The legislative debate over increasing the minimum wage in Pennsylvania has now become an academic dispute, as well.
Daniel MacDonald and Eric Nilsson, professors at California State University San Bernardino's Department of Economics, published a critique this week of the Feb. 6 testimony of Susquehanna University professor Matthew Rousu before the Pennsylvania House Labor & Industry Committee.
Rousu, citing the work of MacDonald and Nilsson in an Upjohn Institute research paper, had argued that increasing the minimum wage would have the negative effect of raising the cost of living, thereby reducing the buying power of lower- and middle-income families.
“If there's a 0.36 percent increase in prices for a 10 percent increase in the minimum wage, if this holds linearly, a minimum wage increase from $7.25 to $12 an hour is 65.5 percent, which would mean Pennsylvania prices would increase by 2.36 percent,” Rousu testified Feb. 6. “Translating that to a family who's earning approximately the median income of Pennsylvania, $55,000 a year, that family would lose $1,300 in purchasing power.”
MacDonald and Nilsson, however, argued that Rousu misinterpreted their work. They said that the 0.36 percent increase noted in their paper only applied to restaurant prices and could not be applied to the economy as a whole.
“The existing research indicates that the impact of a minimum wage hike on restaurant prices is much larger than its impact on prices outside the restaurant industry,” they wrote. “That is, following a minimum wage hike, the increase in the price of a Big Mac will far outstrip the increase in the price of, say, a pair of brand name shoes.
“The reason is simple,” they continued. “[R]estaurants have many minimum wage workers, and an increase in the minimum wage will boost costs for a restaurant noticeably. But outside the restaurant industry, minimum wage workers are far less common, and in these industries a minimum wage hike will cause a small, or no, increase in labor costs.”
After presenting their argument as to why Rousu’s estimate of a 2.36 percent hike in prices was wrong, MacDonald and Nilsson sought to offer a figure of their own, arriving at just 0.58 percent, less than a quarter of the hike Rousu had predicted.
When contacted by Watchdog.org, Rousu said that there is other research calling into question the assertions of MacDonald and Nilsson that restaurants would be harder hit than other sectors of the economy.
“MacDonald and Nilsson think an average price increase estimate of 0.36 [percent] for all products is too high, but some scholars report estimates on price increases that are much higher, like 2.71 [percent] for the service sector, or up to 4 [percent] in restaurants,” Rousu said by email.
Rousu, who is the dean of the Sigmund Weis School of Business at Susquehanna University, also noted that his estimates had been based on an increase of the minimum wage to $12 an hour, which Democratic Gov. Tom Wolf’s proposal would do this year. But the governor’s proposal also calls for 50 cent hikes each year until it hits $15 an hour, and further increases in perpetuity tied to the rate of inflation.
As a result, he said, regardless of whether you accept his figures or those of MacDonald and Nilsson, prices would rise significantly either way. He calculated that with MacDonald and Nilsson’s suggested 0.58 percent price hike, the family making $55,000 would still see a loss of $319 in buying power with a $12 per hour minimum wage.
“I appreciate that we are not having a conversation on whether prices will increase with a minimum wage,” he said. “[MacDonald and Nilsson’s statement], while arguing a lower impact, provides an estimate that prices increase by 0.58 [percent] for a $12 minimum wage. … That is lower than my estimate but it is not trivial. Hence, we all recognize prices will increase.
“It is a step in the right direction that this dialogue is about how much prices will increase for middle-income families should Pennsylvania raise the minimum wage,” he concluded.