What does it mean for the Trust Funds to become insolvent, anyway?
Yes, readers, I have gone back to school and am studying economics. And I’m killing two birds with one stone by writing my commentary on a class-assigned paper in blog format.
The paper in question is, in fact, the 1994 paper which shifted economists’ thinking on the minimum wage, because of its claim that minimum wage boosts had no ill effects on employment and were, basically, “free money.”
Here’s how Vox characterized it:
[F]or years many economists assumed, almost without questioning, that minimum wages destroyed jobs. They might be worthwhile, sure, but you have to weigh the harm they do to the demand for labor against their benefits for workers who remain employed.
In a paper first published by the National Bureau of Economic Research in 1993, Krueger and his co-author Card exploded that conventional wisdom. They sought to evaluate the effects of an increase in New Jersey’s minimum wage, from $4.25 to $5.05 an hour, that took effect on April 1, 1992. (At 2019 prices, that’s equivalent to a hike from $7.70 to $9.15.)
Card and Krueger surveyed more than 400 fast-food restaurants in New Jersey and eastern Pennsylvania to see if employment growth was slower in New Jersey following the minimum wage increase. They found no evidence that it was. “Despite the increase in wages, full-time-equivalent employment increased in New Jersey relative to Pennsylvania,” they concluded. That increase wasn’t statistically significant, but they certainly found no reason to think that the minimum wage was hurting job growth in New Jersey relative to Pennsylvania.
Card and Krueger’s was not the first paper to estimate the empirical effects of the minimum wage. But its compelling methodology, and the fact that it came from two highly respected professors at Princeton, forced orthodox economists to take the conclusion seriously.
And with that in mind, join me as I dig through the meat of the study: “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” (This is not actually the “class assignment”; I will need to distill my thoughts even further into 250 – 300 words, which will be harder!)
The core concept of the study was this: generally speaking, it’s hard to measure the effects of a change in the minimum wage, because there’s so much much else happening at the same time. For example, the latest change in the US federal minimum wage occurred at the same time as the “Great Recession.” But in 1992, New Jersey increased its minimum wage to a level above the federal minimum, $5.05 rather than $4.25, and next-door Pennsylvania did not. The authors believe that looking at changes in employment patterns, wages, costs, etc., at fast-food chains in those two states provide a means of analyzing the impact of the minimum wage hike.
In order to do so, they (or rather their employees) conducted phone surveys of fast-food restaurants in those two states in late February/early March of 1992, just before the minimum wage hike was implemented, and in November-December 1992, after the April 1992 change had had some time for effects to be seen. They had, all things considered, reasonable response rates to their surveys (72.5% in PA and 91% in NJ, with different numbers of attempts made in the two states) for the first wave, and bolstered their response rate for the second wave with in-person visits as needed.
Their core findings:
In the New Jersey restaurants, the number of employees per store actually increased during this time frame, even as they decreased in Pennsylvania due to the recession at the time. At the same time, within New Jersey, among stores which had previously had a starting wage equal to the minimum wage, as well as those stores with a starting wage above the minimum but below the new minimum, the number of employees increased; but in those stores where wages were already above the minimum, employment decreased.
The authors then get mathier. They perform two regressions, one to estimate the effect on employment of a store being in New Jersey, and another to estimate the effect of a store having previously paid less than the new minimum wage. This is where my interpretation is a bit marginal, but here goes:
The change in the number of FTE employees per fast-food restaurant in NJ compared to the change in PA, was 2.51. The regression model calculates, stripping out other impacts, that New Jersey-ness accounted for 2.3 new employees per store. Having to raise wages (compared to NJ restaurants already paying the new minimum) produced a regression factor of 11.91 times the “wage gap” when controlled for differences in different regions within NJ as well as for differences among the different large chains surveyed; this is a high factor because it gets reduced by this gap-factor, which is .11.
They also perform additional statistical tests by fine-tuning their calculations, for example, excluding New Jersey shore area stores because of their tourist economy, adjusting the weightings of part-time employees in calculating full-time equivalents, etc. These produce different employment impacts but still the same conclusion, that the minimum wage increase actually increased employment.
