Montgomery County Minimum-Wage Study was Fatally Flawed

This month, a report commissioned by the Montgomery County executive made local headlines for its surprising claim that a modest increase in the county’s wage floor would lead to massive job losses. But even the most cursory examination of the “study” reveals a laughable methodology that yields no useful guidance. Not surprisingly, the study has come under fire from experts, and the county executive himself has questioned the findings in a letter to the consultants who prepared the report.

County residents like me should be outraged at this waste of nearly $150,000 in taxpayer money by County Executive Isiah Leggett (D) and demand that county policymaking be guided by evidence.

The report, produced by Philadelphia-based PFM, predicted that gradually raising the county’s $11.50 minimum wage to $15 over five years would lead to the most devastating job losses in a generation — far larger than the impact of the Great Recession. The Economic Policy Institute called it “absurd junk science,” pointing out that the “methodology for how they calculate expected impacts on employment is completely divorced from any actual research.”

Perhaps because of mounting criticism by economic experts and County Council members, or prompted by a public-records request from minimum-wage advocates into the preparation and promotion of the study, both PFM and Leggett now admit that the study’s methodology is flawed and its conclusions are unreliable.

Legitimate minimum-wage research analyzes publicly available data on employment, productivity, consumer demand, prices, payroll and other relevant information, and takes into account unrelated factors, such as preexisting economic trends unrelated to the minimum wage, that would bias the results. They are not generally based on opinion surveys.

By contrast, PFM based its analysis entirely on a nonscientific SurveyMonkey poll, focus groups and follow-up interviews in which they asked employers to estimate the percentage of their workforce that would be let go if the county’s minimum wage increased. The employers’ answers were taken at face value, with no attempt to address the possibility that they would overstate the likelihood of cutting jobs (as experience shows typically happens in such polls). The survey lacked quality-control methods to verify that responders were real employers with workers who would be affected, rather than ideological opponents of the minimum wage. These basic errors left it, in one critic’s words, “obviously subject to self-selection bias and even potential manipulation.”

The bulk of credible modern minimum-wage research finds that raising the wage floor has little to no impact on employment. This is illustrated both by meta-studies of the whole field of minimum-wage research, as well as the most recent, cutting-edge academic studies. For example, a recent study examining all U.S. state and federal minimum-wage increases between 1979 and 2016 found that these policies resulted in little to no change in employment levels. Similarly, another leading academic study compared job growth trends in all neighboring U.S. counties with varying minimum-wage rates — including a comparison of Montgomery County and the District with the adjoining Virginia counties where the minimum wage is lower — and found no evidence that the higher wages had hurt jobs in Montgomery or the District.

Moreover, rigorous analysis of Seattle — the first major U.S. city to begin phasing in a $15 minimum wage — shows that as of last year, when the city’s wage ranged from $10.50 to $13 depending on firm size, the restaurant industry (the sector most affected by the increase) had not been hurt. Although another study argued that the minimum wage was costing jobs, that study has been exposed as deeply flawed by leading economists. Essentially, it mistook rapidly rising wages in Seattle’s red-hot jobs market, where even dishwashers can command $20 an hour, for a reduction in low-paying jobs, which it erroneously attributed to the minimum wage.

Montgomery does not have to speculate on the impact of higher minimum wages; it has direct experience on which to draw. For several years, the county has been gradually increasing its wage floor, and at $11.50, its current rate is one of the highest in the country. Rather than facing calamity, the county’s economy is booming, and its unemployment rate is low.

Leggett has requested of PFM “a comprehensive review of the findings in your report,” but no further time or taxpayer funds should be spent on this fatally flawed study. PFM’s report should not inform the public conversation and should be disregarded by the County Council as it debates the merits of a $15 minimum wage.

You can read the original op-ed in the Washington Post.