The Income Gap between Men and Women: 2015 vs. 1970

Since 1970,  inflation adjusted wage income growth has been almost nonexistent – only five percent over the 45 year period ending in 2015.  Income change in metropolitan areas in New York State has differed little from the nation.  Rochester and Buffalo were two exceptions – both had lower median real wage incomes in 2015 than in 1970.  Because of the declines in upstate’s two largest metropolitan areas, upstate real wage incomes overall were 5% lower in 2015 than they were in 1970.

In an earlier post examining inflation adjusted wage income changes in New York State Metropolitan areas, I found that although incomes have stagnated since 1970’s, education and age have become increasingly important in determining the changes that have occurred.  Overall, people aged between 25 and 29 with high school educations or less had median wage incomes in 2015 that were 38% lower than in 1970.  College graduates aged 50 or older had income gains averaging 6%

In a second post, I examined the gap in real wage incomes between black and white residents and found that the gap had not decreased over the 45 year period.  In fact, in upstate metropolitan areas, the gap was somewhat larger in 2015 than it was in 1970.

This post examines changes in inflation adjusted wage income as they affect men and women in New York State and the nation.  While real wages have been relatively stable since 1970,  wage incomes for men, particularly younger men with high school educations or less, have shown sharp declines, while those of women have substantially increased.  Nevertheless, a wage gap between the sexes remains.

The Data

The Census Bureau defines personal wage income as total pre-tax wage and salary income – that is, money received as an employee – for the previous year. Annual wage income includes the amount of wage income received by all people having wage income in a year, including those who worked full or part-time, and those who worked only part of a year as well as those who worked all year

Data, as in my earlier posts, is from Public Use Microdata samples made available by the U. S. Census Bureau (Steven Ruggles, Katie Genadek, Ronald Goeken, Josiah Grover, and Matthew Sobek. Integrated Public Use Microdata Series: Version 6.0 [dataset]. Minneapolis: University of Minnesota, 2015. http://doi.org/10.18128/D010.V6.0) Public Use Microdata Sample files (PUMS) are a sample of the responses to the American Community Survey and the Decennial Census and include most population and housing characteristics.  Because the data is from samples of households in metropolitan areas, sampling error is possible, particularly for smaller metropolitan areas.

Inflation Adjusted Wage Income – 1970

In 1970, real wage incomes of men were substantially higher than those of women.

In upstate metropolitan areas, women’s median wage incomes averaged between 40% and 50% of those of men.  Income differentials between men and women upstate were near the national average of 44%.  In the New York City metropolitan area, median wage incomes for women were higher, but were still only about 62% of those for men.  This is particularly significant, because the data here only reflects those women who reported earning wages during the year. The lower median incomes of female wage earners were not related to the fact that less than half of women were in the labor force in that year.

  • Male residents of the Rochester metropolitan area had the highest median incomes in 1970 – almost $60,000, which was substantially higher than the national median for men – $48,013.
  • In that year, the real median real wage income of men in the New ‘York City metropolitan area – $48,000  – only exceeded that in the Utica-Rome metropolitan area – $46,820.

For women, the picture was different – the real median income of women in the New York metropolitan areas was $29,500 – substantially higher than in any upstate metropolitan area or nationally.

Education

Here again, median wage incomes were strongly related to educational attainment, with college graduates earning at least 50% more than those with less than those who have less than four years of high school in most cases. For women, the differences in median wage incomes were even greater than for men — the median wage income of young women aged 25-34 was only $14,016, while that for those with 4 years of college was $33,698.  Because the effect of education on women’s income was stronger than for men in 1970, women and men with less education generally had larger median income gaps than those with more education.  But, even for women with four years of college, median incomes were substantially lower than for men – ranging from 40% to 60% of median male incomes at the same level of education.

In the New York City metropolitan area, the same relationships were present.  Women had wage incomes that were substantially lower than men, and less educated workers had much lower incomes than higher income workers.  At all levels, the gap in incomes between men and women was smaller in the New York City metropolitan area than it was in upstate metropolitan areas.   The difference between upstate metros and the New York City metropolitan area was particularly large for less educated women.