The authors also assess whether the minimum wage hike affected other aspects of the restaurants’ operations. There was an increase in full-time workers in New Jersey, but no significant effect with respect to restaurants who had paid less vs. more in NJ. There was no statistically-significant change in the restaurants’ opening hours, the free/reduced-price meal benefit, the amount of the first raise or the time until that first raise is given.
They did find that prices in New Jersey increased by 4%, a slightly greater increase than would be needed to make up for the higher wages (taking into account the wage increase and the proportion of the restaurant’s costs due to labor), but they discard this as a relevant consideration because prices increased at the same level regardless of whether an individual restaurant was impacted by the wage hike or not (based on whether their starting wage had been below the new minimum or not).
Finally, they assessed whether the wage increase prevented new stores from opening, looking at broader data, and found no statistically-significant evidence.
After presenting their statistical tests, they propose various explanations. They consider alternate labor-market theories “monopsonistic and job-search models”), but discard them. They theorize that employers obliged to pay higher wages may decrease their quality (longer lines, reduced cleanliness) or may shift pricing of some products relative to others, but ultimately conclude with the simple statement that “these findings are difficult to explain.”
So what’s to be made of this?
Their analysis is certainly more useful than one without any “control group” and it’s the new “one weird trick” of economists to find and exploit what they consider to be “natural experiments” (though I suppose “new” is all relative). It also has, I think, particular merit in looking at employment at specific businesses, rather than at unemployment rates across a region, so as to drill down to the question of “how do employer manage an increased labor cost?”
But there are plenty of deficiencies:
One common gripe of Krueger’s critics (e.g., at the Foundation for Economic Education) is that the time frame of Krueger’s analysis is simply too narrow. By late February, employers already knew they would need to offer a much higher minimum wage, and would likely have been taking that into account by avoiding hiring and reducing staff with attrition. It could even be that the increase in employees was an indicator that they found, on average, that they had been too cautious in the period leading up to the hike. It also seems likely that employers wouldn’t have been sitting on some innovation that would allow them to reduce staff which they would suddenly implement immediately upon increasing wages, but that labor-reduction initiatives would take time, so that the long-term effect of the wage hike would take some time to materialize. (For example, the free refill was introduced by Taco Bell in 1988, but became commonplace in the 90s. Was this merely a coincidence that this marketing tactic occurred roughly at the same time as a significant nationwide minimum wage increase, with a phase-in that was driven by the time and effort to remodel locations, or did stores find it more advantageous to reduce worker time in this fashion, when labor increased in cost? Other changes, such as the self-service ordering kiosk, required advances in technology that will presumably be motivated by higher labor cost but not simply “waiting in the wings.”)
It also seems too simplistic to simply discard the increase in prices just because those prices increased at all New Jersey restaurants, including those which had already been paying higher wages. It would seem fairly reasonable that once the previously-lower-paying restaurants had increased their prices, the rest would follow, or that, if certain franchise owners had a mix of higher- and lower-wage restaurants, they might have raised prices in parallel. Consequently, this consistent price-hike across stores is not the counter-evidence Krueger claims.
In fact, it would seem to merit a closer review, to identify the characteristics of those restaurants previously paying higher wages, especially because they did not boost their wages to remain a “higher wage employer.” Were these particularly-profitable restaurants? Restaurants which had difficulty recruiting employees due to locally-tight labor markets? For instance, restaurants in wealthier suburbs tend to recruit workers from further away and offer higher wages to make the additional travel time worthwhile. Would they, in the longer term, have difficulty finding workers without boosting that wage differential?
Lastly, they measure the impact of the wage increase on overall work hours by asking whether the opening hours have changed, whether the number of cash registers have changed, and whether the there is a change in the number of cash registers typically open at 11:00 AM. But it seems likely that a key way that employers will seek to mitigate the effect of a wage hike is by lower staffing at slower times in the day, either by scheduling employers for fewer hours, or by being readier to send employees home. And they ask whether employees work on a full- or part-time basis but do not actually ask in their survey what the total or average work hours is at each surveyed store. Perhaps this is a piece of information that they considered too difficult for store managers to provide, so did not ask it so as to ensure they would receive a response to their request, but without knowing this, we simply cannot know whether the study’s data is what it claims to be.
