Minimum Wages: The Least You Could Do?

Phoenix Magazine – October 2016

Mike O’Neil

 

There is a proposal headed for the Arizona Ballot this November to raise the state’s minimum wage from $8.05 to $12 an hour.  Proponents say it is a first step towards a living wage.  Opponents say it will “cost jobs”.  Is this just an ideological assertion, or is there actual evidence for this?

There actually is on-point relevant evidence.  In 1968 the minimum wage was $1.60, which sounds like a lot less than the current wage.  But it is not. $1.60 in 1968, adjusted for inflation is $11.06 today.  So any minimum wage less than $11.06 is actually lower than the 1968 minimum wage.

But the Arizona ballot proposal will not raise this wage to $12 immediately, or even to $11.  No, it would raise this wage to $10 in 2017 and $10.50 in 2018 and not hit $11 until 2019. The $12 wage would not kick in until 2020.  If inflation were approximately 2.5% per year for the 3 years and 4 months between now and then (approximately what most economists project), this initiative will return us to the 1968 rate almost to the penny. But not until 2020.

Was the 1968 minimum wage unsustainable? Did it cost jobs? The 1968 economy was roaring—the unemployment rate was 3.6%, a rate we have not seen in many years. Zero evidence of lost jobs.

Natural Experiments

Many states (notably New York and California) and localities are increasing their minimum wages to as much as $15/hour over time.  There is no comparable data on the impact of minimum wages at these levels. These will be untested experiments in social policy.

Social scientists love the opportunity to conduct true experiments.  Establish a control group identical to the “experimental” group. Make sure both groups are equivalent. Then administer a “stimulus” to one of the groups and withhold it from the control group.  If done right, any differences between the groups would be attributable to the stimulus.  In this case, the “stimulus” is an increase in the minimum wage.

We are seldom allowed to experiment with real-life human subjects this way in the real world.  That is good for human freedom, but not so good for being able to make definitive conclusions about causality.

As places like California, New York, and Seattle implement wages higher than we have yet seen we will get an opportunity to see what the impact in a real-life setting.  We will be able to compare these area to others that have not made such a change.  We might, for example, that we would find that a $13 minimum wage has a negligible impact on employment, but that at $15 the number of lost jobs starts to escalate.  It would not be surprising if we found that high-wage areas like Seattle can sustain a higher wage than can rural areas (or Phoenix vs. Ajo).  We will be able to quantify. How many people are better off, how many worse?   What is the impact, on if any, on business profits or on publicly paid low income subsidies?  A cost-benefit analysis of these could provide important policy guidance.  This may take a while: not only are most of the increases still in the process of being phased in, short term and long term effects may differ.

Such an analysis could be based on actual data, rather than on the unsupported speculation that characterizes the current debate. Most people do tend to keep their pre-existing opinions.  But without decent data on point data, this is especially easy to do. If you start with a conclusion rather than an open mind, you will always be able to find a supporting anecdote. But there is a precedent for real data having an impact.  Many restaurateurs had a “the sky is falling!” reaction to smoking bans—until the evidence showed they increased rather than decreased their business.

And the good news for Arizonans: someone else is taking the risk. The $12/hour rate in 2020 seems a safe bet; we’ve been there before.  $15 per hour? In a few years, we can look at California and New York and see how they are doing.

 

Mike O’Neil is a sociologist and pollster who has analyzed public attitudes in Arizona and the nation for over 35 years. He is host of the public affairs program, The Think Tank, on KTAR-FM 92.3. Most of his recent articles are available at www.mikeoneil.org.