  • Women with less than four years of high school in the New York City metropolitan area had 55% to 60% of the median income of men with the same level of education, while in upstate metropolitan areas ranged from 33% to 47% of men’s median incomes, depending upon age.

For men, the picture was different – less educated male residents of upstate metropolitan areas had higher median incomes than those in the New York metropolitan area in 1970.  For college educated men, incomes were similar.

Inflation Adjusted Wage Income – 2015

By 2015, the income gap between men and women was much smaller than in 1970, but was not gone.  As in 1970, the income gap was smaller in the New York metropolitan area than it was in upstate metros.  But, the gap between men’s and women’s incomes was much smaller in both regions.

  • The median wage income for women upstate was 76.1% of the men’s median, while in New York City, the comparable percentage was 80%.
  • Two upstate metropolitan areas had the same gender wage gap as the New York City metropolitan area – Albany-Schenectady-Troy and Binghamton.

Education and the Gender Wage Gap

Though there has been progress in wage income equity since 1970, the progress has been uneven.

  • In upstate New York metropolitan areas, women with four or more years of college education have come closest to achieving equity with men – attaining median incomes of between 70% and 80% of men’s median wage incomes.
  • In contrast, women with less than four years of high school education have median wage incomes that are between 47% and 68% of men’s median incomes.
  • And, median incomes for young men and women with less than four years of high school in upstate metropolitan areas were very low in 2015- only $19,000 for men, and $9,450 for women under 35 years old.

In 2015, for men under 35 in upstate metropolitan areas, the median wage income for those with four or more years of college was $45,000 compared with $19,000 for those with less than four years of high school.  For women, the comparable numbers were $38,000 and $9,450.

In the New York metropolitan area the median wage gap between women and men was 20% – the median wage income for women in the metropolitan area was $40,000 compared with $50,000 for men.  For people with less than four years of high school, median wage incomes were more equal for men and women in the New York City metropolitan area in 2015 than they were in upstate metropolitan areas.

High levels of education were associated with large wage premiums for both women and men – those with four or more years of college had median incomes that were at least three times those with less than four years of high school education for all age groups.

The income gap between those with four years or more of college education and those with high school education or less has increased sharply since 1970.  The difference between median incomes for men with a high school education or less was 60% less than for men with four or more years of college in 1970.

By 2015, the gap had increased to 142%.  For women, the gap was 70% in 1970 and 155% in 2015.  This increase in the wage gap reflects the greater inequality of incomes in our society in 2015 compared to 1970.

Change in the Gender Gap Overall

Overall, the median wage gap between men and women decreased substantially between 1970 and 2015 – by 32% in upstate metropolitan areas and by 18% in the New York City metropolitan area.  While the decrease in the New York city area was smaller than that upstate, the New York City had a smaller wage gap than upstate metros in 1970, and continued to have the smallest gap in the state in 2015.

Upstate metropolitan areas and the New York metropolitan area also had smaller wage income gaps than the median for metropolitan areas nationally in 2015.

  • Nationally the difference between men’s and women’s median wage incomes was 29% in 2015.
  • For upstate metropolitan areas, the difference was 24%,
  • For the New York metropolitan area, the difference was 20%.

Inflation Adjusted Wage Income Gains and Losses – 2015 vs. 1970

Real median wage incomes have followed sharply different paths for men and women since 1970.  In most metropolitan areas, men’s median wage incomes have declined.  In a few, like Rochester, Binghamton, and Utica, the declines have been significant – 15% or more.  For women, the path has been up.

Median incomes for women were up sharply in 2015 compared with 1970.

  • Nationally, and in upstate metropolitan areas, the increase was slightly more than 50%.
  • In New York City, starting from a higher base in 1970, the increase was 35.5%.
  • Women’s median wage incomes were far lower in 1970 than men’s, and the gains made by women have not been large enough to erase the wage gap that existed.

