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Putting Whoppers and Minimum Wages in Perspective

February 27, 2013 By Lee Egerstrom, Economic Development Fellow

Raising Minnesota's minimum wage won’t cost jobs; instead it would most likely lead to job creation, according to a pair of visiting economists speaking at a recent University of Minnesota conference.

Doug Hall of the Economic Policy Institute and John Schmitt of the Center for Economic and Policy Research, two Washington, D.C.-based think tanks, cited studies comparing jobs in the fast-food industry in New Jersey and Pennsylvania after one state raised its minimum wage.

On the other coast, a University of California Berkeley study similarly found that raising minimum wages in one jurisdiction had negligible impacts even when adjacent areas of neighboring states did not.

Here’s the problem facing lawmakers and the general public when thoughtful people use serious research to promote public policy understanding. To paraphrase George Orwell, some studies are more equal than others; some seemingly similar studies produce different results.

What Hall, Schmitt and others find in research appears to conflict with other studies of employment data opponents of the minimum wage use. Such interventions in the labor market are “job killers,” conservatives claim. Bringing both pro and con studies on the minimum wage closer to home, let’s start with a Big Mac Attack. It is highly doubtful burgers in Hudson, Wis., would be any cheaper than across the border in Stillwater or St. Paul should Minnesota raise the minimum wage above whatever rate survives in Wisconsin.

Even more unlikely is that anyone on the Minnesota side of the St. Croix would load up the family and head to Hudson if burgers were a few cents cheaper over there.

For such practical reasons, proponents’ arguments that raising the minimum wage should lead to more job growth are convincing. Regional economist Ann Markusen from the Humphrey School cited data showing 598,000 Minnesota workers would get an income boost if Minnesota raises the wage floor along lines being considered by the Minnesota Legislature. That represents 23.6 percent of the Minnesota workforce. Studies favoring a minimum wage increase thus estimate 4,800 jobs would be created in Minnesota from the increased purchasing power and boost to state Gross Domestic Product resulting from the higher wages.

This makes the current legislative debate over raising the minimum wage a perfect time to comment on the value of research. Over the years, individuals, groups, organizations and institutions – including legislative bodies – have all been harmed by what social scientists describe as “imperfect information” and by “spurious correlations.”

The first comes from not having adequate information to make best decisions for homes, communities, businesses and public bodies. Economist Ed Lotterman did a wonderful job explaining imperfect information's role in the minimum wage debate in last Sunday’s St. Paul Pioneer Press.

A “spurious correlation,” meanwhile, emotes a feeling that intentional misinformation is being thrust on people. Sometimes, a bogus conclusion is reached when two or more variables point people in a direction without recognizing other factors, or influences. This often happens with anything that allegedly will produce or harm job creation. Never ending examples of spurious correlations can be found whenever someone or groups are trying to beat up on people or avoid paying taxes all under the lofty umbrella of trying to create jobs.

Take the Bush Era tax cut battles between the Obama administration and special interests’ representatives in Congress, and similar disputes in state governments. Mark Thoma, writing in the Fiscal Times, showed the fallacy of claims the tax cuts would pay for themselves by generating economic growth. Instead, we got the worst recession since the Great Depression and the slow recovery that has followed.

Now, on another front, we have the same voices readying to send the U.S. economy back into the tank by forcing across the board cuts in federal programs. This comes after President Obama agreed to $1.5 trillion in spending cuts a year ago that is already slowing the economy.

Austerity measures are actually killing, not creating jobs. Berkeley’s Robert Reich, a former Secretary of Labor in the Clinton administration, makes that point in a recent blog by noting that the economy relies on two “big categories” of consumers – individuals and the government.

He cites National Retail Federation data showing 45.7 percent of consumers are again tightening belts, a quarter are delaying big-ticket purchases, a third are cutting back from eating out and 20 percent are spending less on groceries. Unless a budget agreement is reached by Friday, $85 billion in new government spending cuts will begin.

“With consumers and government both spending less, businesses won’t hire more workers; they’ll fire more workers,” Reich wrote.

Locking in poverty doesn’t expand the economy. That doesn’t encourage consumers to choose between a burger and a steak.

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