Author: Jeremy Horpedahl

Florida’s Minimum Wage Experiment

Jeremy Horpedahl4 Comments

One of the more interesting results from last night’s election comes out of Florida: voters appear to have narrowly approved an increase of the minimum wage in stages to $15/hour in 2026 (Florida has a 60% requirement for ballot measures to pass, and the current vote total is just above that threshold).

Florida is not the first state to approve such an increase to $15/hour: 7 states have already done so, though no state is yet at that level. California will hit $15 first in 2022. Several US cities, such as New York and Seattle, as well as the “city-state” of Washington, DC are already at $15, but these are generally very high wage cities.

What makes Florida the most interesting of the states to try very high minimum wages is that Florida is not a high wage state. Once the minimum wage is fully phased in (in 2026), the minimum wage will be about 75% of Florida’s median wage (it was $17.23 in 2019). That’s much higher than other states: California will be the next highest at about 66%, with Oregon next around 64%. Oregon will be close to $15, but perhaps a little below, as they index their minimum wage for inflation.

(To make these estimates I am using 2019 median wage data from the BLS OES wage data and assuming 2% annual wage growth. This may not be exactly right, but it’s probably close enough.)

Also important to note in Florida: the median wage is not $17.23/hour all over the state. Several MSAs in Florida currently have a median wage at or even below $15 (Sebring, Florida is the lowest at around $14/hour). There will be some wage growth over the next 6 years in those areas, but still this means that the minimum wage will be applicable to roughly half the labor force.

That brings up another interesting legal question: will the minimum wage apply to salaried workers making less than $30,000 per year? The way the law is written, probably not, but logic would seem to dictate that it should. Otherwise, what’s to stop an employer from hiring an employee on a $2,000/month contract, equivalent to $12/hour for a full time worker?

The minimum wage debate among economists consumes a vast literature, and I am no expert on it, and will make no attempt to summarize it here. But Florida seems to be breaking new territory. My little state of Arkansas currently holds the “record” for a US state starting in 2021, with a minimum wage of $11/hour which will be about 67% of the median wage (and about 78% of the median wage in Hot Springs, Arkansas). Florida’s experiment will certainly give economists a new experiment to study.

Arin Dube, one of the leading researchers of the minimum wage and a strong advocate of raising the wage, suggested in a recent policy paper that a good minimum wage for Florida would be around $9/hour, given their wage distribution. That was in 2014 dollars, so we can roughly adjust that up to $11-$12 in 2026 dollars. Florida voters have chosen to go well beyond that recommendation.

Ice!

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Continuing with our gift recommendations, Joy has asked us to recommend another gift besides a book (see my recommendation of The Pox of Liberty last week). I have one clear recommendation: ice. But not just any ice: clear ice.

Some of you might wonder what all the fuss about ice is. But if you have every been to a cocktail bar, you can clearly see the difference: clear ice just looks better. I won’t make any strong claim that clear is has better flavor. This value is primarily aesthetic. It’s a little indulgent. But it’s worth it. Since we’re all drinking more at home, recreating the charms of a good bar is half of the fun.

How do you get clear ice? You might find many suggestions on the internet, such as using distilled water or boiling your water. These don’t work. A few years ago, you only had two good options: buy a Kold-Draft machine for several thousand dollar, or get your ice out of a lake.

Thankfully today, there are many ice cube molds on the market that simulate the way nature makes ice: slow, directional freezing. The best one I know of is called True Ice, but you can find other similar molds. These are all around $40. Perhaps it is a bit much for yourself, but the point of gift giving is to find something the recipient wouldn’t have thought to purchase themselves, and they still enjoy. Otherwise, just give them cash!

And furthermore, while $40 for a mold that produces something your refrigerator already makes might seem silly, keep in mind that ice has a long history of being a luxury product. For fascinating history of the early commercialization of ice, read this article about Frederic “The Ice King” Tudor (for a longer treatment read The Frozen Water Trade).

Here are two cubes I made at home with the molds described in this blog post. Can you tell the difference?

Of course, I am assuming that you already have a basic 2 inch ice cube tray. If you don’t already, start with the Tovolo King Cube Mold before you really get into clear ice. These cubes are great for drinks that don’t need a clear cube since they aren’t clear themselves. They are also the perfect size for shaking cocktails.