Now, I’ve said that this is considered to be a key study that shifted the debate about the minimum wage, and, it turns out, it wasn’t without pushback. Richard Berman of the Employment Policies Institute criticized the study in a 1996 report, “The Crippling Flaws in the New Jersey Fast Food Study,” and Krueger and Card responded with their own criticism of Berman’s criticism, as well as a further study by economists William Wascher & David Neumark (not available without paywall), in 2000. Krueger finds fault with the attempts by Berman and by Wascher and Neumark to re-do the analysis using better or alternate data sources, but does not directly address Berman’s “crippling flaws” (or if they do so, it is so briefly addressed that I missed it). What were these flaws? First, that there were significant numbers of stores with clear data errors, such as shifts in the number of part-time and full-time employees as well as a failure to specify, in the price-increase portion, what defines a “regular hamburger” (is it a Big Mac? A Quarter Pounder? A dollar-menu basic hamburger?). EPI researchers went back to many of the surveyed restaurants and could not match the employment numbers, and Berman believes this is simply because of inconsistencies in definition of part vs. full-time and the basic fact that the manager or assistant manager answering the survey would have been juggling multiple duties and relying on memory for these numbers. In any event, Krueger and Card dial back their claims, from 1994’s statement that “we find that the increase in the minimum wage increased employment” to a more cautious, “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.”
I’ve long been a critic of the Obama Museum, which will not be a “presidential library” but literally just a museum as well as ancillary services and programming. But with the construction now beginning, I finally got around to looking at Obama.org‘s projection of economic impact, and it’s worth evaluating.
Short-term jobs (construction)
The building is expected to employ 3,682 people, with a total of $214,635,630 in “labor income,” during the course of construction. That’s an average of about $60,000 per job — because these are mix of various types of jobs, but all short-term.
Ongoing payroll for the Obama Center is forecast as $19 million in payroll. However, Only 43% of the jobs are expected to be held by South Side Chicagoans, with only 16 people employed in “admissions,” for example, and 10 in “Museum Operations and Administration.” Security guards and janitorial staff will be contracted out rather than directly employed.
The consultants predict $3.1 million in revenue for the planned four-star restaurant and cafe, but recognize that only 25% of the revenue will be “new” (that is, that many of the diners would have otherwise eaten elsewhere). They forecast $6 million in gift shop revenue. They forecast $110K in “net new” private event spending, because 80% of private events held at the venue would have been held elsewhere in Cook County.
The forecast for museum attendance uses an upper bound based on a hypothetical maximum based on the number of opening hours, fire capacity, average visit length, etc., then multiplied by a factor of 30% to reflect utilization, and a “historical and cultural significance multiplier” of 1.15 (that is, the expectation that the Obama museum will be exceptionally popular) — which, honestly, seems fairly suspect. The lower bound is calculated based on actual visitors to real-world presidential museums for recent presidents — but using some math which determines that, even though the highest visitor counts from any of these (excluding the first opening year) was 426,000 for the Reagan museum after it became the recipient of Air Force One, the Obama Museum would have 50% more visitors than even this high, because of the greater size of the Chicago metro area and the number of tourists.
Ticket prices are expected to be $18 per adult, $11 for children, $10 for out-of-state students, and free for in-state students. Parking cost would be $22. In addition, visitors are forecast to spend on average $5 in food purchases and $10 in the gift shop.
Outside the museum, they calculate that visitors will spend
$45 per person for lodging, for in-state out-of-town visitors, or $112 for out-of-state visitors. Why out-of-state visitors would spend more on their hotels is not clear.
$19 per person in retail spending, for in-state out-of-town visitors, or $56 per person for out-of-state visitors. This category is not at all clear to me. Are they saying that people will travel to Chicago specifically for the Obama Museum and, once here, will take in a bit of Magnificent Mile shopping?
$32/$102 per person for spending on food. Again, the only way this makes sense is if they assume the visit will be motivated by the Obama Museum, rather than it being an add-on to an existing visit. Or do they “take credit” for longer visits on the assumption that the Obama Museum will be the tipping point in people deciding on Chicago in their vacation planning?
