Bad Consequences of Public Policies Aren’t Really “Unintended,” Just “Unacknowledged”

By Steve Buckstein

Decades of research and experience tell us that raising the government-imposed minimum wage results in fewer younger and lower-skilled individuals being hired, and in some of them losing jobs they previously held at lower wages.*

Decades of research and experience also tell us that requiring landlords to charge lower rent than market conditions dictate results in fewer housing units being built, making housing shortages worse and raising housing costs in areas not subject to rent controls.**

During last year’s minimum wage debate in Oregon, pointing out the negative consequences was not enough to stop the legislature from imposing significant wage increases. Likewise, this year the legislature may allow local jurisdictions to impose rent controls even though opponents will surely point out the negative consequences of this policy also.

It now seems obvious what is happening. Supporters of minimum wage increases and rent control aren’t blind to their negative consequences; they simply refuse to acknowledge them because the political benefits outweigh the real costs imposed on those forced to endure them.

The harm done by minimum wage increases and rent control is so obvious that we should probably stop saying that their negative consequences are “unintended.”  Rather, we should say that their negative consequences are “unacknowledged” because their supporters refuse to admit that they exist.

* Making Youth Unemployment Worse, Randall Pozdena and Steve Buckstein, Cascade Policy Institute, December 2016

** The Rent Is Too Damn High! — Why Rent Control Won’t Help, Steve Buckstein, Cascade Policy Institute, September 2016


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Making Youth Unemployment Worse

The unintended negative effects of raising minimum wage rates

By Randall Pozdena and Steve Buckstein

President-elect Donald Trump has nominated the CEO of one of the nation’s largest fast food chains to serve as U.S. Secretary of Labor. The food preparation and serving industry employs almost half of all minimum wage workers. It is thus widely assumed that the nominee would be unfriendly to minimum wage regulation. Efforts such as the union-financed Fight for 15 are seeking to raise the federal minimum wage in the food service industry to $15 per hour—a 52 percent increase over the $9.87 average pay rate in the industry today.

The spotlight has thus returned to the issue of minimum wage regulation, including the impact of recent Oregon legislation. SB 1532, passed in 2016, phases in a $14.75 minimum wage in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas, by 2022. The average annual increase over the prior (statewide) minimum wage would be 8.5, 6.6, and 5.0 percent respectively for these three tiers over the 2016-2022 phase-in period. As with the last major reform in 2002, the legislated minimum wages would be adjusted after that time by any increases in the CPI.

To put these events in perspective, Cascade Policy Institute has released a major, new analysis of the history, theory, and empirical impacts of minimum wage regulation. The report focuses on the labor market impacts on youth, aged 16 to 24—the age cohort most likely to be affected as new entrants into the labor force. The study uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

The findings have ominous implications for youth labor markets. First, as many studies over the past fifty years have shown, the new study finds that increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.

Second, contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.

Third, the study finds that even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.

Oregon’s newest policy of legislating different minimum wage levels among metro and designated rural markets is, ironically, a concession to the reality that unregulated private market forces better balance the supply and demand for youth labor. Since the state imposed higher-than-market levels of wages nonetheless, the new study uses its findings to estimate the impact on the three tiers’ respective youth labor markets.

Although detailed, localized youth employment data for Oregon does not exist, application of the nationally estimated behavior measures can be used to estimate regional tier impacts. This analysis suggests that Portland metro area youth will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Even though a three-tiered minimum wage is an attempt to accommodate real economic differences between urban and rural areas, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.


Randall Pozdena is President of QuantEcon, Inc., an Oregon-based consultancy. He received his BA in Economics from Dartmouth College and his Ph.D. in economics from the University of California, Berkeley. He is the author of Cascade Policy Institute’s new analysis, Minimum Wage: Its Role in the Youth Employment Crisis. Steve Buckstein is Senior Policy Analyst and founder of Cascade Policy Institute, Oregon’s free market public policy research organization.