And one last thing: fancy ice cubes aren’t just for alcoholic cocktails. Kids love them too. Put some plastic army men or other little toys in the ice cubes as they freeze, and they make great bath toys.

One final tip: if you pull an ice cube directly from the freezer and pour room-temperature liquid over it, the ice will break, ruining your beautiful creation. Set the ice out for about 60 seconds before pouring that delicious drink.

To Understand the Pandemic, Look to History (Economic History)

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As the holiday shopping season gears up, Joy has invited us to suggest some books that you might give as a gift (or read yourself!).

I have one very strong recommendation: Werner Troesken’s 2016 book The Pox of Liberty. Unfortunately the publisher did not foresee the renewed interest in pandemics due to COVID-19, so you might have to settle for an electronic version of the book right now (though you might have better luck with the publisher than Amazon).

The Pox of Liberty – A Book Review By Dr. Price Fishback - Foundation For Teaching Economics

Tragically, Troesken passed away two years ago. Many of us would love to hear his thoughts about the current pandemic. The beauty of this book is that we can still learn from him even though he is no longer with us, not only about pandemics of the past, but possibly with lessons for our current health crisis.

Troesken brings his broad knowledge of economics, history, and demography to examine the history of smallpox, typhoid fever, and yellow fever, as well as the policy responses. Broadly Troesken asks: why has the US historically been one of the richest countries in the world, yet so bad at fighting infectious diseases?

I won’t spoil the whole book, but he argues that the answer to both questions can be found in the US Constitution. The liberties protected in the Constitution allowed for the US economy to be among the best performing in the world, but made it hard for the federal and state governments to address pandemics. It’s a trade-off, or rather multiple trade-offs, as Vincent Geloso has put it.

We can see this clearly in the differences between the US and European responses to COVID-19: European countries were able to close their borders which spared many central and eastern European countries from the first wave of the current pandemic (though it does look like this may have been a temporary reprieve, as Czechia, Poland, and others are now seeing dramatic increases in COVID-19 cases). In the US, the virus has slowly spread from state to state, seemingly sparing no one in its path despite varying public policy interventions (including mostly unenforceable travel restrictions). We don’t know what the future holds for COVID, but the constitutional factors at play that Troesken described for smallpox 100 years ago seem to still matter today.

On a personal note, Troesken was a professor of mine in grad school (he spent one year at George Mason University, though most of his career was at Pitt), and he was a big influence on me, especially his teaching style. While I respected his work greatly, I was always puzzled by his interest in infectious diseases. What was the relevance of this topic for understanding the modern world? Well, in 2020, we all found out. And now we miss Werner even more.

How to Think About Inequality Data and Public Policy

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Lately I’ve been thinking about the disagreements among economists about the extent to which inequality has increased in recent decades. I am facilitating a reading group at my university on inequality this semester with some great undergrads, so it has very much been on my mind.

With conflicting data showing different trends, how are we as economists to judge this? How can the general public even have a clue how to judge this?

You may have seen this chart before. It comes from an article in The Economist, which actually does a really good job of explaining the debate over the data if you know nothing about it.

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According to some estimates, the share of income going to the top 1% has doubled and is now over 20%. That sounds bad. Maybe we need some more redistribution. Maybe a wealth tax.

But according to other estimates, and taking account of our existing system of progressive taxes and redistribution, the share of income going to the top 1% has not risen at all, is only about 5%. Less worrisome. The existing system of taxes and transfers seems to be doing a pretty good job, or at least no worse than in the last 60 years. No need for a new wealth tax, etc.

So who is right?

Sorry, I don’t have the answer. I think I’m pretty good at digging into economic data (follow me @jmhorp on Twitter for an almost daily dose of data debunking!), but I am no expert in this area. There’s probably only a dozen economists that really understand this data and the trade-offs in different forms of measurement.

So instead of giving you the “correct” answer, I offer you a chance to reflect. Our temptation is to say the “correct” data is the one that comports with our political preferences. If you are a progressive, you probably think inequality is bad and getting worse. Piketty is your man. If you are more of a libertarian, you probably think it’s about the same as recent years. Auten and Splinter must be right!

Stop. And instead, consider how you might view the policy implications of the data you don’t like being the correct data. If you are a progressive, would you still think we need a wealth tax even if the Auten and Splinter data is correct? If you are a libertarian, would you still think things are just fine and maybe we should cut the top tax rate if it turns out that Piketty and co-authors have the real data?