This was the part that was the biggest surprise: we kept reading about how the Obama Center will contribute to the public good with conferences of various kinds. But those aren’t free. However, it is not clear to me to what extent the registration fees are meant to cover the cost of the event, whether it’s subsidized, whether some participants will have a reduced fee, etc.
Their largest event is planned to be an Annual Summit with 5,000 participants. Each of them will pay on average $577 for the event (the unround number suggests some would be given reduced rates), for a total revenue of $2.9 million for an event expected to cost the Obama Museum $4.2 million. Where the additional funds come from isn’t explained — is it from the endowment?
Air Force One non-sequitur
Finally, the document closes with a slide on the “possible impact of Air Force One exhibit” — but this is an appendix and we don’t know what the accompanying talking points were. Is it meant to suggest that the attendance numbers used for calculating estimates, were overstated? That they hope to get a similar “big draw” here? Dunno.
What about the rest of the Center?
The Obama Center won’t just have a museum.
There will be a new public library branch there. Honestly, it is not at all clear whether the money for this is coming from the Obama Foundation or whether the Public Library is simply using their own budget, and, in fact, whether the space will be provided or rented out. Similarly, there will be a “program, athletic, and activity center” with “recreation, community programming, and events.” Will these activities be provided free of charge, for a fee, or by means of the Chicago Park District using this as a site for its programming?
None of these other activities are reflected in the impact calculations; if the generosity of donors worldwide was expected to benefit Chicagoans through use of Obama Foundation funds on these activities, you’d expect to see them taking credit for this. What’s to be made of its absence?
In any case, the fight against the Museum appears to be over. What remains is a fight to ensure that public funds are not spent on its ongoing expenses. But, unfortunately, Chicago being Chicago, and Illinois being Illinois, this is likely to be a losing battle.
Rewarding essential workers? Sure. Borrowing unknown sums of money to do so? Not so great.
The WISH Act probably isn’t going anywhere, but it’s interesting anyway . . .
Non-Illinoisans, what does your Secretary of State do?
In some instances, state Secretaries of State made national news in the last election, due to the choices they made in modifying state election law or its implementation, due to COVID, and their validation of election results, most notably Georgia Secretary of State Brad Raffensperger, who even now shows up in news reports.
Which means that a non-Illinoisan might not think twice about this promise from Democratic candidate for the Illinois Secretary of State, Alexi Giannoulias (image posted at bottom in case of tweet deletion):
Illinois is not nearly as blue a state as people think. It’s absolutely critical we keep the Secretary of State’s office blue to protect our elections. That is why I’m running to keep IL blue. Can you RT this & follow this account to help keep Illinois securely Democratic? 🙏 🚀
— Alexi Giannoulias (@Giannoulias) July 25, 2021
And his website contains similar promises:
He supports Defending Voter Rights: “We must ensure access to registering to vote and individual rights at the ballot box are protected to prevent disenfranchisement.”
He advocates for Safeguarding Against Financial Fraud: “With the economic downturn making our most vulnerable citizens susceptible to fraud, deception and unfair practices, we must protect financial well-being of Illinois residents against those who prey on them.”
He promises he will go about Strengthening Ethics Laws: “With recent corruption scandals plaguing Illinois, we must toughen state ethics laws and reform the system to curb abuse.”
But in Illinois, the Secretary of State’s office is primarily Illinois’ equivalent to the Department of Motor Vehicles elsewhere, administering driving tests and issuing driving licenses and vehicle registrations, as well as secondary duties in administering the registration of corporations, lobbyists, and notaries, as well as overseeing the state archive and the state library. Were he to be elected, he would have nothing to do with voting (except for the minor element of “motor voter” registration), financial fraud (that’s the Attorney General), or ethics (that’s an office in the executive branch with no particular head other than the governor).
Giannoulias also promises he will “protect our privacy of Illinois residents and safeguard their data, photos and personal information from those who seek to abuse it,” and, sure, to the extent that the Secretary of State’s office holds data on Illinois drivers, there’s a privacy element, but this is small potatoes.
