Getting it right on minimum wage

Editor’s Note: IPP Research Director Peter Fisher authored a guest opinion for The Gazette in Cedar Rapids (published February 4) about minimum-wage research on which Fisher and University of Iowa Economics Professor John Solow collaborated for the Johnson County minimum wage task force. In the same issue, The Gazette included a staff editorial,Local wage hike achieved its goals.” The Fisher guest opinion ran beside another guest opinion by a spokesman for the low-wage industry backed Employment Policies Institute, an incessant critic of minimum-wage laws. Below is a response from Fisher and Solow to that criticism.

Michael Saltsman’s guest opinion in the February 4 Gazette says we got it “all wrong” in our report on the effects of the minimum wage increase in Johnson County. We examined county employment, earnings, and business establishments, overall and for the two major low-wage sectors, retail and “leisure and hospitality,” as well as overall unemployment, and retail sales in eating and drinking establishments. Despite the title of his column, he apparently found nothing wrong with any of these analyses. He takes us to task only for not focusing on restaurants, a subset of leisure and hospitality.

UnfIMG_3595ortunately for Mr. Saltsman’s critique, the actual story for restaurants in Johnson County is the same as the story we found for the larger hospitality sector, which includes bars, hotels and motels. Average weekly earnings in restaurants after the minimum wage increase rose at nearly three times the rate for the period preceding the wage increase, and rose at a much higher rate than in the comparison counties (Linn, Story and Black Hawk), or the state as a whole. The number of restaurant jobs continued to rise in Johnson County, and the number of restaurants or eating and drinking establishments continued to rise as well, in both cases at a faster rate than in the other counties and the state as a whole.

Our analysis relies on the best data available: the Department of Labor’s Quarterly Census of Employment and Earnings, and state sales tax data. Both come from an actual census of all private sector businesses, not a survey of a sample of businesses. To sort out the effects of the minimum wage you need to do what you can to control for other factors affecting the restaurant industry more broadly. That is why we compared the experience in Johnson County with the two other state regents’ institution counties, as well as neighboring Linn County, and the state as a whole, where the minimum wage remained unchanged.

What our analysis shows is that the average year-over-year growth rate of restaurant jobs in Johnson County fell from 3.5 percent for the four quarters prior to the wage increase, to 1.5 percent for the four quarters ending in the middle of 2017. Proof of a harmful minimum wage effect, as Mr. Saltsman would have us believe? Hardly. The growth rate in jobs in restaurants fell in the state of Iowa, and in all the comparison counties, only more so. While jobs in Iowa City restaurants grew on average at 1.5 percent per year post wage increase, they grew at only 0.3 percent in the state of Iowa and in Story County, 1.0 percent in Linn County, and fell 3.8 percent in Black Hawk. Furthermore, in all cases the growth rate was not only lower in the other areas, but fell more dramatically after 2015 than in Johnson County.

Perhaps Mr. Saltsman used a less reliable data source. Perhaps his math was wrong. Perhaps he did not choose to look at trends in restaurant jobs elsewhere, because that would have undercut his point. At any rate, it looks like we got it all right.

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For more information about the minimum wage and local minimum wages in Iowa, see previous reports on IPP’s website.

 

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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