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MECEP’s shoddy defense of the minimum wage ignores basic research methods

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Earlier this year, the Maine Center for Economic Policy, a left-wing think tank, published an article written by its budget and education analyst, James Myall. The piece, entitled “Minimum Wage Increase Contributes to Largest Annual Wage Gain in 10 years,” makes bold claims about the minimum wage increase passed by Maine voters in 2016. In particular, Myall asserts that the minimum wage has not inflicted harm on Maine’s economy and has actually improved the lives of low-income workers.

Yet Myall’s sloppy and fallacious analysis fails to offer any persuasive evidence to justify his claims, and should lead any reasonable person to question MECEP’s commitment to sound research methods.

(In the discussion of the article that follows, I’ve provided brief quotations when appropriate, but readers are encouraged to read the article (linked above) in its entirety for full context.)

Myall begins by making a rather bold claim:

“Wage and employment gains during the first six months of 2017 reveal that Maine’s voter-approved minimum wage increase has not hurt the state’s economy as the referendum’s opponents warned it would.”

To substantiate this assertion, Myall compares employment and wage data from the first two quarters of 2016 to preliminary data from the first two quarters of 2017. Since the minimum wage increased from $7.50 an hour to $9 an hour in January 2017, this timeframe provides a glimpse into the “before and after” conditions of the labor market. The figures, drawn from the Bureau of Labor Statistics, indicate that most industries in Maine saw employment gains from 2016 to 2017. The data also suggest that low-wage earners saw fairly strong wage growth over that period. Based on this data, Myall declares victory: the minimum wage must be benefitting low-income workers without any significant detrimental effects.

Not so fast.

Myall’s most glaring mistake is his repeated conflation of causation and correlation. In the months following the minimum wage increase, Maine’s labor market generally improved for low-wage workers, but, of course, just because two variables move in unison does not mean that one caused the other. Myall ignores this fundamental distinction, however, and claims that the minimum wage increase “led to…wage gains for low-income workers.”

He doesn’t for an instant entertain the notion that other factors unrelated to the minimum wage increase might have led to higher employment and wages. In fact, the Congressional Budget Office (CBO) estimated in January 2016 (long before the minimum wage increase was approved) that economic growth would quicken in 2017, driving down unemployment and boosting employees’ compensation. In other words, the growth in Maine’s labor market in 2017 is in line with projections made long before the minimum wage law was passed.

Add to that the positive economic effects of the Trump administration’s assault on unnecessary government red tape and the improvements to Maine’s economy in 2017 are perfectly coherent without an appeal to the minimum wage’s potential benefits. To claim that the minimum wage hike is the only plausible explanation for these trends is to abandon serious analysis in favor of political advocacy.

Economic analysis, like other types of social science research, involves trying to tease out the effects of one or a handful of variables out of the hundreds of different factors that contribute to a particular outcome. It’s clear that statewide shifts in wages and employment cannot be attributed to a single law or regulation. At the end of his article Myall seems to acknowledge this obvious fact:

“While it is difficult to isolate the effect of the minimum wage increase on jobs or wages by itself especially since the US economy continues to grow…”

But he repeats the unsupported claim that the minimum wage hike had improved the lives of low-income workers.

“…the fact remains that Maine’s voter-approved minimum wage increase coincides with one of the largest real-term gains in private-sector wages in fifteen years, and provided clear benefits for low-income workers.”

Myall assumes that any employment growth in Maine’s low-wage industries in the months after the minimum wage increase indicates that the hike had no deleterious consequences. In fact, economists have long understood that minimum wage hikes rarely cause total employment to go down. Why? Because overall growth in the labor market is usually able to overcome the harmful effects of minimum wage hikes.

Suppose, for example, that Maine’s retail sector employment had been growing at 4 percent per year before the increase in the minimum wage, and that the growth rate had slowed to 2 percent in the year following the minimum wage hike. From this data, ignoring for a moment other variables that might have played a role in reducing employment growth, we could infer that the minimum wage hike had reduced employment relative to what it otherwise would have been.

Myall misses this crucial point and repeatedly claims that because most low-wage industries continued to see employment growth in 2017, the minimum age must not have had negative effects on those sectors. Even The Washington Post dismissed this sort of logic as “really, really, ridiculously simple.”

It’s also worth noting that employment in Maine’s retail trade sector, the industry in which about 10 percent of minimum wage earners work, actually declined 0.64 percent from 2016 to 2017, after recording positive growth from 2015 to 2016. Even though Myall’s graph includes this decrease in jobs, Myall never addresses this glaring piece of evidence or acknowledges that it runs counter to his thesis.

Myall is also selective in the data he chooses to show his readers. In presenting wage figures for different industries in Maine, he confines his graph to merely 2016 and 2017, while ignoring earlier data. This simplistic year-to-year comparison omits crucial context that undermines his conclusions.

For example, the dataset that Myall draws from indicates that average weekly wages in the accommodation and food services industry (one of the sectors with the largest proportion of minimum wage workers) grew, on average, by 5.7 percent from 2016 to 2017. Strong growth, to be sure. But that figure was less than the growth rate from 2015 to 2016, which was 6.3 percent. By omitting that historical fact, Myall conveys the false impression that wages for low-income workers surged in 2017 after years of meager growth.

Looking at a single year of data — especially labor and wage statistics, which are notoriously volatile — is a recipe for spurious and misleading conclusions. Policy changes, particularly those as complex and far-reaching as the minimum wage, need to be given time to influence economic indicators before rigorous evaluation can be conducted.

That’s why economists studying the minimum wage typically assemble data over several decades and across numerous states — only datasets that large can yield reliable results. Incidentally, the majority of those studies have concluded that minimum wage laws reduce hiring, hurt businesses (especially small businesses), and make it harder for low-skill workers to get into the labor market.

The simple fact is that it is too early to say, based on the limited data we have, what exact effect the 2017 minimum wage hike is having in Maine. What we can confidently expect, however, based on hundreds of credible studies, is that in the long run Maine’s higher minimum wage will do more harm than good, especially to low-skilled workers.

If MECEP wants to convince us otherwise, it needs to do a lot more than base fallacious reasoning on distorted statistics.

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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