Indiana Senator Dan Coats cherry-picks CBO data to oppose minimum wage hike

Also originally published on Examiner.com.  Slight editorial changes--GF

 

As shown on this blog, Indiana Senator Dan Coats drew from a biased think tank financed by the low-wage restaurant and hotel industry and operating as an adjunct to a right-wing public relations firm, the Employment Policies Institute, for part of his rationale for opposing a minimum wage hike on the Senate vote to raise the minimum wage to $10.10 an hour on April 30, 2014.  (See George Fish, “Indiana Senator Dan Coats’ minimum-wage views stem from biased source,” posted on this blog.)

 

But another rationale for Coats’ opposition comes from cherry-picking the data from a far more respectable, and economically respected, source, the Congressional Budget Office’s (CBO) February 2014 report, “The Effects of a Minimum-Wage Increase on Employment and Family Income.”  Senator Coats claimed, in his press release of April 30, 2014 justifying his joining with fellow Republicans to filibuster the minimum-wage increase bill that had passed the Senate by a majority, http://www.coats.senate.gov/newsroom/press/release/coats-statement-on-minimum-wage-vote-, that according to the CBO, a raise in the minimum wage according to the legislation, which would raise it to $10.10 an hour by 2016 and index it to the rate of inflation thereafter, would cost up to a million jobs in the U.S. and that only 19% of the  increased earnings of such a raise would benefit families below the poverty line.

 

But Coats only quotes selectively from what the CBO report says.  The full report, which is available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf, not only contradicts Coats, but presents a far more nuanced and sophisticated approach which actually notes that job loss will probably be only half of what Coats claims above, and the benefits from increased income actually spread out to a lot more people who, even if not below the poverty line, are only of middling income.  In other words, on balance, there is more benefit and less loss to raising the minimum wage to $10.10 an hour by 2016, according to the CBO, than Senator Coats’ alarums claim.  And it’s stated so directly in the CBO’s report.

 

For example, the CBO claims that the most probable job loss in 2016 from raising the minimum wage to $10.10 will only be 500,000 jobs, or 0.3% of the jobs available, though there is a ⅔ probability that the statistical spread of job loss could range from only a small number of jobs lost (or far less than 500,000) up to a million jobs lost.  (p. 1; Table 1, p. 2)  But, and this the CBO did not calculate, although it does so state,  the loss of job income caused by the furlough of 500,000 or so workers would, for an indeterminate number of them, be partially offset by increased federal benefits such as SNAP (food stamps), unemployment compensation, and lower tax liabilities. (See discussion on pp. 8-9 and 15-17; although much of this discussion on benefits is cast into how it would affect those still employed, it is easy to extrapolate on benefit changes for the unemployed from this discussion.) Nor would such workers necessarily be reduced to permanent unemployment; and this author really doubts that the loss of 500,000 extremely-low-wage jobs could be really seen as some sort of disastrous loss either to individual workers or to the economy.  Rather, it might be even a form of “liberation” from the very real misery of being trapped in jobs that cannot pay other than bare subsistence, if even that.  Coats himself says as much in his press release—that “The true problem plaguing impoverished Americans is…a lack of good job opportunities. “ Though he does state rather disingenuously that “The true problem plaguing impoverished Americans is not low wage rates”—as it the two didn’t go hand-in-hand!

 

The CBO report states that this increase in the minimum wage would increase the income of 16.5 million workers and result in $31 billion in added household income, which would benefit not only those presently below the federal poverty threshold calculated by the U.S. Census Bureau, but also significantly, those whose income was between one and three times the poverty threshold, with the largest gain, 2.8%, going to those households below the poverty threshold. Of this $31 billion income increase, 19% of it would go to families earning less than the poverty threshold. (The Average Real Family Income range from below the poverty threshold up to 2.99 times the poverty threshold prior to the minimum wage increase is from $10,700 or less up $51,400 annually; in other words, the poor and the middle class.)  Those whose household income was between three and six times (3.0-5.99) the poverty threshold (Average Real Family Income before the raise of $86,600 annually) would see little household income increase, while those households with incomes six and more times the federal poverty threshold (Average Real Family Income before the raise of $182,200 annually) would see their Average Real Family Income drop about $700 per year, or a decline of 0.4%, due to decline in business income and loss of stock value. (But, what, really, is an income decline of only $700 to a household earning $182,200 or more annually?)  So it’s easy to see here that there would be a slight but positive redistributive effect, certainly welcome in this time of decades-long rise in income inequality and income stagnation or actual decline for the poor and the middle-class, with the gains going to those already rich. Further, 900,000 individuals, out of the 45 million projected as under the poverty threshold in 2016 under current law, would be raised out of poverty. (Table 1, p. 2, Table 4, p. 14; text, pp. 1, 2, 3, 11.)   As the CBO report baldly states on p. 30,

