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Latest News - July 2015

July 30, 2015
UC Berkeley researchers miss the mark on minimum wage increases
Source: SACBEE.COM
By: MICHAEL SALTSMAN

Sacramento is the latest California city to consider a higher minimum wage, and proponents have cited studies from researchers affiliated with the University of California, Berkeley, suggesting a wage raise is mostly beneficial. This same team is expected to release results for Sacramento.

It’s an intoxicating conclusion for lawmakers in search of research that supports their policy preferences. But the predictive track record of team Berkeley suggests it’s not a credible one.

The city of Oakland is learning this lesson the hard way. On March 1, the city raised its minimum wage 36 percent, from $9 an hour up to $12.25. Voters approved the wage hike last fall, after an aggressive campaign by Bay Area labor unions and a UC Berkeley study suggesting minimal costs. In hindsight, it’s clear that the UC Berkeley report got it wrong, and spectacularly so.

The clues came early: One month before the wage hike took effect, the East Bay Express reported that many Oakland restaurant owners planned to raise prices substantially – some by 20 percent or more. The San Francisco Chronicle reported similar price increases, and both newspapers noted that some restaurants were eliminating tips to offset higher menu prices. One restaurant, Bocanova, saw 60 percent of its staff quit when they realized that eliminating tips reduced their hourly pay from a high of $70 an hour down to $22 to $28 an hour.

Unfortunately for Oakland, price increases aren’t the worst of it. While the UC Berkeley report foresaw little impact on employment, real business owners reacted differently. The Chronicle reported that 10 businesses in or near Chinatown closed after the wage hike. The Los Angeles Times profiled a small child care provider, Reaching Beyond Care, that cut employee workdays and hours in response to the 36 percent wage hike. Muriel Sterling, another child care provider, was similarly forced to cut employee hours.

These aren’t isolated anecdotes. In a survey of more than 220 affected businesses in Oakland, my organization found that 30 percent had reduced employee hours, and nearly one in five had cut staffing levels. Across the bay in San Francisco, which is raising its minimum wage to $15, small businesses aren’t faring much better: Restaurants including Luna Park, Source and Abbot’s Cellar have closed, citing the minimum wage hike as a determining factor.

These consequences are consistent with the majority of the empirical research on this subject, as summarized by economists David Neumark of UC Irvine and William Wascher of the Federal Reserve Board. The UC Berkeley team ignored this consensus in its report, thus producing rose-colored results that don’t match reality.

Unfortunately, this is par for the course for UC Berkeley’s union-backed Labor Center, which is run by former living wage organizer Ken Jacobs. In one troublesome 2014 email exchange obtained under the California Public Records Act, Jacobs asked for a recommendation letter from the Restaurant Opportunities Center to support a grant for his Labor Center’s ongoing “research and (technical assistance) work for local groups engaged in work to raise the minimum wage,” as well as “testimony/media work around the issue in the East Bay.”

Among the groups Jacobs listed as a “partner” was Raise the Wage East Bay, suggesting that the Berkeley team is more activist than academic.

Sacramento has a difficult task ahead of it, and no shortage of careful empirical studies from which to choose. But the Golden State’s capital city deserves better than the output of a biased team at UC Berkeley who wrongly argue that a wage hike is the economic equivalent of a free lunch.

 

 


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