Fact Check: Minimum wage claim not supported by nonpartisan research

Erin Jordan
Published: February 27 2014 | 2:42 pm - Updated: 29 March 2014 | 4:14 am in Fact Check,

Introduction

“The Legislative Services bureau, which does the nonpartisan figuring, knows it (minimum wage hike) will create 1,400 jobs because the people at the lower end of the pay scale spend that money in the economy and it actually creates more jobs in the retail sector.”

Source of claim 

Pat Murphy, state representative and former House speaker

ICUL Congressional District 1 Forum from Professional Video, Inc. on Vimeo.

Analysis

Raising the minimum wage is a hot topic nationally and in Iowa. The numbers being debated include how many people would escape poverty with the pay bump and how many jobs might be lost if employers have to pay higher wages.

Several candidates running for Iowa's 1st Congressional District spoke about minimum wage during a Feb. 18 panel at the Iowa Credit Union Legislative Conference in Des Moines. In this Fact Checker, we will address a minimum wage claim by Rep. Pat Murphy, D-Dubuque, and follow up with a claim by Republican Gail Boliver next week.

Murphy, a former house speaker, cited the Legislative Services Agency (LSA) as the source of a calculation that raising the minimum wage would create 1,400 jobs in Iowa because people who receive pay increases will spend the money in the retail sector. The nonpartisan LSA provides research to Iowa lawmakers and department heads.

But the LSA has not analyzed whether raising the minimum wage to $10.10 an hour would affect the Iowa economy, said Kenneth Ohms, a legislative analyst with the agency's Fiscal Services Division. So Murphy's statement about jobs being created didn't come from the LSA.

Murphy's campaign manager, Aaron Bly, did not return a call nor an email earlier this week to obtain more information on the sourcing.

Bly previously told us Murphy drew information from the Economic Policy Institute, a Washington, D.C.-based think tank that proposes public policies that “protect and improve the economic conditions of low- and middle-income workers," according to its website.

The EPI receives one-quarter of its funding from labor unions and is aligned with issues typically supported by Democrats. This doesn't mean EPI's research is biased, but it should be regarded as coming from a particular point of view.

Rep. Bruce Braley, a Waterloo Democrat running for Tom Harkin's seat in the U.S. Senate, also cited EPI as the source of statistics he included in a pro-minimum wage hike mailing he sent to constituents earlier this year.

The EPI released a report in December analyzing the Fair Minimum Wage Act of 2013, which ultimately would raise minimum wage from $7.25 an hour to $10.10 per hour.

The EPI concluded increasing the minimum wage would “generate a net increase in economic activity of $22.1 billion over the phase-in period,” which would support 85,000 new jobs across the nation. This boost would mean 900 new jobs in Iowa, according to the EPI.

David Swenson, an Iowa State University economist, said the EPI logic was “reasonably sound.”

“Low-wage workers are more likely to spend all their incomes than other classes of workers,” Swenson said.

However, the EPI uses national multipliers for its computation, while state multipliers are more accurate, Swenson said. The EPI model also assumes population growth and economic growth too robust for Iowa.

“I'd say their number is reasonable in the short run, though a tad high,” Swenson said.

The Congressional Budget Office, which provides nonpartisan research for Congress, released a report last week saying while a minimum wage increase would raise some workers out of poverty, it also would result in some jobs being eliminated.

An increase to $10.10 per hour would move an estimated 900,000 people above the poverty level, but would reduce total employment by about 500,000 jobs, the CBO reported. The office did not include a state-by-state analysis.

Conclusion

Pat Murphy's claim that a minimum wage increase would ultimately generate 1,400 new jobs in Iowa is mostly false.

For one thing, he cited a nonpartisan state agency when the information came from a national organization with a pro-worker stance traditionally aligned with Democrats. This isn't to disparage the EPI, which appears to have a solid analysis, according to ISU's Swenson.

Murphy also was 500 jobs off the 900 jobs EPI said would be generated in Iowa by boosting minimum wage. If the CBO is right that a half-million jobs would be cut if wages increased, those losses would overcome gains predicted by EPI.

Sources

http://www.epi.org/publication/bp357-federal-minimum-wage-increase/

http://www.epi.org/about/

http://www.cbo.gov/publication/44995


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