Cascade Report Finds Long-Term Negative Impacts on Youth from Oregon’s New Minimum Wage Policy

FOR IMMEDIATE RELEASE

Media Contact:

Steve Buckstein

Senior Policy Analyst

Cascade Policy Institute

(503) 242-0900

steven@cascadepolicy.org

PORTLAND, Ore. – Cascade Policy Institute released a report today that has foreboding implications for young people in our state. The report was commissioned after passage of SB 1532 earlier this year, which phases in large increases in Oregon’s minimum wage. The law mandates minimum wages by 2022 of $14.75 in the Portland metro area, and $13.50 and $12.50 respectively in other metro areas and rural areas. These rates must be adjusted after 2022 by any increases in the Consumer Price Index.

Authored by Oregon economist Randall Pozdena, Ph.D., Minimum Wage: Its Role in the Youth Employment Crisis analyzes the history, theory, and empirical impacts of minimum wage regulation. It focuses on youth aged 16 to 24 because they are most likely to be affected by minimum wage increases as new entrants into the labor force. The report uses data and statistical techniques that, for the first time, allow measurement of how the impact of an increase in the minimum wage evolves over time, not just in the period immediately after the increase. In addition, it allows prediction of the interaction of the minimum wage shock with employment, wages, and labor force participation over time.

“This report confirms ominous long-term negative consequences of minimum wage increases, not just for those currently 16 to 24 years old, but for future potential workers coming into this age group,” said Steve Buckstein, Cascade’s founder and Senior Policy Analyst. 

Key findings of the report: 

  • Increases in the minimum wage significantly depress youth employment and labor force participation. The share of youth employed falls by 3 percent in just the first six months after a 10 percent increase in the minimum wage, and it falls by 6 percent after a year. Similarly, the share of youth participating in the labor force declines by 4 percent at 6 months and 6 percent at 18 months.
  • Contrary to the claims of minimum wage advocates that higher minimum wages create a cascade of even greater increases, youth wages only rise by the amount of the mandated increase—and then only for those lucky enough to find a minimum wage job. Collectively for all youth, what wage increases occur are more than offset by condemnation of a large share of youth to a zero wage; namely, to unemployment.
  • Even a one-time increase in the minimum wage persistently continues to depress the share of youth who are employed. Specifically, statistically significant employment impacts can be expected to cumulate over time for at least five years into the future. Even seemingly innocuous increases in the minimum wage—such as Oregon’s prior 2002 policy of adjusting for the CPI—can significantly depress youth employment. Since the implementation of that adjustment policy fourteen years ago, the previous 56 percent share of youth employed has fallen to just 46 percent, an 18 percent decline. Thus, it appears that inflexible, automatic CPI indexing is inferior to letting markets set youth wage rates.
  • Portland metro area youth likely will suffer the most, with the share of employed youth falling by 30 percent by 2022. Youth in the state’s other metro areas will see a 20 percent decline, and youth in designated rural areas of Oregon will see a 15 percent decline.

Buckstein and Pozdena conclude that “even while bowing to the reality of economic differences between urban and rural areas of the state in its latest minimum wage law, Oregon has made a public policy mistake that predictably will be paid for by many of the state’s youngest current and soon-to-be potential members of the youth labor force.”

The report, Minimum Wage: Its Role in the Youth Employment Crisis, is available here.

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Governor Jerry Brown: “Economically, Minimum Wages May Not Make Sense”

As California Governor Jerry Brown signed his state’s $15 minimum wage bill into law on April 4, he acknowledged, “Economically, minimum wages may not make sense.” He went on to say that work is “not just an economic equation,” calling labor “part of living in a moral community.” “Morally and socially and politically, [minimum wages] make every sense because it binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way,” Brown said.

So now it’s official—at least in our neighbor to the south—that laws don’t have to make economic sense for politicians to enact them. Laws just have to somehow “bind the community together.” When a strong majority of voters want a law to pass, as they apparently do for higher minimum wages, politicians take that as a signal that they can give voters what they want even if the law will hurt many of the very people they claim it will help. Governor Brown was just honest enough in this case to effectively admit that people may be hurt, but so what? Binding the community together apparently makes everything OK.

Of course, communities bound together by such faulty ideas will eventually come unbound, at least in the sense that many of their members will be priced out of the jobs and economic opportunity the politicians promised they would enjoy.

Minimum wage laws primarily hurt younger, less skilled, and less educated workers who will lose their jobs or not get jobs in the first place because employers can’t justify paying them what the law says they must. Employers who can’t generate enough, or any, profits at mandatory higher wage rates will also be hurt, as will consumers who end up paying higher prices they can ill afford in return for “binding their communities together.”

