The usually great Catherine Rampell unconvincingly objects to two improved labor standards

August 8th, 2017 at 2:42 pm

I’ve long been a big admirer of Catherine Rampell, but her piece today on “unintended consequences” of pro-worker policies was uncharacteristically unconvincing. She goes after two specific upgrades to existing labor standards: the increase in the federal minimum wage from its current $7.25 to $15 per hour, and the increase in the salary threshold below which workers have to be paid time-and-a-half for overtime.

Rampell, a data nerd (that’s a big compliment, to be clear), does the same thing I did when I started hearing about a $15 minimum wage. She goes to the data and shows that median (50th percentile) wages in various low-wage states are below $15. Since most past minimum wage increases affected less than 10 percent of the workforce (see table 1 here), she assumes an increase that hits a much larger share must be problematic (“it would likely result in massive job losses and cuts in work hours”).

But Rampell’s overlooking a key part of every $15 proposal I’ve seen: the phase-in period. The current proposal she’s critiquing here, which Ben Spielberg and I have written about previously and discussed at length, does not fully phase in until 2024. I guarantee Rampell that the phase-in was very intentionally put in there for the very reason she cites: to avoid hitting lower-wage states with an increase that affected such large shares of workers.

Of course, even that phase in may not be long enough for some states. Of course, we must consider potential dis-employment effects when considering unprecedentedly large increases. But to present the proposal yet leave out this part of its design is misleading.

Next, to defend her position, Rampell cites a recent study of the Seattle increase to $13 (on its way to $15; another phase-in!) which finds that the increase “has produced sharp cuts in hours, leaving low-wage workers with smaller paychecks.”

Surely Rampell, a careful and thorough columnist, knows that this study has been called into question. There’s a new critique from Jesse Rothstein and Diane Schanzenbach (R&S) which points out some of its serious limitations. For example, the study’s sample leaves out employers with multiple locations: think Starbucks, Burger King, and any other chain that hires low-wage workers. Second, to capture the impact of the Seattle increase, the study compares low-wage employment at (single-location) Seattle firms to other firms in the state. But R&S note that “The Seattle economy was booming during the period covered by the study, which might have been expected to reduce low-wage employment as employers offer higher wages to attract scarce workers. The study relies on an untestable assumption that low-wage employment would have evolved similarly in Seattle as in the comparison areas had the minimum wage not increased.”

In other words, a perfectly consistent interpretation of the study upon which Rampell depends to make her case is that employers had to raise the pay of low-wage workers due to competitive pressures in the city. “If some Seattle firms found it necessary to raise their wages…due to shortages of workers, this could account for the study’s results…without any negative employment effects of the minimum wage.” Thus, they conclude that the Seattle study “does not provide useful evidence” on Rampell’s question of unintended consequences. That doesn’t mean she’ll be proven wrong. It means, and this is a good example of the cautious assessment you want to employ in this work:

“…that at present the jury is still out: we simply do not know whether the $13 minimum wage in Seattle helped or hurt workers. The literature to date suggests small negative effects that are more than offset by the benefits of higher wages. Those results may not generalize to higher minimum wages, however, so more evidence will be needed to support any strong conclusion.”

The R&S study just came out, so maybe Rampell didn’t see it. But I’d be surprised if she didn’t see this other study (by veteran researchers in this field) on the Seattle increase which finds no evidence of job loss and that came out before the study she cites, or Ben Zipperer and John Schmitt’s thorough discussion of the study’s red flags, or this excellent critique from over a month ago in the Financial Times, or economist and minimum-wage scholar Arin Dube’s response in the New York Times. A more balanced piece would have at least cited some of these well-founded concerns.

Rampell is even further off when she attacks the increase in the overtime threshold. In this case, based on no evidence at all, she asserts that reducing the higher threshold from the (about) $47,500 proposed by the Obama administration to $33,000 suggested by Labor Secretary Acosta “might be appropriate.”

Her motivation for supporting the reduced threshold appears to be her simple discomfort with the higher number. As one among many who worked on this increase, let me assure you that we did our homework. We did extensive analysis of who and how many would be affected and what the employment impacts might be. Next, the Obama Labor Department reviewed tens of thousands of comments from stakeholders on all sides of this issue. This led to compromises such as the use of the lowest regional threshold (see here for details), the three-year deferral for certain non-profits, and the leaving of the duties test (another test for whether a worker is eligible for OT) unchanged.

Yet to read Rampell, a bunch of trigger-happy progressives, responding to the “far-left impulses” of the Democratic base, are throwing out bad ideas without any thought to their consequences.

I share Rampell’s concerns about unintended consequences, but I assure her, they are never ignored by those of us in the progressive analytic community who’ve been in these fights for decades. I rarely hear anyone in these debates suggest these policies are the “Free Lunches” she references in her title, or that they’ll “pay for themselves.” To the contrary, we are very clear that at least part of the costs of resetting labor standards will fall on those who’ve profited from their erosion, and through this mechanism, they will push back on inequality and the shift of national income from wages to profits.