And he promises he will go about “making our roads safer” which sounds fine as far as it goes but then continues that he will do this by “strengthening safety guidelines for motorists and protecting the environment,” which seem to have a lot more to do with legislation than the administrative job of the Secretary of State.
Finally, he claims he will go about Modernizing Services: “COVID-19 has changed how all offices need to operate and deliver services – with the health and safety of the public a top priority – to improve the customer experience.” But this is trite and meaningless, all the more so since on his homepage he praises the outgoing Secretary of State, Jesse White’s “outstanding service.” And, to be honest, the Secretary of State took its time about implementing an appointment system for drivers’ license renewals, but now they have and it appears to work smoothly. And other than this, the biggest “customer experience” problem were the delays caused by the extreme length of time the office was closed, both in spring of 2020 and again over Christmastime — delays which may have been fine for many of those whose expiration dates were simply extended but caused significant difficulties for those seeking licenses for the first time. But his emphasis on “health and safety” suggests this is not a concern of his.
What it comes down to is this:
Alexi Giannoulias is not running for the office of Secretary of State.
What does he really want?
He is running to obtain the status of “next-in-line for governor.”
Here’s the Chicago Sun Times, from this past June:
Nevertheless, presiding over that state office is one of the most coveted prizes in Illinois politics.
“Next to being governor, that’s the biggest political office statewide,” said former Republican Gov. Jim Edgar. . . .
Political insiders say former state Treasurer Alexi Giannoulias is leading the pack, racking up crucial endorsements and building the most fully stocked political war chest. He is closely followed by Chicago City Clerk Anna Valencia, who has won her own share of endorsements, but in the money contest has so far been outraised by Giannoulias more than five-to-one. . . .
One of the allures of the office is its potential to serve as a political stepping stone.
Edgar, a former Illinois secretary of state who parlayed his tenure into a successful gubernatorial bid, said the current crop of candidates may be looking to do the same, since the office offers plenty of the tools to do so, from jobs to fill to publicity to take advantage of.
“You also have respect throughout the state. Your name — next to the governor’s — is the most visible name in state government, because you’re on everybody’s driver’s license,” Edgar said. “There’s a lot of political advantages.”
Now, to be sure, Giannoulias isn’t the only one doing this. Valencia’s website likewise claims new responsibilities for the Secretary of State, usurping the powers of the Illinois State Board of Elections, by calling for an “Illinois Voting Access Commission,” which would “bring together diverse stakeholders from across the State to identify ways to expand and protect voter registration, voting and vote counting. Our stakeholders will include the Illinois State Board of Elections, members of the Illinois General Assembly, County Clerks, community and business leaders, universities and foundations.” This commission would evaluate expanding Vote By Mail, Automatic Voter Registration, transportation to the polls, election judge recruitment, and would update voting technology — again, nothing that has anything to do with the roles of the Secretary of State. She would also create an “Illinois Civics Corps” — which would “give Illinois college students a stipend to register and educate their communities on how to become civically engaged.”
Again, none of this has anything to do with the responsibilities of the Illinois Secretary of State. (And, for that matter, none of the changes in election law in other states has anything to do with Illinois’ own election laws, and in fact, Illinois has been busy legislating expanded ease of voting, including expansion of vote by mail, expanded voting hours, and more.) Valencia is similarly trying to benefit from voters’ lack of knowledge, and their gullibility in believing that voting access is at risk and their association of state Secretaries of State with voting administration.
Now, in fairness, the three remaining candidates, Mike Hastings, David Moore, and Pat Dowell, make no such promises, touting instead their records of public service and business/oversight experience. But they are, as the Sun Times article states, the also-rans. And one of Giannoulias or Valencia will undoubtedly win, with Gianoulias’s ability to plaster the airwaves a definite advantage. Whether the winner then remembers that their job is limited to properly administering the Secretary of State’s office, or uses their platform to grandstand, or even abandons the public service daily grind in ways that cause hardship to Illinoisans just trying to go about their daily life, remains to be seen, but in any case this election will serve as a reminder that Illinois is fundamentally broken.