 

In CBO’s estimation, overall real income would increase for families with income less than six times the poverty threshold but would decrease for higher-income families, because both the income losses for business owners and the increase in prices would have the greatest effects on those higher-income families.  In CBO’s estimation, about 1 percent of the reduction in real income would fall on people living in families whose income was below the poverty threshold, whereas about 70 percent would fall on people living in families whose income was more than six times the poverty threshold.

 

Further, this writer, who holds a university degree in economics, wishes to emphasize the CBO’s approach throughout its report is conservative, and does not, for example, attempt to calculate many broader effects of an increase in the minimum wage through increased consumption, such as a calculation of the ripple effect of the Keynesian multiplier throughout the economy.  (Which, technically speaking, is an adaptation of the mathematical formula for calculating the limit of an geometric series, based on the confirmed notion that, especially in the lower income ranges, most income is spent on consumption of goods and services, which provides additional income to the providers of such goods and services, who in turn spend a portion of this additional income purchasing other goods and services, and so on.   Consumer spending comprises 70% of the U.S.’ Gross Domestic Product, or GDP.  The CBO report does acknowledge the ripple effect, p. 21.)

 

From February to December 2012 the Washington Post ran a series of four articles on the extent and sources of Congress members’ wealth, and gave the individual wealth as of 2010 for such members, including Senator Coats, who is emerging onto the national Senatorial Republican stage as a leader, principally in opposing both the extension of unemployment benefits and the raise in the federal minimum wage.  Coats’ individual wealth is found at http://apps.washingtonpost.com/politics/capitol-assets/member/daniel-coats.  The Washington Post estimated Senator Coats’ financial worth in 2010 at $4.8 million, a 5% increase over 2009, of which $1.7 million was in cash and bank accounts alone, with no estimated liabilities.   Further, Senator Coats’ annual salary as a Congressional officeholder is $174,000, http://usgovinfo.about.com/od/uscongress/a/congresspay.htm; This salary is equivalent to $83.65 an hour, which is 11.54 times the wage of a current minimum wage earner, $7.25 an hour, and 8.28 times the wage of a minimum wage earner if the minimum wage were to rise to $10.10 an hour.

 

Thus, from both this and the earlier blog entry here on Dan Coats and his opposition to a minimum wage hike, Senator Coats’ “factual arguments” against raising the minimum wage rely on both a reliance on a clearly biased, questionable think-tank financed by the low-wage restaurant and hospitality industries, and a dubious, cherry-picking, reading of the CBO report on the impact of a minimum wage increase to $10.10 an hour.   Further, Senator Coats’ own personal wealth makes him at the very least an incongruous “champion” of low-wage workers and their jobs, and might even make him appear, same as in his opposition to the extension of unemployment benefits for the long-term unemployed, even as a hypocritical one.  As the other blog entry concluded, when Senator Dan Coats laments the supposed loss of employment stemming from an increase in the minimum wage, “Could it be that when [he] so laments, he does so with guile in his voice and crocodile tears in his eyes?” 

 

Indiana Senator Dan Coats’ minimum-wage views stem from biased source

Also originally published on Examiner.com--GF

 

On April 30, 2014, Indiana Republican Senator Dan Coats joined with 40 fellow Republicans to filibuster the increase in the minimum wage to $10.10 an hour by 2016, and index it to inflation thereafter.  So, though the legislation passed by a clear majority, it didn’t have enough votes to reach the magic 60 votes mark that would’ve prevented a filibuster—41 “Nay” votes from Republicans blocked that.  In his press statement that day, at http://www.coats.senate.gov/newsroom/press/release/coats-statement-on-minimum-wage-vote-,

Coats cited concerns about job loss due to the higher wages that would occur—up to 27,800 fewer  jobs in Indiana alone, according to the Employment Policies Institute, and up to one million nationally, according to the assessment of the effects of the legislation prepared by the Congressional Budget Office (CBO).