The governor of New York signed his state’s new $15 minimum wage law on April 4 also, and Oregon’s Governor Kate Brown signed our new slightly lower minimum wage law on March 2. Neither of these two leaders acknowledged what California’s governor did: that minimum wage laws may not make economic sense. They probably know it, but why raise doubts? They would much rather take plenty of credit, and later blame employers for not delivering the economic goodies government is so good at promising and so bad at producing.

Oregon Legislators Raised the Minimum Wage; Students Lose Their Jobs

Oregon’s three-tiered minimum wage law was just signed by Governor Kate Brown last week, but it’s already set to cost Oregon university students their campus jobs. The Oregonian reports that Oregon’s public universities are now calculating how the wage increases will affect their budgets for student workers.

Most college jobs paying the current minimum wage are not part of the federally funded work-study program; student workers are hired by the universities, which pay them hourly. According to The Oregonian, “Oregon’s new minimum could put more money in some students’ pockets, but it will more likely lead administrations to either cut back on the number of students they hire or the number of hours they’re allowed to work.”

The new wage law goes into full effect over six years, and Oregon is divided into three wage regions, so the cost increases will compound over time and affect colleges differently depending on where they are located. A spokesman for Oregon State University says OSU may need to cut up to 700 student worker positions by 2019, which is about a nine-percent reduction in student employment.

Until legislators understand that income cannot be generated by state mandate, minimum wage increases will continue to hurt workers they’re thought to help, including first-time job-seekers, workers with less experience, and college students just trying to get a part-time campus job.

No Fake Emergencies

I’ve written and spoken about the damage that minimum wage laws do, not only to business owners, but to their customers and their younger, less experienced, and less educated workers and potential workers.

Normally, bills become law in Oregon no earlier than 90 days after the end of the legislative session in which they pass. But the latest ill-advised minimum wage bill had an Emergency Clause attached, so it becomes law today, the day the Governor signed it. Why is a law that phases in wage increases over six years deemed an Emergency? Because supporters didn’t want to let voters refer it to the ballot.

A real emergency, such as a major earthquake or other natural disaster, may require immediate state action, which is what the Emergency Clause is for. But over half of all bills passed by the legislature last year contained such a clause. Most were emergencies only in the political sense, not the real sense.

It’s time to stop such political games by putting the No Fake Emergencies initiative on the November ballot. It will restore Oregonians’ Constitutional rights to refer most laws to a vote of the people if they wish. Bills will still be able to take effect immediately in the face of real emergencies, just not fake ones.

You can sign the petition to place this initiative on the ballot by going to NoFakeEmergencies.com.


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Oregon’s Minimum Wage Law Perverts Compassion into Coercion

Picture two Oregon workers. One, a highly skilled and educated woman named Kate, earns well over $40 per hour based on a 40-hour work week. The other—a younger, less skilled, and less educated woman also named Kate—has a job that pays her Oregon’s minimum wage rate of $9.25 per hour.

The first Kate happens to be the Governor of Oregon. She, along with some of her colleagues in the legislature and activists on the campaign trail, believe that the second Kate should be paid as much as $15.00 per hour by law, depending on where she lives.

Wanting our second Kate to earn more is commendable; but forcing Kate’s employer to pay her more than he or she can afford, or more than Kate may be worth to their business, is not commendable.

Some politicians may feel good by “giving” more money to the Kates of Oregon, but how should they feel for “taking” that money from someone else?

I join many policy analysts, economists, and business owners in pointing out the negative effects of raising Oregon’s minimum wage. Younger, less educated and lower-skilled workers may lose their jobs, or not gain jobs in the first place, if the law prices them out of the labor market. Some employers will be forced to hire fewer workers, let some workers go, and/or raise their prices to all the Kates of Oregon who will blame them, not the politicians, for their suddenly higher cost of living.

But, the practical effects of raising the minimum wage, good or bad, should not cause us to forget the moral aspects of a state policy that dictates what one adult is required to pay another. Voluntary transactions between workers and employers are moral; imposing wage floors from Salem or any other layer of government is not.