In my earlier posts, I showed that inflation adjusted median incomes for people with less education were much lower in 2015 than they were in 1970.

  • The median income for those with high school educations or less was 38% lower, compared to 21% lower for those with four years of college or more.
  • In contrast, workers over fifty years old, at all educational levels had median incomes in 2015 that were close to those in 1970.

The table above shows the impact of education and age upon the difference in median wage incomes for men and women between 1970 and 2015.  It shows that for both genders, young people have fared less well than older people and that less educated workers have fared worse than more educated workers.

For young men, the decline in real median incomes between 1970 and 2015 is very troubling.

  • Young people with less than four years of high school education had real median incomes in 2015 that were 44% lower in the New York metropolitan area than in 1970, while in upstate metropolitan areas, median incomes were 53% lower.
  • The median income for men under 34 with some college experience was 37% lower in upstate metropolitan areas in 2015 than in 1970, while in the New York metropolitan area, the median real income was 43.2% lower in 2015.
  • The median income for young  workers with four or more years of college in upstate metropolitan areas was 24% lower in 2015 than 1970, while in the New York metropolitan area the decrease was 2%.

The income premium for those with four or more years of college remained substantial for young men, but in upstate New York, median incomes, even for college educated young people were substantially lower in 2015 than in 1970.

  • For less educated workers, the decline in median incomes extends to older workers as well, ranging from 35% to 45%, from 1970 to 2015.
  • But, workers with four or more years of college aged 35 or older saw only small decreases in median incomes.
  • In New York City, these workers had significant median income gains – 15% for those aged 35 to 49, and 24% for those from 50 to 64.

Less educated women – particularly those with less than four years of high school were not immune to the declines in median real incomes between 1970 and 2015.  losses ranged from 6% to 32%, and were not strongly related to age.  In fact, the gains that this group made compared with men in wage income simply reflected the declines in real wage income were smaller for women with low levels of educational attainment than they were for men.

In upstate metropolitan areas, women with four years of high school or more education had median income gains in most cases, with generally greater gains at higher educational levels.  In the New York metropolitan area, however, women in most age groups who had less than four years of college had lower median incomes in 2015 than in 1970.

The data points to the conclusion that but for the increase in the percentage of wage earners with four or more years of college, wage earners in metropolitan areas would have had much lower median wage incomes in 2015 than they did in 1970.  Clearly, the labor market has substantially less demand for workers with limited educational backgrounds than it did in 1970.

The erosion of median incomes of workers in the 25-34 year age group, especially in upstate metropolitan areas, should be of particular concern, because it may point to a long-term trend to lower wage incomes for workers who were in that age group in 2015.  As the table above shows – the performance of median incomes for men and women aged 25-34 between 1970 and 2015 was substantially weaker than it was for older workers.

  • The inflation adjusted median income of male workers between 35 and 64 in upstate metropolitan areas increased by 7.4%, while the median for those aged from 25-34 decreased by 29%.
  • The median income of women between 35 and 64 in upstate metropolitan areas was 90% higher in 2015 than in 1970.  For women aged 25-34 the increase was 40%.

Conclusions

The Pay Gap Between Men and Women

The narrowing of the wage gap between men and women is good news, although the fact that women’s median wage incomes continue to be lower than men’s is not.  In 1970, the median wage income for women was less than half of men in upstate metropolitan areas, and about 60% of that for men in the New  York metropolitan area.  In 2015, the gap between median incomes for men and women was between 20% and 30% in upstate metros, and 20% in the New York metropolitan area.

By controlling for education and age, the data shows that women with less educational attainment face larger income gaps than men, particularly upstate, where women with less than four years of  high school earn between 48%  and 68% of what comparably educated men in the same age groups earn.  Even so, the gap between college educated men’s and women’s real incomes ranged from 15% to 35%.

The data used in this analysis does not, in itself give explanations for the continuing wage gap.  While the effect of age and educational levels are controlled for here, the analysis does not compare people with the same jobs in the same industries to determine the extent of differences between women’s and men’s incomes.  If women participate more in lower paying occupations with similar educational qualifications than men, that could account for some of the difference in wage incomes.

