The Lead

Pa., California economists duel over minimum wage hike’s impact on consumers

By: - February 20, 2019 10:14 am

Two economics professors from California have pushed back on the use of their research by economists opposed to raising Pennsylvania’s minimum wage during a state House hearing two weeks ago.

During a Feb. 6 hearing by the House Labor & Industry Committee, Susquehanna University Business School Dean Matthew Rousu cited a 2016 paper from Daniel MacDonald and Eric Nilsson, of California State University, San Bernardino, to claim that a increasing the state minimum wage from the current $7.25 an hour, to $12 an hour, would increase consumer prices by 2.36 percent.

In the memo, which was published by the Michigan-based W.E. Upjohn Institute For Employment Research, MacDonald and Nilsson say that statistic is incorrect and relies upon false assumptions.

First, while their research did find an increase in prices from a minimum wage increase, the increase was only in restaurants.

Their research pegged a 10 percent increase in the minimum wage to a roughly third of a percent increase in restaurant prices.

However, Rousu’s 2.36 percent increase in price came from assuming the increase in restaurant prices would apply to all other purchases, from a pair of shoes to a night in a hotel.

Rousu’s number was “likely far in excess of what would be the case,” the researchers wrote.

Instead, the researchers estimated a little more than half a percent increase in consumer spending from an increase in the minimum wage from $7.25 to $12.

In an email, Rousu said other studies have shown price increases as high or higher than MacDonald and Nilsson’s study from a minimum wage hike.

He also pointed to the fact that their study still acknowledged a non-“trivial” increase in prices from a proposed hike of Pa.’s magnitude.

“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,” Rousu said in an email.

Gov. Tom Wolf’s plan to raise the minimum wage to $15 an hour by 2025 has again made the topic a flashpoint in the Capitol.

Proponents point to the 1 million or so workers it would give a bump to or that all of Pennsylvania’s neighboring states have increased their wage. Detractors have derided an increased minimum wage as a job-killer.

This story was updated with a response from Matthew Rousu.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.