 

 

But a fundamental flaw in Coats’ argument is, in relying on the Employment Policies Institute for part of his data on projected job loss, he is relying on a clearly biased source that is funded by the low-wage restaurant and hospitality industry, and is a creature of a pro-Republican public relations firm, not an independent economic think tank.  Wikipedia’s entry on the Employment Policies Institute, http://en.wikipedia.org/wiki/Employment_Policies_Institute, states the following: 

 

 

The Employment Policies Institute (EPI) is a fiscally conservative non-profit American think tank that conducts research on employment issues like minimum wage and health care. EPI was established in 1991 and has been described as "a nonprofit research group that studies issues of entry-level employment."  The Employment Policies Institute has no employees of its own. Instead, according to the New York Times, [the Washington D.C.-based public relations firm] Berman and Company charges the nonprofit institute for the services its employees provide to the institute.  The charity evaluator Charity Navigator has issued a donor fraud advisory concerning EPI.  EPI should not be confused with the older, similarly named Economic Policy Institute, which is a liberal think tank advocating for low to moderate-income families in the United States.  EPI has released a number of studies that look at the economic effects of policies (like the minimum wage, health care mandates, and employment tax credits) on low-wage labor markets. EPI also regularly analyzes job market data in the United States. Typically, studies are contracted by university economists and published under EPI's name.  The reliability of EPI's sponsored studies have been questioned….Berman and Company, a for-profit advertising firm, bills EPI for the services that Richard Berman and others provide to the institute. In 2012, Berman and Company was paid $1.1 million by EPI, according to its tax returns, 44 percent of its total budget. Other funds were used to buy advertisements. EPI's tax return shows that the $2.4 million in listed donations it received in 2012 came from only 11 contributors, who wrote checks for as much as $500,000 apiece.  [Edited, reformatted and condensed, word links and footnote references omitted.  Bold emphasis in original.]
 

SourceWatch.org, a publication of the Center for Media and Democracy, describes the Employment Policies Institute this way, http://www.sourcewatch.org/index.php?title=Employment_Policies_Institute:
 

The Employment Policies Institute (EPI) is one of several front groups created by Berman & Co., a Washington, DC public affairs firm owned by Rick [Richard] Berman, who lobbies for the restaurant, hotel, alcoholic beverage and tobacco industries. While most commonly referred to as EPI, it is registered as a 501(c)(3) tax-exempt organization under the name of "Employment Policies Institute Foundation." In its annual Internal Revenue Service return, EPI states that it "shares office space with Berman & Company on a cost pass through basis".  In a February 2014 interview with NPR, New York Times reporter Eric Lipton detailed his visit to the EPI, saying "I didn't see any evidence at all that there was an Employment Policies Institute office. And in fact when I started to interview the people there, they explained that there are no employees at the Employment Policies Institute and that all the staff there works for Berman and Company, and then they sometimes are just detailed to the various think-tanks and various consumer groups that he operates out of his office."  [The Employment Policies Institute was among the five non-profits founded by Berman, who also lists himself as Executive Director of each, at the heart of a 2012 complaint by the IRS that was reported in the November 1, 2012 Bloomberg.]  The Employment Policies Institute was launched in 1991, around the time of the economic recession that led to the electoral defeat of then-president George Bush. EPI deliberately attempted to create confusion in the eyes of journalists and the general public by adopting a name which closely resembles the Economic Policy Institute, a much older, progressive think tank with ties to organized labor. In addition to imitating the name and acronym of the Economic Policy Institute, Berman's outfit even used the same typeface for its logo. In reality, the two groups have dramatically different public policy agendas. The Economic Policy [sic] supports a living wage and mandated health benefits for workers. Berman's organization opposes both and in fact opposes any minimum wage whatsoever.  In 1992, Los Angeles Times business columnist Harry Bernstein noted that EPI was using "misleading studies" to help put a positive spin on rising unemployment. "The conservative EPI, financed mostly by low-wage companies such as hotels and restaurants, is issuing reports the titles of which alone could help put a bright face on the miserable job scene," Bernstein wrote. "The latest one is 'The Value of Part-Time Workers to the American Economy.' It hails as a great thing the distressing growth of part-time jobs because they offer 'flexibility' in economic planning for both workers and companies, and say that flexibility is vital 'in the growing and increasingly competitive global economy.' Tell that nonsense to the more than 6.5 million workers forced to take part-time jobs because nothing else is available. That is an increase of more than 1.5 million involuntary part-timers since 1990, the Bureau of Labor Statistics says." EPI has been doing more or less the same thing ever since, sponsoring cooked studies and issuing tendentious sound bytes whenever attempts are made to establish healthcare or better wages for workers.  Then, as now, fast-food employees were the largest group of low-paid workers in the United States. One-quarter of the workers in the restaurant industry are estimated to earn the minimum wage--a higher proportion than in any other U.S. industry. This is the real reason why EPI appears on the scene whenever federal or local governments consider a proposal to increase the minimum wage. Its standard tactic is to trot out a study using contrived statistics designed to show that hundreds of thousands of jobs will be lost if the wage is raised. (In reality, studies by labor economists show that the job-loss effect of increasing the minimum wage is either small or nonexistent and that its benefits to low-wage workers and their families far outweigh the costs. Even the Food Institute Report, an industry trade publication, admitted in 1995 that "the weight of the empirical evidence suggests that the effects [on the number of available jobs] of a moderate raise from its likely to be negligible.")  EPI has been widely quoted in news stories regarding minimum wage issues, and although a few of those stories have correctly described it as a "think tank financed by business," most stories fail to provide any identification that would enable readers to identify the vested interests behind its pronouncements. Instead, it is usually described exactly the way it describes itself, as a "non-profit research organization dedicated to studying public policy issues surrounding employment growth" that "focuses on issues that affect entry-level employment." In reality, EPI's mission is to keep the minimum wage low so Berman's clients can continue to pay their workers as little as possible.  [Edited, reformatted and condensed, word links and footnote references omitted.  Bold emphasis in original.]
 

