UC Berkeley: "poor data" in Chamber minimum wage study

Silicon Valley / San Jose Business Journal, October 23, 2012

By Lauren Hepler

A new report by the University of California, Berkeley on the potential impact of San Jose's proposed Measure D minimum wage increase casts doubt on a study released by the local Chamber of Commerce saying the wage increase could cost 900-3,100 local jobs.

The San Jose Silicon Valley Chamber of Commerce earlier this month released a study (read it here) commissioned by the California Restaurant Association on the issue, which found that increasing minimum wage from $8 to $10 an hour could cost local businesses $69 million to $76 million. The study was completed by research firm Beacon Economics for a fee of $10,000, according to the San Jose Mercury News.

The Chamber and the study's lead author, Christopher Thornberg, maintained that the study was an independent analysis. Measure D is also opposed by the San Jose Downtown Association and San Jose Mayor Chuck Reed.

However, Berkeley economist Michael Reich says the study used "poor data" because of its "inadequate sample size" and also includes "incorrect assumptions" about how minimum wage workers would be impacted by the extra $2 an hour. He also said "gross errors in calculations" for projections in the Beacon study – which forecasts skyrocketing prices at businesses due to new labor costs – off "by factor of 10."

Instead, Reich finds that if passed by voters on election day, Measure D would increase business operating costs by an average of "less than .25 percent." He says this cost would be offset by lower employee turnover rates and higher worker productivity.

While maintaining that previous studies indicate that no "disemployment" (read: layoffs) would occur as a result of Measure D, Reich said prices could increase slightly at businesses staffed by minimum wage workers, such as restaurants. He estimates a price increase of .71 percent, or about 25 cents on a $30 meal.

Reich also sides with local advocates of Measure D (read more about their campaign here), who point to economic inequality and already high prices and poverty rates in the area as reasons why wages must be higher.

With more income, Reich says, minimum wage workers will have more spending power and inject more money into the local economy, benefiting both businesses and the government through increased sales tax revenue.

The Beacon Economics study also noted this effect, but said drastically higher costs for businesses outweighed this positive, and added that many people working in San Jose live outside of the city, meaning these new wages would be spent elsewhere. Beacon also estimated that the city would have to spend $612,000 per year enforcing a higher minimum wage.

Reich previously studied the economic impact of minimum wage in other cities, including San Francisco, which the Beacon study questioned in its review of existing studies on the subject for low response rates and not including effects on bigger businesses.

According the Reich's new report, which draws on 2010 census data, about 14.6 percent of workers in San Jose currently make less than $10 an hour.

For his projections, Reich assumes workers currently making $7-$8 an hour will see an average pay increase of $2.25 while those currently making $8-$10 an hour will average a $1 pay increase.

 

Original Article