Crying Wolf Over Higher Wages in a Time of Need
by Stephanie Luce
Huffington Post
December 10, 2010

http://www.huffingtonpost.com/stephanie-luce/crying-wolf-over-higher-w_b_794531.html

For more than 100 years, we've heard opponents "Cry
Wolf" when governments tried to establish living wage
or minimum wage laws, threatening higher unemployment
and inflation. Introductory economic textbooks warn of
just that. But fortunately economic analysis has
advanced beyond the introductory level. More economists
are testing theories once taken for granted, and using
better methodologies they are proving wrong those who
"Cry Wolf" about living wage laws.

Their timing could not be better. More than one-quarter
of all U.S. workers earn hourly wages below the federal
poverty line. Census data shows that the proportion of
workers considered to be the "working poor" fell
throughout the 1990s as cities passed living wage laws
and the federal government raised the minimum wage. But
without regular increases to the minimum wage, the
number of "working poor" is rising again. In 2008,
almost 9 million Americans were classified as "working
poor," almost 2 million more people than in 1998.

The problem isn't that workers are not working hard
enough. Productivity has soared in recent decades. The
problem is a crisis of living wage jobs. Yet opponents
rely on false arguments that wage laws (and unions!)
hurt workers, when in reality the only way average
wages rise in a country is when workers organize and
push for better laws.

New data released last month adds another solid piece
of evidence that higher wage levels do not force
employers to lay off workers. Labor economists Arin
Dube, William Lester and Michael Reich compare counties
adjacent to state borders, where one state raised the
minimum wage and another did not, between 1990 and
2006. The authors improve on previous studies that did
not control for local economic conditions, and find no
correlation between higher minimum wages and
employment.

Another new study out last week, by William Lester and
Ken Jacobs, looks specifically at living wage
ordinances that cover economic development projects.
They find no difference in employment levels between
the living wage cities and comparable cities,
disproving the claim by critics that the laws can drive
away business or lead to reduced employment.

As more and more work comes out disproving the claims
of those who "Cry Wolf", we keep hearing from a handful
of economists not ready to let go of old theories. Most
notable is the discredited David Neumark, who along
with co-author William Wascher, gained notoriety in a
famous case of dueling minimum wage studies in the
1990s. A restaurant industry-funded foundation promoted
Neumark and Washer's work, arguing that it proved
higher minimum wages led to job loss in the fast food
industry. Yet after some outside scrutiny, researchers
found the Neumark study did not really find evidence of
job loss.

David Neumark also happens to be one of the economists
selected by Mayor Bloomberg to conduct a $1 million
study of the potential impact of a proposed living wage
ordinance in New York. The high price tag for the study
is itself shocking, given what it usually costs to
conduct studies of this kind. (Bloomberg could have
saved the money and given a living wage raise to almost
200 full-time workers for a year!)

But the selection is also surprising given that Neumark
is already author of 27 studies that argue that
municipal living wage ordinances lead to job loss. Many
of these studies use the same kinds of flawed
methodologies we see in minimum wage research.

The study by Dube, Lester and Reich shows that blunt
methodologies may not be appropriate for understanding
the way labor markets function -- especially for low-
wage workers who are likely underrepresented in
government data sets, have higher turnover, and more
likely to work in contingent part-time jobs.

Similarly, research by economists Mark Brenner, Robert
Pollin and Jeannette Wicks-Lim challenged some of
Neumark's living wage research, arguing the need to
take a careful look at the dynamics of living wage
ordinances if we want to understand their impact. For
example, Neumark uses a national government dataset to
measure the impact of local living wage laws. Since
living wage ordinances do not affect a large proportion
of workers in a city, this particular dataset of 60,000
households may not include any living wage workers --
in fact, the odds of the sample including a large
enough number of workers covered by the ordinance are
about one in 244 million. Living wage ordinances are
targeted at specific low-wage workers. If we really
want to understand their impact we need to use more
responsive methodologies.

Interestingly, many economists are coming to share this
perspective. A few decades ago a majority of them would
argue that wage laws could have strong negative
outcomes. Today, the field is increasingly convinced
that those initial claims were inflated -- and benefits
from a wage increase would likely outweigh any costs.
Even those economists who focus on the negative impacts
admit that they would be small, and likely contained to
certain subsectors, like teenagers. Though even here,
the empirical studies seem to find no negative impacts
on teens.

While the discipline of economics is shifting its
estimation on wage laws, journalists and pundits are
slow to catch on. Perhaps some are still citing their
Intro Econ textbooks from 20 years ago. Recently a New
York Post column by Gregory Bresiger proclaimed that
that a proposed New York living wage ordinance "could
kill city economy, employment," despite the fact that
not even the economists who oppose minimum wages would
make this argument.

With the City of New York set to debate a living wage
ordinance it looks like we are in for a long season of
"Crying Wolf."

Stephanie Luce is an Associate Professor at the Murphy
Institute, City University of New York. She is the
author or co-author of three books and dozens of
articles on living wage ordinances.

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