I therefore hope her future work in this area is as nuanced and thoughtful as her work usually is.

Print Friendly

7 comments in reply to "The usually great Catherine Rampell unconvincingly objects to two improved labor standards"

  1. Smith says:

    The reason for bumping the minimum is because so many people are near it. The $15/hour works out to $31,200 a year with 40 hour weeks for 52 weeks. The median salary is currently about $35,000 year though closer to $40,000 for full time workers. The $50,000 figure you read about all the time is household income meaning it often includes two incomes. Also, though the median is $35,000 to $40,000, most incomes are skewed lower, so that there are more people making $5,000 to $10,000 less than the median $35,000 or $40,000 although you still end up with half making less than the median (by definition). In other words, if there are 10 people, 5 make $41,000 , 1 makes $39,000 , 4 make $20,000. The median is $40,000.

    The history of the $15/hour movement should be studied. This is the future of the labor movement in America. Exempt status should be eliminated for everyone except owners.

  2. JF says:

    Fair Labor Standards – this should be main focus of one of the political parties and a key consideration in all economic policymaking (pension law, Social Security, norms for the workplace, and so forth).

    I do not look to the republican party to do the right thing here. Distortion of labor markets to keep labor costs controlled and low, that has been their centerpiece for generations. That is what they stand for and their economic policies follow along with this goal. We dont need such distortion (ok, call it rigged by political means, if you want).

  3. Edward Measure says:

    What about income support measures that don’t directly penalize hiring, like Earned Income Tax Credits?

  4. Denis Drew says:

    Phase in? How about adding a $1 a mile to the Chicago taxi meter? Pre-Uber, when we booked $30/hr, it might have added almost $10/hr to our hourly wage. [Uber is an example of Americans who are willing to work for less putting foreign born workers out of their jobs. :-O ] Want “phase that in”?

    I see $15/hr as an adjunct to rebuilding US labor union density (see below). Income shifts tend to be spent where they shifted (i.e., lower income workers tend buy more from lower pay businesses). While lower income labor is making the leap up to union level pay it would help if workers in their class had more to spend across the board.

    This ties in with what I call the “middle 54%” clawing back 10+% of income share from top via confiscatory taxes. True; supposedly 90% income taxes in ’50s did not really garner more than about 40% of high incomes — but — high incomes today are 20X what they were then while per capita income only doubled.

    Unions plus confiscation are the interlocking formula to renew income equality.

    45% of US employees earn less than what we think the min wage should be + 45% lowest incomes have lost 33% share over decades = 45% ready to line up around the block to sign ballot petitions in states where it leads to laws (OR, CA, MO, MI, OH, OK, CO, NE ND, SD, MT). Once the issue becomes part of our culture it should spread like wildfire — if it ever becomes part of.

    PS. Everybody, even our own side, seems to have tunnel vision about the Seattle labor study (not very good diagnosticians). 6,000 jobs removed below $19/hr — an astounding 50,000 added above; unheard of $10,000 median household gain to $80,000/ national hhm $56,000, next runner up SF $2,000 gain; 58 building cranes working, next runner up LA 36. I guess the study proves either extreme.

  5. Stephen de Haan says:

    I’m not an economist and I’m about to prove it. If raising the minimum wage results in employers cutting hours, this implies that they had workers that they didn’t really need. Assuming that you have just enough (or close to) workers to get the tasks done you need how can you then cut back hours without losing production? I’ve never seen this aspect discussed.

    • Jared Bernstein says:

      Good question. The classical assumption behind the usual econ analysis here is that before a min wg, firms are operating at a market equilibrium, producing just the right amount of output at the right prices and wages to meet demand. When the min wg goes up in this model, firms must now pay workers more than their “marginal product”–more than they add to firm revenue at the margin–and that leads them cut labor and produce less. So according to the model, they did have all the workers they needed before the min wg went up, but now they have to employ fewer and under-produce relative to the economy’s potential.

      To be clear, this model has very little bearing on reality, which is one reason why the many moderate min wg increases we’ve studied over time appear to generate very little in the way of job loss. See here for more on this sort of thing:

  6. Denis Drew says:

    I think one of the “intuitive” misconceptions that occur in most academic discussions (including WP type as opposed to union negotiators) is intuitively forgetting that wages are only a fraction of the price — typically 10-15%. So if a $10/hr employee in a low income state is legally raised to $15/hr, that may add 1/3 of 12% to the price, or 4%. What worker would not take the presumably small resulting job losses to get 50% more pay?

    Do the marginal product business with the same “divisi-plication” effect in mind.

    Back to poor states: if consumers want what $15/hr employees are selling they will fork over — mostly. Job losses will also occur at higher pay levels as more of consumer income goes to buy $15/hr produced goods. Possibly forcing higher wages down. But, then, shifting income was the idea.

Leave a Reply

Your email address will not be published.