The data from this study is consistent with other studies that do compare incomes of men and women in the same occupations.

This chart, reprinted from “The Simple Truth about the Gender Pay Gap (Spring 2017), published by the American Association of University Women, shows that weekly earnings of men in the same occupations as women are ten to twenty percent higher than women’s.  So, it is reasonable to ask, as in the case of the lower incomes of black/African-American workers, whether existing prohibitions against wage discrimination are being effectively enforced.  It is important to note that discrimination may or may not be explicit and intentional – but may also reflect the relative absence of women in high level management positions who could offer the equivalent of  “old boy networks” to help women get good jobs and higher pay.  Thus, enforcement could be very difficult.

A recent article in The Atlantic, “How Do We Close the Wage Gap in the U.S.?” by Bourree Lam suggests some solutions.  One part of the gap is believed to be caused by what is called “the motherhood penalty.”  Lam argues that, “There are two ways to go about fixing this huge part of the gender wage gap. The first is for companies or the government to implement policies that enable women to be both moms and workers, such as paid family leave and supported childcare. But there’s also a cultural shift that needs to happen: The assumption that mothers are not as good at their jobs, not deserving of promotions, or won’t work as hard is discrimination. Employers need to do their part in seeing women who are mothers as valued as employees.”

The second major part of the solution, according to Lam is pay transparency.  The Obama administration, in its last year proposed a regulation requiring “companies with 100 employees or more to report to the federal government how much they pay their employees broken down by race, gender, and ethnicity.”  Unfortunately, this action was revoked by President Trump, in one of his first executive orders this year. Trump’s executive order also revokes other worker protections contained in Obama’s regulation.

Large Decreases in Less Educated Workers’ Real Income 

Men and women with four years of high school education or less have seen large decreases in median real income since 1970.  The decrease is particularly severe for men with high school educations.

  • Men with less than four years of high school saw median income losses between 1970 and 2015 of between 35% and 53%.
  • Men under 50 years old lost between 26% and 42% of real income.
  • Women under 50 years old lost between 23% and 33% of real income.
  • In the New York metropolitan area, women with four years of high school lost between 22% and 40% of income.

At the same time, men with four years of college did not see losses as large  as those with lower educational attainment, and gained real income in some cases:

  • In metropolitan areas in upstate New York, median income declines for men under 35 with four years of college were less than half of the losses of people with less than four years of high school (25% vs 53%).
  • Older men in upstate metros saw small income losses – 5% to 8%.
  • Male residents of the New York metropolitan area saw gains in most cases, ranging from 15% to 24% for workers 35 years old or older.
  • Women with four or more years of college saw significant income gains, ranging from 11% to 66%, but started from much lower income levels in 1970 than did men.

The large real income losses of workers with low levels of educational attainment contrast with the better performance of median incomes for workers with more education.  This is one cause of the greater income inequality that has developed in the United States since 1970.

In earlier posts, I have described the loss of manufacturing employment in the rust belt, and its consequences for worker earnings.  The loss of millions of manufacturing jobs in the rust belt has resulted in the substitution of jobs in service industries that are on the average lower paying.  Unlike the manufacturing jobs that were lost, most service employment is not unionized, so workers have less negotiating power than more unionized manufacturing employees.

The causes of manufacturing employment losses have been debated in the political arena, but most researchers have concluded, as I did here, that the great majority were victims of automation and process improvements, not imports. But both increased automation in manufacturing production and importation of manufactured products resulted from the desire of owners and managers of manufacturing businesses to cut costs to gain or retain market share in competitive marketplaces.  Since labor has been a major element of manufactured product costs, the substitution of automation and lower cost foreign labor has been an attractive strategy to reduce costs.