If you answer is the same for the policy implications regardless of what the data say, you might want to check yourself. And if so, why are we even arguing about the data?

Perhaps your answer is “I might have the same policy answer regardless of the data, but there are people out there that are convinced by data.” I think that’s possibly reasonable, and I would like it to be true, but where are these people?

Perhaps the answer is “as a libertarian, I don’t care about inequality so long as the poor and middle class are also sharing in the gains.” Or “as a progressive, I will continue to worry about inequality until the top 1% only has 1% of national income.”

I think these are the normal fallback answers. But really? Libertarians: if the income of the top 1% doubled in a decade, but the bottom 99% increased by 0.5%, you would be fine with this, because at least no one declined? Progressives: you would really support increasing taxes on the rich, despite any downside to this, until incomes were exactly equalized?

Frankly, I don’t believe anyone really holds either of those extreme positions. So surely, the data must matter? We want some reasonably shared benefits from economic growth, but no one really demands that they be exactly equal, right?

So, consider your own biases. Don’t engage in motivated reasoning. And think through how your views might change if you are wrong about the data. Perhaps someday Mother Nature will reveal herself, we’ll have the true inequality data, and we’ll see if we were honest about our reflections.

Economic Research on Gender, Race & Ethnicity, and Inequality

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How much research do economists devote to the topics of gender, race and ethnicity, and inequality? In a recently published article in Econ Journal Watch, Arnold Kling and I looked at articles published in the American Economic Review as well as the conference papers of the American Economic Association on this topics. We find that economists devote a large amount of space to the topics combined in recent years: over 10% of published articles and over 20% of conference papers. We also find that the share of research on this topics, as measured in these two AEA outlets, has been increasing over time (we go back to 1991, when the current JEL Code system was introduced).

Of the three areas we looked at, papers on gender saw the clearest increase, rising as both a share of published articles and conference papers. Published AER articles addressing inequality have also been increasing over this time period, though AEA conference papers on inequality have been stable. Both published articles and conference papers on race and ethnicity have been stable over the period we studied as a share of the total, though the absolute number has increased.

What is the significance of our results? Our main motivation was to challenge other economists who suggest, in various ways, that economists ignore these topics or don’t study them enough (for examples see these popular writings on gender, race and ethnicity, and inequality). Our research clearly shows that economists devote a good deal of attention to these topics, and for many areas it has shown a clear increase.

It is still possible that economists don’t dedicate enough time to these topics. We make no strong claim in the paper about what the correct amount of time for each topic would be. However, we do note the opportunity cost that comes with an increasing focus on these topics.

More importantly, those who suggest in public venues that economists ignore these areas are doing a disservice to all the scholars that have devoted their careers to studying these important topics and publishing their results in one of the top journals in the discipline. We have much more to learn about gender, race and ethnicity, and inequality, but dismissing the research that has already been done is unfair to a discipline that has increasingly focused on these areas.

OK, Millennial?

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How do young people fare when it comes to household wealth? The recently released Survey of Consumer Finances from the Federal Reserve provides some insights. One major takeaway: the much-maligned Millennials are doing pretty good! Ernie Tedeschi created this informative chart on Twitter:

Looking at household net worth at roughly the same age, Millennials today have roughly the same household wealth as Boomers did in the past. And both of these generations beat the generation between them, Gen X, as well as the “microgeneration” creatively labeled Oregon Trail.

And it’s something of a running joke on Twitter, but I must add: Yes! It’s adjusted for inflation!

Part of this may be driven by the increase in dual-income households. Certainly that matters. While wealth data by number of earners is harder to track down, income data is more readily available. What if we look at single-income households? Millennials are still in the lead! (Once again, the chart comes from Ernie Tedeschi.)

And before you ask: Yes! It’s adjusted for inflation!

None of this means that Millennials don’t face challenges, including financial ones. This data is current through 2019, so 2020 will almost certainly make these numbers look worse, for a time. But all things considered and anecdotes aside, the kids today seem to be as well or better than past generations.

(Oh, and before you ask: Yes! It’s adjusted for housing, medical, and education costs! In fact, these three factors make up half or more of most inflation adjustment indices.)