Margolis: Attitude overrides data in family leave, minimum wage debates

Jon Margolis is a political columnist for VTDigger.

Another year, another chance for Vermonters to hear debates about raising the minimum wage and requiring family and medical leave.

Debates likely to include dense statistical analysis and terms such as econometrics, simulation studies, wage bins, repurposed funding, disemployment.

Don’t worry about it. This argument isn’t really about data. It’s about attitude.

Still, a look at the data could be useful now that both proposals are on their way to Gov. Phil Scott, who is likely to veto both of them.

Like most Republicans, Scott thinks the 0.2% payroll tax to finance the paid family leave plan would exacerbate the state’s “affordability” problem. He also believes raising the minimum wage would have a “negative outcome on job seekers,” as he put it in his message vetoing similar legislation in 2018.

That means there would be fewer jobs.

The latest evidence suggests but does not prove that he’s wrong on both counts, at least in places where these policies have been adopted. Neither raising the minimum nor requiring paid leave have caused significant job losses elsewhere. Whether Vermont’s experience would be the same is uncertain.

The research does not prove that there are no downsides to implementing either plan. There are always downsides to adopting new policies. But then there are always downsides from deciding not to adopt new policies.

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The evidence that neither of these policies leads to fewer jobs and a weaker economy is stronger than the evidence about how either would affect “affordability.” That’s because there is no official or common definition of affordability or agreement on how to measure it.

But one study in California found that “the average firm has a lower per-worker wage bill and a lower turnover rate today than it did before [California’s paid leave program] was introduced” in 2004. Job growth does not seem to have suffered in California or the other three states (New York, New Jersey, Rhode Island) since they started requiring paid leave.

Other research suggests that because of mandatory family leave, more California women are employed, fewer families of small children are poor, and health care costs are lower.

As for the minimum wage, a study in the Quarterly Journal of Economics examined 138 different increases from 1979 to 2016 and found that the “overall number of low-wage jobs remained essentially unchanged over the five years following the increase.”

Last year, opponents of raising Vermont’s minimum wage argued that it would hurt businesses and lead to job losses in the Connecticut River Valley because consumers could zip across the river to New Hampshire (which accepts the federal minimum wage of $7.25) where lower wages might mean cheaper goods.

But researchers at the Federal Reserve Bank of New York found little or no job loss in a comparable situation along the New York State-Pennsylvania border after New York raised its minimum wage and Pennsylvania did not. Examining the economies of rural counties in northeastern Pennsylvania and their neighbors along New York state’s Southern Tier, the study found that New York’s higher minimum “had a positive effect on average wages but no discernible effect on employment.”

Now a downside. Low-wage businesses on the New York side of the line, such as restaurants, had to raise prices. Some of them had to put up with lower profits. A few closed.

Those closings did not mean that fewer people were working in Southern Tier restaurants. More were. But they were working in bigger establishments, or in chain restaurants. It was the smaller, independent, places that were more likely to close.

A separate study, this one in the Social Science Research Network, came to a similar conclusion, finding that “lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage.”

Bureau of Labor Statistics data (from 2017) show that only 1.8% of Vermont’s 177,000 hourly paid employees – or roughly 3,000 workers – earn the federal minimum wage or less. But according to the Economic Policy Institute, 16,200 Vermonters got a raise this month when the state’s minimum went up by 19 cents to $10.96. That came out to $240 per worker, or almost $4 million in higher pay for the lowest paid.

The net impact is bigger because raising the minimum wage bumps up the pay of workers earning more than the minimum.

For decades, mainstream economists were convinced that a higher minimum wage caused large-scale job losses. They weren’t completely wrong; higher wages encourage some employers to look for ways to reduce hiring. But for various reasons the impact has turned out to be much smaller than economists once thought.

Smaller does not mean non-existent. But even after factoring in the wages of the few who were not hired because of the increase (zero), the higher pay for the many who earn more means that in the aggregate the income for lower-wage earners goes up.

In other words, raising the minimum wage reduces income inequality.

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That – not the jargon and the statistics – is what the argument is about. Those concerned about the current level of inequality favor raising the minimum wage. Those who think the current income distribution is acceptable do not.

Because seeming to be indifferent to inequality can be politically damaging, opponents of a higher minimum sometimes insist that what they really oppose is government intrusions into the economy.

But most of them favor stronger and longer patent and copyright protections, which may be a good idea, but which are government interferences into the economy. Nobody opposes government intrusions into the economy if they and theirs are the beneficiaries.