I have no illusions that Oregon’s Governor, legislature, and activists will now see the light and abandon their plans to impose yet another burden on employers while helping some workers at the expense of others. I simply want it on the record that I agree with the author who wrote:

“The minimum wage is the modern perversion of compassion into coercion: I believe there is a moral imperative for you to earn more, so I force someone else to pay more. I feel moral while sticking someone else with the bill.”*

So, rather than raise Oregon’s minimum wage rate, the legislature should do the moral thing and end the policy altogether. Then we can all work together with Oregon Governor Kate Brown to find better, moral ways to help all the other Kates of Oregon earn more money without perverting our compassion into coercion.

* Doug Bandow, Cato Institute, January 14, 2014, The Minimum Wage: Immoral and Inefficient.


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

 

Will Oregon Price the Least-Skilled out of the Workforce…Too Slowly?

As Oregon’s February legislative session approaches, Governor Kate Brown wants to head off a contentious minimum wage ballot measure that would raise Oregon’s rate up to $15 per hour over three years. But, her plan seems to upset all sides.

She has determined that the Portland area minimum wage should be exactly $15.52 by 2022. She has also figured out that the rest of the state should impose a $13.50 minimum by 2022. “That is entirely too long” to wait, according to activists behind the ballot measure.

Solid research concludes raising the minimum wage at all is not an effective way to alleviate poverty. It is, however, an effective way to pander to voters who either don’t read the economic literature, don’t believe it, or don’t care.

Oregon already has one of the highest minimum wage rates in the country at $9.25 per hour. But, with some cities and states determined to raise their rates to $15 soon, our Governor’s $15.52 Portland area proposal over six years may not be enough to keep us at the forefront of pricing the least-skilled people out of the workforce altogether.

Perhaps she should go for a $30 minimum wage rate by 2030. Or a $40 rate by 2040. Or…well, you get the idea.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Give Every Oregon Employer a Personalized Minimum Wage

Union-backed and activist groups are trying to put measures on the November 2016 ballot to raise Oregon’s minimum wage from the current $9.25 to either $13.50 or $15, and to allow local governments such as the city of Portland to go above whatever the statewide minimum ends up being.

State Senator Michael Dembrow (D) thinks he can improve minimum wage policy by recognizing that different regions of that state have different costs of living and employment climates. He’s trying to craft a bill for the February 2016 legislative session that would set three different minimum wage rates: one for the Portland Metro region, one for the Willamette Valley, and one for everywhere else.

Assuming the Senator is on to something (a dubious assumption at best), why stop at three rates? Clearly, every employer has somewhat different circumstances, so why not set a different rate for each of them? Dembrow could give each employer a hearing lasting as long as the legislature gives the public to testify on bills—three minutes—to explain their particular circumstances. He then could assign them their own personalized minimum wage rates. Assuming about 100,000 employers in the state, working eight hours every business day with no breaks, the Senator could have the perfect minimum wage bill crafted in only two and a half years. Voilà, problem solved! Or is it?

Of course, in reality, Dembrow and the activists are trying to solve a problem through government that is better left to free people in a free society. Minimum wage laws are nothing more than price controls that end up hurting the very people they purport to help: often young, less educated, and less experienced workers who will find it harder to get or keep a job when the government prices their labor above what a business can economically justify.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

The Minimum Wage Conversation Never Ends

Oregon and some other states mandate that their minimum wage increase every year with the Consumer Price Index. Based on that formula, last Wednesday it was announced that Oregon’s minimum wage, the second highest in the country at $9.25 an hour, will stay unchanged in 2016.

That same evening during the Republican presidential debate, one candidate called for both a higher national minimum wage and for indexing it to inflation. He argued that this would mean “we never have to have this conversation again in the history of America.”

Well, if Oregon is any example, that’s not exactly true. Oregon began indexing its minimum wage in 2002. Yet, earlier this year, there were no fewer than twelve legislative bills introduced to raise the rate to as high as $15 per hour. Activists promised that if the legislature didn’t act, they would put a measure on the 2016 General Election ballot.

So clearly, putting minimum wage increases on autopilot won’t take this conversation off the table. Until legislators and voters understand that income cannot be generated by state mandate, minimum wage increases will continue to hurt the very workers they’re meant to help: the young, the less educated, and the less skilled. They are the ones who often can’t produce enough value for employers at higher wage rates to justify gaining or keeping a job.

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