Fact Check: Pay Hikes for Minimum-Wage Workers | Voice of San Diego

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Fact Check: Pay Hikes for Minimum-Wage Workers

Internet entrepreneur Michael Robertson claimed two-thirds of minimum-wage earners receive a raise in their first year on the job.

Image: Unfounded

Update: This post has been updated to reflect new information that emerged after the initial Fact Check. A full explanation is after the original text.

This is the first post to use our new Fact Check ruling, Unfounded. Check out this explanation for the new ruling and some other new Fact Check features.

Statement: “Two-thirds of minimum-wage workers earn a raise in the first year,” entrepreneur Michael Robertson wrote in a Jan. 4 U-T San Diego op-ed.

Determination: Unfounded

Analysis: Talk of minimum wage hikes is all the rage with Democratic leaders this year.

Progressives from President Barack Obama to interim mayor Todd Gloria are pushing such increases, which they say will help struggling families and provide an economic boost. Some Republicans and libertarians, including tech entrepreneur Michael Robertson, argue government intervention could have an adverse effect on businesses and jobs.

In a January U-T San Diego op-ed, Robertson said minimum-wage jobs represent a stepping stone. Two-thirds of minimum wage earners receive pay hikes within their first year on the job, he said, a reality he argued undercuts the need to raise pay. Why make more pay mandatory, the thinking goes, when most businesses voluntarily give people raises soon after they start and an increase could discourage them from hiring in the first place.

Washington Post columnist George Will, who also leans right, cited the same statistic in a December column.

What neither mentions is that the source of this nugget is a 10-year-old study based on information collected from 1979 to 2002, years before the Great Recession began in December 2007.

Economics professors Bill Even of Miami University in Ohio and David Macpherson, then of Florida State University, relied on Census data to draw conclusions about wage growth among minimum wage workers.

Their research was funded by the Employment Policies Institute, a group that has opposed minimum-wage increases and Democrats’ health-care reform.

In December, The Atlantic referred to EPI as “an organization that exists largely to fight against minimum wage hikes.”

But Even, one of the professors who conducted the study, recently told Voice of San Diego that EPI didn’t drive the results of his research. He said the group simply published what he and Macpherson submitted.

So let’s take a closer look at that research and what it found.

Even and Macpherson did indeed find that 62.6 percent of minimum wage workers – nearly two-thirds – surpassed that hourly sum within their first year on the job thanks to a raise.

The authors also found median hourly pay growth averaged 10.4 percent for minimum wage workers between 1998 and 2002. At the time, the federal minimum wage was $5.15 an hour, so the hike would have amounted to about 54 additional cents per hour. (California’s minimum wage varied during this period.)

Even was hesitant to predict whether they would have seen similar wage growth in more recent years.

“It could be better or worse than that today,” Even said. “I don’t know without looking at the data.”

He suspects the percentage of minimum-wage workers receiving raises fell during the recession and may have started to pick up again as the economy recovers.

But Even said he can’t know for sure whether almost two-thirds of today’s minimum wage workers have graduated from that pay scale within their first year of work. He’s not aware of any other research on the topic, and we couldn’t find any either.

“Obviously, that statistic is a bit dated. I have not done an update of that study. It is kind of interesting that there hasn’t been any type of research on that since our research was written,” Even said. “As to whether that statistic is relevant today, I think it’s hard to say.”

We recently created a new ruling – unfounded – to label statements that we can’t prove or disprove. There’s simply not enough evidence to establish whether they’re true.

Robertson’s claim deserves this label because the study he relied on was completed about a decade ago and appears to be the only research that delved into this specific topic.

Robertson argues the existence of the study – and its conclusion that nearly two-thirds of minimum-wage workers received raises within a year – should be acknowledged.

“There’s no data that says they don’t,” Robertson said. “Could you say the data is aged? Yes.”

But his argument is problematic. Economists can’t even agree on whether minimum wage increases help or hurt the economy, and the research Robertson cited was bankrolled by a group with a specific view on the issue. The researchers maintain that they took an even-handed, unbiased approach to this study but without separate studies, it’s virtually impossible to know.

Then there’s the fact that in the space since the study was released, the nation’s economy has tumbled off a cliff and only slowly, partially clawed its way back. New technologies have changed the workforce and the U.S. has weathered the worst recession since the Great Depression.

For that reason, even one of the authors of the study Robertson cited couldn’t say whether the results are relevant today.

If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.

♦♦♦

StretchUpdate  Feb. 21, 2014: At the time we issued our original ruling, the study Robertson referenced to back up his statement was the only one we could find on the issue. This week, we learned about another relevant one.

The research director at the Employment Policies Institute, the organization that paid for the study we focused on in our initial Fact Check, emailed Voice of San Diego to share a new study that validates Robertson’s claim.

In December, Jonathan Meer and Jeremy West of Texas A&M University published a study that took a broad look at how the minimum wage affects job growth and found a negative correlation. This work was not funded by an outside group, though Meer is also a faculty research fellow with the National Bureau of Economic Research, a nonpartisan economic research group.

One of the study’s many data points was Meer and West’s expanded look at the percentage of minimum-wage workers who received raises.

Meer, an economics professor, and West, a doctoral student, reviewed Census data from 1979 to 2012 and found that about 65.9 percent of minimum-wage workers surpassed that hourly sum after a year on the job.

That’s actually a higher percentage than researchers found in the 2004 study that Robertson cited. Meer told VOSD that he and West have since used another Census data strain to look at the same issue and came up with a similar conclusion.

But simply saying 65.9 percent of minimum-wage workers received pay hikes leaves out some critical context. The researchers found about 16.6 percent of minimum-wage workers leave the workforce after a year and another 5.9 percent become unemployed.

That turnover is considerably higher than the overall 3.1 percent separation rate the Bureau of Labor Statistics recorded in 2013. The difference shows employers are losing minimum-wage workers at a much higher rate than the U.S. average.

If you factor in this attrition for minimum-wage workers, only roughly 51 percent received raises within a year.

In light of Meer and West’s conclusions, we decided to take a second look at Robertson’s claim that two-thirds of minimum-wage workers receive a raise after a year. We sometimes reconsider our Fact Check rulings when we come across new information and decided it was worthwhile to do so here.

The evidence Robertson provided for our initial Fact Check merited the ruling he received. Even the economics professor who conducted the 10-year-old study that Robertson based his statement on couldn’t say whether he’d consider it relevant today. He said he’d prefer to see an updated study, and was surprised no other economists had looked at the issue since 2004.

It turns out there has been additional research though, and its conclusions showed there was some truth in Robertson’s claim.

He said two-thirds of minimum-wage workers receive raises within a year and that’s accurate when you consider those who remained in the labor force. That figure, however, leaves out the workers who left their jobs behind or were fired.

That makes Robertson’s claim a stretch. It contains an element of truth but it’s missing critical context that may alter the impression his statement left.

What do you think?
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