To date, service employment has continued to grow in the United States, in the rust belt, and in New York State.  But, if anything, labor costs are a larger share of service industry costs than in manufacturing industries.  As a result, high labor costs per service unit make local labor employment vulnerable to substitution by lower cost labor elsewhere or by automation.  In many cases, services businesses have been unable to find substitutes for local labor that work well enough to prevent service employment growth, but in the future, technology may make more substitution possible.

Government could play a positive role, by taking regulatory actions that help low income workers, such as increasing the minimum wage and facilitating union representation of employees.  Though actions that increase labor costs might encourage substitution of automation or foreign labor for local labor, most studies show that the benefits of government assistance are likely to outweigh potential employment losses, as long as the actions do not dramatically increase unit costs.

Declines in Real Incomes of Young Workers

One of the more significant findings of this research was the disparate impact of real income decreases on workers under 35 years old.  This problem was particularly pronounced for male workers, particularly those with high school educations or less.  Overall, men between 25 and 34 had 21% lower real wage incomes in 2015 than they did in 1970.  Young male workers in at all educational levels, except for those with four or more years of college, had median real incomes that were more than 40% lower overall than in 1970.  The income losses extended to young women in the New York Metropolitan area, who also saw large real income losses compared with 1970.

A recent working paper by Fatih Guvenen, Greg Kaplan, Jae Song, and Justin Weidner of the Federal Reserve Bank of Minneapolis , “Lifetime Incomes in the United States over Six Decades,” presents two important findings:  First, “From the cohort that entered the labor market in 1967 to the cohort that entered in 1983, median lifetime income of men declined by 10% to 19%.  We find little to no rise in the lower three quarters of the percentiles of the male lifetime income distribution during the period…For women, lifetime income increased by 22%-33%, from the 1957 to 1983 cohort, but these gains were relative to very low lifetime incomes for the earliest cohort…Second, we find that inequality in lifetime incomes has increased substantially in each gender group.  However, the closing lifetime gender gap has kept overall lifetime inequality virtually flat.  The increase in inequality within gender groups is largely attributed to an increase in increase in inequality at young ages.”

The finding in my research that the 25-34 year old age group in 2015 had much lower incomes than older workers leads to the conclusion that the trend towards increased lifetime income inequality noted in young age cohorts ending in 1983 by Guyvenen, Kaplan, et. al. is likely to continue.  Options available to government to counter this negative trend could involve the Fed continuing to provide low federal fund rates, reducing the cost of borrowed capital, or stimulative federal fiscal policies that focus on things like infrastructure projects that could employ large numbers of construction workers, or increased income supports for low-income workers.  However, stimulative monetary or fiscal policy could, if used to excess, lead to inflation that would in itself erode workers’ purchasing power.

Robert Samuelson argues in “Trumps Low Growth Trap,” “We have entered a new era of low economic growth and high political disappointment. Our democratic system requires strong-enough economic growth to raise living standards and support activist government. These expectations, present in most advanced democracies, are no longer realistic, because the global economy has changed in ways that reduce growth….

Quoting an article by Ruchir Sharma that appeared in Foreign Affairs, he points out, ““The causes of the current slowdown can be summed up as the Three Ds: depopulation, deleveraging and deglobalization. Between the end of World War II and the financial crisis of 2008, the global economy was supercharged by explosive population growth, a debt boom that fueled investment and boosted productivity, and an astonishing increase in cross-border flows of goods, money and people. Today, all three trends have begun to sharply decelerate: families are having fewer children . . . , banks are not expanding their lending [as before] . . . , and countries are engaging in less cross-border trade.”

President Trump’s argument that by implementing tax cuts and regulatory relief, economic growth would increase from the current rate of slightly over two percent to four percent is simply unrealistic, given the headwinds that it faces.  And, anti-trade and immigration policies could actually slow economic growth.

Greater income inequality threatens the existence of a large and secure middle class, and creates greater economic and social distress for those whose incomes are below the median.  If the bottom half of the income distribution includes more people whose incomes are towards the extreme low-end of the income distribution, government will be faced with the choice of paying larger fiscal costs to support those whose wages are inadequate to provide a reasonably secure life, or of ignoring the needs of those who lack resources.   Recent political history also shows that people who sense that their well-being is declining are vulnerable to political appeals based on resentment to “undeserving” beneficiaries of government assistance, and towards other factors, such as international trade or immigration, that may be portrayed as the primary causes of income declines, despite the fact that they are not.

