June 22, 2015

How Liberals Manipulate the Minimum Wage Debate

As the minimum wage debate across the nation continues to heat up, the timing couldn’t be better for The Heritage Foundation to release a new report detailing the lies and fraud the left perpetuates against the better interests of the American people.
Read the next few paragraphs carefully, because the most basic argument for raising the minimum wage–i.e. to keep wages apace with the cost of living–is about to unravel.
Does the U.S.-Canadian speed gap bother you? Americans can drive no faster than 65 on Massachusetts highways. Meanwhile Canadian motorists zip along at speeds of up to 100. Congress should close this inequitable speed gap!

This argument sounds ridiculous, because it is. Canadians measure speed in kilometers per hour, not miles per hour. Moreover, many states have higher speed limits than Massachusetts. Any comparison that doesn’t account for such differences means little.
Yet many liberals do exactly that when arguing the minimum wage has not kept pace with productivity growth. They use one metric to adjust productivity for inflation and another to adjust the minimum wage, while ignoring workers who have experienced faster pay growth. This produces highly misleading comparisons.
That’s the thrust of the argument from The Heritage Foundation. But where’s the evidence of such leftist trickery? Surely, no one could be as deceptively and intentionally dishonest as that?
But, remember, it’s the American left we’re talking about here. Nothing is outside the realm of possibility.
Consider the chart below, produced by the left-wing Economic Policy Institute (EPI). The EPI argues that the minimum wage has lost purchasing power since 1968. Their figure juxtaposes the inflation-adjusted federal minimum wage with projected changes had it increased at the same rate as (1) average hourly earnings of production and non-supervisory (i.e. hourly) workers, or (2) economy-wide productivity. EPI argues this demonstrates the need for Congress to raise the minimum wage.
This chart is highly misleading, but for reasons invisible to most readers. EPI used different metrics to measure and adjust their pay and benefit figures for inflation. This creates completely spurious differences—just like comparing speeds calculated in kilometers and miles per hour. The EPI used the Consumer Price Index Research Series (CPI) to adjust the minimum wage and average hourly earnings for inflation. It used the Implicit Price Deflator (IPD) to adjust productivity for inflation. For methodological reasons , the CPI consistently reports more inflation than the IPD.
The figure below shows this choice makes a large difference. The CPI reports the minimum wage stood at $9.27 an hour in 1968 (in 2013 dollars). The implicit price deflator reports the minimum wage stood at $7.39 an hour (2013 is the most recent full set of data available for doing this adjustment). Using one deflator shows a substantial drop in the purchasing power of the federal minimum wage. Another deflator shows almost no change.
The CPI and IPD measure inflation differently. The Congressional Budget Office itself uses a third measure, the Personal Consumption Expenditures (PCE) index, for its minimum-wage research. The PCE produces figures roughly in between the other two. As it happened, EPI chose the metric that showed the minimum wage dropping in real value the most.

However, EPI used an entirely different measure of inflation, the IPD, to adjust productivity growth for inflation. Since that measure reports less inflation than the CPI, this choice causes inflation-adjusted productivity to grow faster than it would using the other measure. A substantial part of the difference in pay and productivity growth EPI depicts comes from using different metrics to adjust them for inflation.
Nowhere in its figure does the EPI explain they did this. Their “note” only mentions the CPI. But their analytical choices make a large difference for their overall story. Using the same measure of inflation for both productivity and pay would show the real value of the minimum wage has barely changed over the past half-century.
For even more examples, with clear analysis for the economic layman, read the whole thing here.
At the end of the day, the basic lesson is to always be careful of the minimum wage data the left is trying to force-feed the American people.
What do you think of this? Be sure to let us know by sounding off in the comments below!

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