March 23, 2019
Earlier this month, Gov. Tom Wolf championed a list of 38 economists who support his proposal to raise Pennsylvania’s minimum wage to $15 an hour — a 107 percent increase. The list’s signers, sourced primarily from a handful of Pennsylvania-based colleges and advocacy organizations, argued that the governor’s proposal would have few if any negative job impacts.
I do not doubt the sincerity of the signers’ convictions. However, a new survey of nearly 200 U.S. economists on this subject, conducted by my organization (CorCom Inc.) and released by the Employment Policies Institute, leaves little doubt that they’re in the minority in their field.
Our survey document focused on the impacts of a $15 federal minimum wage, which has unique relevance in Pennsylvania; the state’s minimum wage standard of $7.25 matches the federal one. Sen. Bob Casey and several of the state’s representatives have co-sponsored legislation that would increase the federal minimum wage to this level by 2024. (Wolf’s proposal would extend the increase out an additional year, to 2025.)
The popularity of this policy among the state’s congressional delegation was not reflected among economists. Nearly three-quarters (74 percent) of surveyed economists opposed raising the minimum wage from $7.25 to $15 an hour. When asked what level of wage floor they would support, roughly 40 percent endorsed the current wage standard of $7.25 or less, and two-thirds (66 percent) said it should be $10 an hour or less.
What concerns them about the policy? Most economists (84 percent) said the policy would have a negative impact on youth employment; 56 percent believe it would negatively affect adult employment levels, too. These concerns are well-founded: In a 2014 report, the nonpartisan Congressional Budget Office reviewed several decades of literature on the minimum wage and concluded that roughly 500,000 jobs would be lost at even a $10 federal minimum wage.
A recent study on the impacts of a $15 minimum wage, conducted by economists at Miami and Trinity Universities, estimates that Pennsylvania would lose up to 122,000 jobs as a consequence of a $15 minimum wage.
Cities and states that have raised their wage floor closer to the $15 standard now proposed have seen more-severe negative impacts. A 2017 Harvard study linked the rising minimum wage in the Bay Area to a sharp increase in closures of restaurants with an average (3.5-star) rating on Yelp. Restaurants in the Big Apple are feeling the pinch too: In a recent survey conducted by the New York City Hospitality Alliance, nearly 75 percent of restaurant owners said they are reducing employee hours this year and 47 percent are eliminating jobs.
Based on the survey responses, my greater concern is not for dense urban areas, but for small towns and rural ones. I live near the Pittsburgh city limits, and I’ve visited many of the surrounding small towns where diners and independent retailers have a difficult time thriving today. A state public policy that more than doubles their labor costs — or, in the case of the tipped minimum wage, more than quadruples it — would be difficult or impossible to pass along in higher prices. The predictable and devastating impact would be lost jobs and business closures.
If state policymakers’ goal is to reduce poverty, economists believe there are better alternatives to a higher minimum wage. Our survey results show that just 6 percent of economists believe a $15 minimum wage is a very efficient means to reduce poverty; by contrast, 64 percent believe an expansion of the Earned Income Tax Credit (EITC) is a very efficient policy to address the needs of low-income households. Pennsylvania could create a state-level supplement to the federal EITC as an alternative to raising the minimum wage.
Economists may not agree on much, but on the question of whether a minimum wage increase from $7.25 to $15 is too extreme, the answer is a resounding “yes.”
Lloyd Corder is president and CEO of CorCom Inc.and is a business school professor at Carnegie Mellon University and the University of Pittsburgh.