10.10 or $12 minimum wage fit this description. A majority of those affected are either second or third-earners in households where the average family income exceeds $50,000 per year.

Myth # 5 A higher minimum wage is the best way to address poverty

Fact: A 2007 study by the University of New Hampshire found that seven out of 10 economists agree that the Earned Income Tax Credit (EITC) is the best antipoverty program available to us, while only one out of 10 said the same thing about minimum wage hikes. Economists Joseph Sabia at San Diego State University and Robert Nielsen at the University of Georgia found a 1% drop in state poverty rates associated with each 1% increase in a state’s EITC. (The same study found no relationship between minimum wage hikes and poverty rates.)

Myth # 6 Economic research shows that a higher minimum wage is good public policy

Fact: Economists at the University of California-Irvine and the Federal Reserve Board reviewed two decades of research on the subject, and found that 85 percent of the most credible studies on the minimum wage point to job losses for less-skilled employees. The latest and most up-to-date research has strengthened this conclusion.