Reasonable policy options to counter the wage declines faced by less educated workers involve trade-offs like potentially increased inflation and greater substitution of automation and foreign labor for domestic workers.  Approaches that address claimed causes like immigration and trade that have played at most a small role in the decreases in income will be ineffective and have potentially large negative consequences.  As a result, they will increase cynicism beyond already high levels.  Leaders should not argue that “magic bullet” solutions exist.  Instead, they should promote reasonable expectations and acknowledge both benefits and costs.




The Minimum Wage Debate – Part II

The Albany Times Union carried an article on March 24 detailing the connections between researchers who produced the reports for and against a minimum wage increase that I discussed in my post “A $15 Minimum Wage for New York – Benefits and Risks.”  The article points out that one of the authors of the study favoring the minimum wage, Ken Jacobs, was closely connected with the campaign to increase the minimum wage.

“In May 2014, an advocate for hiking the minimum wage in New York emailed a University of California labor economist with a list of talking points “we’d love you to cover.”

The economist, Ken Jacobs, was set to testify before the New York state Senate’s Labor Committee about the benefits of municipal minimum wage hikes in California.

“That works for me,” replied Jacobs, chair of the Berkeley Center for Labor Research and Education. “I will work on it tomorrow.”

During his trip to New York, a progressive public relations firm working for higher wages set up a meeting for Jacobs at The New York Times editorial board. Jacobs assisted an advocate rounding up New York union support, according to emails.”

“In one April 2014 email, the relationship between academic and funder seemed explicit: Jacobs explained he was seeking grant money to support his unit’s research “for local groups engaged in work to raise the minimum wage” in California. Jacob added that his Center would provide “testimony/media work.”

The article also points out that

“Two officials at the business-backed American Action Forum, another Washington, D.C.-based group, penned a November study on the $15 wage in New York. That nonprofit’s funders, according to tax records, include the U.S. Chamber of Commerce Foundation, which paid the Action Forum $129,000 in 2014 to produce policy research.”

The Times-Union article points to a fact that has long been recognized, that the funding of public policy research is rarely truly independent.  None of this proves that the research intentionally intends to mislead, but it does illustrate the connections between political and financial interests and those who study important policy issues.

The kind of financial support that has been provided by labor and business interests in this case is found in the financing of other kinds of research studies.  Pharmaceutical and food safety research are examples.  There has been widespread publicity about the financial connections between researchers and the drug companies that could benefit from positive findings about the effectiveness of a drug.

Why is this pattern so prevalent?  The first reason is that the stakes attached to the outcomes of policy decisions, like those of decisions about food safety or drug efficacy, are high.  For employers, a hike in the minimum wage could cut profits, or, for some small businesses, threaten their existence.  For labor, a hike in the minimum wage could improve the lives of low wage workers.

The second reason is that the entities that do research operate like businesses.  Many years ago, I taught at a college, and one of the things that was made clear to me was that colleges and universities have limited resources to support research, and that if research is costly, faculty should look to outside entities to help pay the cost.  From the institutional perspective, outside funding provides the resources for additional personnel and needed equipment.

Similarly, consulting firms are driven by the same logic. In the end, someone has to pay the cost of salaries and facilities.  Very often the funding needed by these firms is most available from groups in society that have policy agendas.  Some, like American Action Forum, appear to have been created to serve particular interest groups.

None of this means that the results reported by researchers on each side are falsified.  They represent real differences of opinion among economists who understand the impact of policy changes differently.  But the funding of policy research by competing interests can lead to the exaggeration of differences in conclusions about policy outcomes.

In my earlier piece, I pointed out that the Congressional Budget Office (one entity that does not receive funding that comes from a group for or against the minimum wage increase) in its research presented a range of possible outcomes – in the case of a federal minimum wage increase, they projected the possible loss of a few to a million jobs, with a center point of 500,000 jobs.

