PFM Montgomery County Report on Minimum Wage Effects

GiGo (that’s garbage in assures garbage out…)

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Let me reiterate.  I am not a proponent of an increase in the minimum wage.  Instead, I advocate for all large ($ 2.5 million in gross sales or 50 employees, which ever threshold is exceeded) firms to be penalized (that’s 110% to 125% of the costs) when their employees need to rely on AFDC (Aid For Dependent Children), SNAP (the new name for Food Stamps), Medicaid, etc. to make up for an employer not paying a living wage to its staff.

This is easy to do, nowadays.  One just matches the social security number of the benefit recipient with his or her W-2, and then assesses the employer for the costs incurred by the State or the Federal Government on behalf of the firm’s underpaid staff member.

(So, for example, if a WalMart Employee is making $ 8.45 an hour, working 35 hours a week, s/he is only earning $ 15,379 a year.  And, given that, some $ 9000 in benefits from the state and federal government accrue to the employee, if it has two kids.  So, WalMart must now reimburse the government $9900 (the amount that we, the US citizens have anted up so WalMart could claim a profit, plus that minimum 10% penalty).

This $ 9900 is not deductible to the company.  (Penalties are never tax-deductible.) That means WalMart now will also owe income taxes on that money, too.  Had Walmart paid its employee $ 13.40 an hour, there would have been no penalty of $ 900 and the entire $ 9000 in additional compensation would have been deductible.  You see- there’s no real need for a change in minimum wage to ensure livable wages are paid.

And, we’ve seen that restaurants can afford to pay more money to its staff- as long as the restaurant provides good service and food.  (That was the San Francisco study. )   We’ve also seen how some folks fail to properly assess how minimum wage changes affect employment (as was done in the Seattle study).

Montgomery County, MD

But, it’s not just those reports.  Here in the DC area, we have seen another so-called study demonstrating that changing the minimum wage will cause many to lose jobs.  Except, like the Seattle Study, this Philadelphia consulting group clearly had their conclusions written before they effected their analysis.

PFM prepared a 146 page report (billing the county $ 149,600 for the effort) that averred that Montgomery County (a DC suburb that includes Bethesda and Silver Spring Maryland, among other communities) would lose almost 50,000 jobs (that’s 8.5% of all the jobs in Montgomery County!) if they raised the minimum wage to $ 15 an hour. (DC has already passed this rule, which also is scheduled to take effect by 2020.) If the study were correct, their prognosis would mean a reduction in county income by almost $ 400 million, tax revenue by more than $ 40 million, and the county would also have increased payroll costs of some $ 10 million.

As such, the County Executive (Isiah Leggett) vetoed the council approved (by a close 5 to 4 vote) wage hike.  Which, of course, pleased the employers with businesses in the county, who averred that the current $ 11.50 minimum wage more properly reflects market conditions.

But, let’s get back to this “study”.  Which employed surveys (phone, electronic, and in-person interviews) with business employers, non-profit employers, and business community leaders.  In other words, PFM asked these (clearly biased) folks to voice their opinion as to what the raised minimum wage would provide- without examining (i.e., a real study) of what an actual wage hike would bring about.

PFM Montgomery County Report on Minimum Wage Effects

It gets better.  PFM threw out a slew of “unusable responses”.  What made them unusable?  16% of the 520 responses did not employ minimum wage workers.  (OK, that could be a valid reason to trash those surveys.)  But, then we find out that 27.3% (142) of those surveyed said they would not eliminate any jobs in response to the increase.  (Yes.  They threw out responses that disagreed with their pre-formed opinions.)  And, then PFM weighted the other 307 responses.  In other words, they cooked the books!

I’m sure no one is surprised that 307 business leaders would feel that a wage hike would depress their employment.  (And, by some 23%!).

Yet, the report skips over the fact that when Montgomery County raised the minimum wage from $ 7.25 to $ 11.50 over the years 2013 through 2017, unemployment in the county decreased!    And, unemployment is at 3.4% right now.

(By the way, a new version of the wage bill passed that provides small businesses relief from the raised minimum wage.  Those with 25 or fewer employees would have 2 more years [until 2022] to raise their wages.)

Opinions – even from business owners- are just that.  They are not facts.   Moreover, existing studies have already demonstrated that when employers are surveyed to determine the effects of economic policies, they always overstate the loss of jobs.  (Here’s but one example, which I chose, since it is referenced by the PFM study as “proof” of their findings.  The Employment Policies Institute [part of the Rick Berman empire of fake institutes that spew out BS on minimum wage and employment] stated that 2/3 of the restauranteurs in San Jose were going to reduce jobs and hours when the wages were to be raised to $ 10 an hour in 2014.  Except employment rose by 2.9% from 2014 to 2015 and 2.1% from 2015 to 2016.  And, unemployment dropped from 5.8% in 2014 to 4.6% in 2015, 4.2% in 2016, and is now 3.9%.  Yup.  That survey method is really valid.

PFM also chose to reference David Neumark.  Because we all know that he clearly performs research without preconceived notions.  I’ve debunked a slew of his trashy reports.  Oh, yeah.  You do recall his part of the Rick Berman gin mill, right? )

Top that problem off with reports from several of those surveyed by PFM who explained that they had no employees nor did they have any incorporated businesses in the county.  (The survey was also anonymous, so responses could not be verified or amplified with additional follow-up.)

Which makes it interesting to hear PFM claim they had 307 usable surveys, covering firms that employed some 10,969 minimum wage jobs.  (How did they know that?)   By the way,  Montgomery County has 58,532 folks earning minimum wages.

One last REAL fact.  According to the PFM “study”, the 75 cent increase in minimum wage that just happened in Montgomery County should have caused more losses in employment than what transpired during the Great Recession (14,500 jobs lost).  And, you’ve seen the numbers above, the unemployment rates have dropped and employment has increased.

Thankfully, Marc Elrich, a Montgomery County Council Member is demanding PFM refund the $ 150K they appropriated from the county coffers.  At least someone is trying to recover ill-gotten gains.

I personally think the County should get back twice that amount of money- to penalize PFM for their flim-flam.Roy A. Ackerman, Ph.D., E.A.

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2 thoughts on “GiGo (that’s garbage in assures garbage out…)”

  1. This is interesting but all it does over time is devalue the dollar. The same services for the more money means the dollar is worth less. Now we have to earn more to offset that devaluation! What a spiral!

    OK. While we’re at it, WHY do economists, including Janet Yellan WANT inflation? (The Fed has a target of 2% inflation.) What is wrong with NO inflation? Instead of a higher wage, why not a more valuable dollar?

    1. Holland:
      How did you decide that rising wages devalues the dollar? Because the minimum wage of 1968 in today’s dollars would be around $ 11 now. And, the increases over the past twenty years have been $ 5.15 in 1997, $ 5.85 in 2007, and $ 7.25 in 2009. And, without making companies pay a living wage, YOUR taxes are hit- you (and I) cover the subsidies we provide these firms (who claim them as profits) when their employees can’t even break the poverty line. Your claim that changing the wages causes devalued dollars is malarky.
      The 1997 minimum wage did not change, but the value of the dollar in 2007 from 1997 was $ 1.29. How did that happen??? Not from minimum wages.

      Regarding why the Fed wants inflation (by the way 2%, which is very minimal) is so that they can control the economy- to ensure growth AND employment. When the inflation rate is zero, the economy travels along as it does now- barely at 2% GDP growth, which means it is hard to keep employment up. (The saving grace, such as it may be, is that the baby boomers are retiring faster- or at least as much- as the younger citizenry enters the workforce.)

      That’s why.

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