Jeffrey Clemens and Michael Withers’ minimum wage study, featured at length on the most recent episode of the Voice of San Diego podcast, is so deeply flawed, it shouldn’t have even received a National Bureau of Economic Research “working papers” definition.
First, the study period begins in 2007, just before the financial collapse and Great Recession, and ends in 2009, not quite before the recovery begins, but more like when the uncontrolled bleeding stops.
Trying to evaluate the impacts of a small, gradual increase in minimum wage affecting a small portion of the workforce in the midst of an earthshaking set of economic events is pure scientific folly.
Under the best of conditions – meaning a period of economic stability with few or no cataclysmic events – it is extremely difficult to reach “conclusions” about the impact of a change in a single economic variable, like minimum wage. But trying to do that when the sky is falling is really bad social science. That’s why the research out there on minimum wage impact is peppered with cautions, caveats and qualifications.
Trying to study this over the precise period of the Great Recession is like trying to study the environmental effects of fracking during a brief period that coincided perfectly with a major earthquake. It doesn’t even pass the laugh test.
A second flaw is that any two-year time frame for examining the impact of a change in minimum wage, quite apart from the fact that it coincided with the great recession, is painfully too small to reach any valid conclusions.
You are always going to find some (at least short-term) negative employment impacts from an increase in the minimum wage. But a minimum wage increase also puts more money in the pockets of the workers who don’t lose jobs.
They spend the extra dollars in the local economy, creating some jobs elsewhere in the region. That’s why many studies show no or negligible job loss, and sometimes even small job gains. You need a little time for that effect to show up. I acknowledge that large and precipitous changes in the minimum wage can be very destabilizing and even lead to permanent job loss, but that’s not at all the nature of the changes examined in this study.
A third, serious flaw in the study concerns the source of its data: the Survey of Income and Program Participation. Self-reported income and wages in surveys are notoriously faulty. Administrative data, like unemployment insurance and social security administration, is not perfect, but decades of research on the quality of the Survey of Income and Program Participation and other survey data for wage reporting overwhelmingly conclude that survey data significantly understates wages, compared to administrative data.
The author would no doubt reply, “The survey data may underreport wages, but I’m not looking at absolute levels; I’m looking at ‘trends.’” Sorry, that doesn’t cut it. Survey of Income and Program Participation wage data not only underestimates wages, but is also notoriously unstable and volatile year to year. The survey may give good trend results over a 10- or 20-year time span, but to try to use it for pinpointing the impacts of a small change in the economy like increasing minimum wage over two years is amazingly irresponsible.
By the way, the Survey of Income and Program Participation wage data also includes tips for tipped workers – that is, the respondents are asked to include tip income. Now, there’s something that the typical respondent is going to report with great accuracy. Right?
And many workers directly affected by the minimum wage also receive material tip income. Don’t you think that in the midst of the greatest recession since the great depression, the size of tips inevitably fell? That’s quite apart from any minimum wage change.
All that being said, I’m glad the study is out there for debate. Both good and bad research need exposure, as long as there is opportunity for expression of other view points.
Irv Lefberg has a Ph.D. in American political economy from MIT, and was a senior economist dealing with labor economics and public finance for 30 years in Washington state. He lives in Escondido. Lefberg’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.