But neither the American Action Forum, or the the Center for Wage and Employment Dynamics at Berkeley presented a range of possible outcomes.  Instead, each presented point estimates of impacts leading to sharply different conclusions about the employment costs of a minimum wage increase, suggesting a greater degree of certainty about conclusions than may be warranted.

Finally, it should be noted that readers might conclude from the Times Union piece that the competing studies presented by business and labor interests “fog” the real answer to the employment impact question, in the way that tobacco companies funded studies in an attempt to shed doubt on data that showed that smoking is harmful to health.

In fact, that conclusion would be incorrect.  The reality is that there is no consensus, and that in this case the competing studies represent real differences of opinion between experts.




A $15 Minimum Wage for New York: Benefits and Risks

Recently, a friend and colleague from the time when I worked at Empire State Development suggested that I take a look at Governor Cuomo’s proposal to raise New York’s minimum wage to $15 from $9.00.  Like others, I’m sure that he wanted to cut through the competing claims about the impact of the proposed increase.

A columnist for the Albany Times-Union, Fred LeBrun, expressed the confusion felt by many, writing, “The truth is I don’t really know what the impact will be. I’m not sure anybody does. Predictions vary wildly. Nor are the Cuomo administration and the Democratic Assembly making any serious effort to find out.”  The reason for LeBrun’s confusion and frustration is that there is no certain answer to his question, nor can there be at this point in time, given the complexity of the factors involved in estimating the benefits of a minimum wage increase, and the lack of solid data available at the state level.

As with many political issues, there are sharply divergent perspectives to the costs and benefits of raising the minimum wage.  A well known Albany think tank, the Empire Center for Public Policy, released a report late last fall, “Higher Pay, Fewer Jobs,” written by Douglas Holtz-Eakin and Ben Gitlis of the American Action Forum, the policy arm of the American Action Network, a group that has provided substantial support for Republican candidates for Congress.  The report presents three models of the impact of the proposed increase in the minimum wage to $15, and finds that the proposal would reduce employment in the state by “at least 200,000 jobs, with proportionately larger employment decreases in upstate regions.”  The report also estimates that the proposal would increase wage earnings by $4.6 billion.

On the other side, the Center for Wage and Employment Dynamics (CWED), at the Institute on Labor and Employment at the University of California, Berkeley issued a report, “The Effects of a $15 Minimum Wage in New York State,” by Michael Reich, Sylvia Allegretto, Ken Jacobs and Claire Montialoux.  CWED has received funding from the Fiscal Policy Institute, a union funded think tank.  That report concluded that “a $15 statewide minimum wage would generate a 23.4% average wage increase for 3.16 million workers in the state, with a net value of $14.4 billion and would create an increase in jobs of 3,178.

Finally, Governor Cuomo, through the State Department of Labor issued a report in support of his proposal entitled “Built to Lead – Analysis: Raising New York’s Minimum Wage to $15.”  The report claims a benefit from increased wages of $15.7 billion and argues that, “A review of 70 studies on minimum wage increases found no discernible negative effect on employment.”

Problems Estimating Number of Employees Affected

Perhaps a good place to begin understanding how difficult it is to understand what impact an increase in the minimum wage might have is by looking at the question of how many people might be affected by the proposed change.  This is important, because the number of people affected impacts both the amount of wage benefits received in aggregate, and the number of people who might be affected by layoffs that could result from the proposed increase.  Here, there are differing estimates.
• Governor Cuomo’s report argues that 2.4 million people would benefit from a minimum wage increase.
• The Empire Center report estimates 3.1 million workers would be directly affected by the increase.
• The CWED report estimates that 2.4 million workers would be directly affected, with an additional 1.2 million indirectly affected.