On April 29, 2014, the day before the Senate’s vote on raising the minimum wage to $10.10 an hour, the Employment Policies Institute did what any truly scholarly thank tank would do—it ran a media ad campaign against the legislation!  See its press release, http://www.epionline.org/release/new-epi-ad-campaign-highlights-consequences-of-10-10-wage-hike-ahead-of-senate-vote/.

 

Research on the effects of raising the minimum wage issued under the aegis of the Employment Policies Institute have been criticized in two reports on the subject by the Economic Policy Institute, which is a labor-backed liberal think tank, but is also highly regarded by the economics profession as one which puts out accurate and well-researched reports.  These reports, 1996’s “The Minimum Wage and Job Loss: Opponents of Wage Hike Find No Effect” by John Schmitt, http://www.epi.org/publication/epi_virlib_briefingpapers_1996_minimumw/; and 2004’s “Employment and the Minimum Wage: Evidence from Recent State Labor Market Trends” by Jeff Chapman, http://www.epi.org/publication/briefingpapers_bp150/, both took the Employment Policies Institute to task.  Chapman’s report criticizes the Employment Policies Institute for “oversimplification” in its assertion through its research director, Craig Garthwaite, writing in three newspaper articles—not research papers!—that state-mandated high minimum wages in Alaska, Oregon and Washington were responsible for these states’ high unemployment.  Chapman further states that “some key facts about these states show that a number of factors unrelated to minimum wage increases are actually responsible for high unemployment rates[.]”  (Both references, p. 2)  Chapman finds, rather, that high unemployment rates resulted from losses in manufacturing jobs, where pay scales were unaffected by minimum wage rates.  (pp. 9-10)

 

Chapman’s report also discusses the noted studies on the impact of New Jersey’s raising its minimum wage in 1992, while neighboring Pennsylvania, whose eastern-region economy is heavily linked to New Jersey’s, did not.  An initial study based on a phone survey of over 400 fast-food restaurants in New Jersey and Pennsylvania, both before and after the raise, by Princeton economists David Card and Alan Krueger and published in the American Economic Review in 1964, which found no measurable impact on employment, was heavily criticized by the Employment Policies Institute as biased and based on faulty methodology.  The Employment Policies Institute then presented its own data set of 71 fast-food restaurants as proving that there was a significant decline in employment due to New Jersey’s raising its minimum wage, which Richard Berman wrote on in the Wall Street Journal of March 29, 1995. The Employment Policies Institute also turned its data over to two economists, Michigan State University’s David Neumark and the Federal Reserve Board’s William Waschler, who wrote a study using that data set in March 1995; then did an additional study in August 1995 using an 80-restaurant data set that incorporated the 71-restaruant set with 9 additional restaurants supplied by the Employment Policies Institute, but which also incorporated a 150-restaurant set which Neumark and Waschler gathered independently; then revised their paper again in November 1995.  Neumark and Waschler directly challenged Card and Krueger’s findings in 1995, asserting that there was a drop in employment; but in their final assessment in 2000, Neumark and Waschler hedged and said that while there was no measurable decline in employment, they could properly conclude, “New Jerseys’ minimum wage increase did not raise fast-food employment in that state.” [Emphasis in Neumark and Waschler’s final assessment, as quoted in Chapman, p. 16]  (The debate went on for six years, 1994-2000, with two papers and a book by Card and Krueger, and four papers by Neumark and Waschler.) Chapman discusses this controversy in pp. 13-16 of “Employment and the Minimum Wage,” while John Schmitt’s 1996 “The Minimum Wage and Job Loss” devotes its entire nine pages to the issue.

 

Card and Krueger later supplemented their original data set with ES-202 data collected by state governments for the unemployment compensation program, which are more accurate than phone surveys.  Card and Krueger were able to access ES-202 data for individual restaurants, and reached the same conclusion as their 1994 study, which they also published in the American Economic Review, in 2000.  They wrote there, “[The] increase in New Jersey’s minimum wage probably had no effect on total employment in New Jersey’s fast-food industry and possibly had a small positive effect.”  (Chapman, p. 15)

 

Both Chapman and Schmitt write that only the Employment Policies Institute’s initial analysis of its 71-restaruant data showed a statistically significant decrease in employment, but that there were major methodological flaws in its collection of data, something that also held for Neumark and Waschler’s, but not so for Card and Krueger’s.  Both of these Economic Policy Institute Briefing Papers also provide thorough documentation for their authors’ claims, as well as extensive lists of references.  Further, while Card and Krueger have made their data available to others, both the Employment Policies Institute and Neumark and Waschler have refused to release theirs. (Schmitt, p. 6, Footnote 22, p.8)

 

This writer could not find documentation for Senator Dan Coats’ assertion in his April 30, 2014 press release on why he voted against raising the minimum wage, “The Employment Policy [sic—Coats and his staff can’t even get the name of its source completely right!]  Institute recently estimated that in Indiana there could be up to 27,800 fewer jobs created if the Senate proposal is enacted.”  Of course, that’s different from asserting actual job loss—it’s merely stating that job growth in Indiana will be at a slower pace; but that assertion is very much disputed by economists, and the Employment Policies Institute is hardly an unbiased or even reliable source, both as shown above.  In April 2014, the latest month for which data is available as of this writing, Indiana had 2,970,700 persons employed, or 2,970,700 jobs filled, according to the Bureau of Labor Statistics of the U.S. Department of Labor, http://www.bls.gov/news.release/pdf/laus.pdf, Table E, p. 8.  That means that, of total present jobs filled, the Employment Policies Institute’s estimate of 27,800 future jobs absent represents a potential loss equal only to 0.9358% of present Indiana employment—not even a full 1%!  Hardly a catastrophic economic result if the minimum wage is raised, which would automatically benefit thousands of presently-employed Indiana workers!  As well as drive increased consumption among these and other workers—which would further stimulate the economy and create more jobs.

 

Senator Coats also quotes himself in his April 30 press release, “The true problem plaguing impoverished Americans is not low wage rates but a lack of good job opportunities. Raising the minimum wage will fail to alleviate poverty because it will fail to address unemployed or underemployed American workers.”  However, Senator Coats, along with his Republican colleagues, has not advanced any kind of job-creating proposal other than the discredited “trickle-down economics” of Republican-supported tax cuts for the already-wealthy; has opposed all job-creation proposals of President Obama; and refused to extend unemployment compensation benefits for the long-term unemployed, while also supporting cuts in SNAP, or food stamp, benefits.  Support of which would immediately “address unemployed or underemployed American workers,” and thus “alleviate poverty,” as would increasing the minimum wage, but all of which Senator Coats and the other Republican Senators and Representatives have volubly opposed.  Could it be that when Senator Coats so laments, he does so with guile in his voice and crocodile tears in his eyes?