How can there be such a large disparity in the estimates of the number of people affected?  The answer is that researchers seeking information about the number of people who would be receiving less than $15 per hour at the time of the proposed increase could not find data that directly answers the question, and had to develop estimates using other data that does not directly measure wage distributions at the state level.  In both cases, the authors used data from the Census Bureau’s American Community Survey, and because they used different techniques to estimate the percentage of the employed population from the available data, they arrived at significantly different answers.

Problems Estimating Possible Job Losses

The bigger problem associated with evaluating the effects of an increase in the minimum wage involves estimating the impact of the change on employment.  Until about 20 years ago, there was near unanimity among economists that there was a trade-off between employment and minimum wage increases, particularly for young and low skilled workers.  For example, a number of studies found that for a 10% increase in the minimum wage, teenage employment decreased by 1%-3%.  For adult workers, the impact was estimated to be smaller – perhaps 1% for a 10% increase.  Since almost 90% of minimum wage workers are 20 years old or older, the largest impact of a minimum wage increase is on adult workers, even considering the fact that a larger portion of teenage workers are paid at the minimum wage rate.

From the perspective of these studies, a minimum wage increase of $9 to $ 15, or 60%, as has been proposed by the Governor, would have a relatively large negative impact on jobs. In New York’s case, with roughly 9,000,000 workers, about 550,000 could be expected to lose their jobs, if the estimate is correct.

The report from the Empire Center presents three study models, one which is consistent with an analysis by the Congressional Budget Office, that estimates a loss of 200,000 jobs, a second by two economists, Jonathan Meer and Jeremy West, that estimates a loss of 432,500, and a third by economists Jeffrey Clemens and Michael Wither, that projects a loss of 588,800 jobs.

How is it possible that the Center for Wage and Employment Dynamics could conclude that increasing the minimum wage could result in a small increase in jobs?  The answer is that some more recent research has found no significant employment effect from increases in the minimum wage.  For example, Alison Wellington in “Effects of the Minimum Wage on the Employment Status of Youths: An Update.” found that a 10% increase in the minimum wage reduced teenage employment by only 0.6%.  In 1992, David Card and Alan Krueger studied the impact of a minimum wage increase in New Jersey on fast food restaurants by comparing their employment with those in nearby Eastern Pennsylvania and found that the wage increase was associated with slightly increased employment.  They also examined a set of more recent studies of a 1988 increase in the California minimum wage and the 1990 increase in the federal minimum wage and found no impact.  Subsequent studies have shown mixed results.  Some have shown employment decreases with increases in the minimum wage, others have not.

A better approach than providing a single estimate of job losses associated with increasing the minimum wage would recognize a variety of possible outcomes.  The Empire Center study does this to an extent, by presenting the outputs of several models.  But the study only presents one set of possible outcomes, reflecting the views of economists who believe that minimum wage increases are associated with job losses.  And, while the Empire Center presented a single estimate for job losses for the approach used by the Congressional Budget Office, the CBO itself said that a range of outcomes is possible.  In its study of a possible federal minimum wage increase from $7.25 to $10.10, it predicted a very slight job loss to one million jobs, with a central point of 500,000.  From my perspective, the best approach would recognize the uncertainty of any job loss estimate, and present a broader range of possibilities.

So, unfortunately for my friend, and for Fred LeBrun, who wanted to know what the impact of an increase to the minimum wage would be, there is no definite answer.  We do know that the proposal does have a positive economic impact on workers affected – estimates range from about $5 to $15 billion.  And, we know that it is not true that most beneficiaries would be teenagers flipping hamburgers at fast food outlets – in fact, they represent a small minority of workers who would be affected.  What we don’t know is whether there would be a significant trade off in lost jobs.

But, there are some significant reasons to be cautious about the impact of a proposal as large as the one that has been proposed by Governor Cuomo.  Many economists are concerned about the size of the proposed increase – an increase from $9 to $15 is much larger than previous increases, and is more likely to impose worker dislocations than a smaller increase – to $12 for example. Alan Krueger, former Chair of President Obama’s Council of Economic Advisors, and the author of the New Jersey study that found no negative impact of a minimum wage increase, wrote,

But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States…Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking”