Minimum Wage Stirs Maximum Controversy

There’s no magic bullet to solve thorny policy questions. Minimum wage is an increasingly popular way to tackle income stagnation and inequality, but it requires a trade-off: higher wages will cause some degree of job loss.

After the District of Columbia instituted a minimum wage hike earlier this year, the city needed to understand how the increase in wages would affect D.C. workers. The District is increasing the minimum wage incrementally until it reaches $15 in 2020.

To analyze the impacts of this policy, the D.C. Office of Revenue Analysis used the REMI model. The authors of the resulting report found that District residents will see an average increase in income of roughly 20 percent. At the same time, around 3.4 percent of residents will lose their jobs.

While these findings appear largely positive, reports on minimum wage impacts often reach differing conclusions and spark fierce debate.

For example, two universities researched the effects of Seattle’s minimum wage increase and produced opposing results. Seattle recently adopted a tiered system of wages, requiring large employers who don’t provide benefits to pay $15 per hour and small employers who do provide benefits to pay $11. University of California, Berkeley found that the minimum wage increase helped workers, while University of Washington found that the reduction in employee hours outweighed the increase in wage.

Why the difference? Differences in methodology can lead to vastly different sets of predictions. For example, an important methodological factor when studying minimum wage impact is which workers to study. The UW study excluded workers at businesses with more than one location, effectively excluding 48% of Seattle’s low-wage workforce. Bloomberg View called the move “a glaring weakness.”

Other studies focus on subgroups of the population such as teenagers or restaurant workers. These are important subgroups to study, but when it comes to making policy decisions, it is crucial for decision-makers at all levels of government to estimate broader impacts as well.

The D.C. analysis studies all workers in the city and predicts that the wage increase will impact 60,000 District residents. The authors also consider the effects of the wage increase on D.C.’s substantial commuting population.

Rigorous analysis, such as that undertaken by the D.C. Office of Revenue Analysis, exposes the complexity of issues such as minimum wage and ultimately leads to more realistic expectations and better policy.

Ann Arbor Transportation and Economic Development Conference

REMI users and economic analysts recently gathered in Ann Arbor, Michigan for a conference on transportation and economic development. Presenters used the REMI model to forecast the impacts of changes in demographics, tax policy, and infrastructure in the Great Lakes region.

“Tackling questions on infrastructure is a pressing need right now at all levels of government,” said REMI Vice President Billy Leung, who led presentations on fuel efficiency standards and long-term transportation planning in Southern California. “We had state, regional, and federal governments in attendance in Ann Arbor. What they all have in common is a recognition that this is an important time period for making sure our infrastructure is maintained.”

Transportation and infrastructure have profound effects on any economy. For the Great Lakes region, in particular, the presence of international shipping lanes with Canada means that maintaining and upgrading infrastructure is critical for U.S. trade.

Regional Impact of Defense Contracting

As the Trump administration seeks an increase in military spending for next year’s budget, regions in the U.S. with a large presence of defense contractors must evaluate the potential economic impacts of an influx of tax dollars.

We recently hosted a guest webinar presentation by Mike Siers, Senior Economist at Towson University’s Regional Economic Studies Institute, on the effects of Pentagon contracting on the state of Maryland. Using the REMI PI+ model, Mr. Siers calculated the direct and indirect economic impacts of defense contracting in the state. PI+ is REMI’s core product for dynamic economic modeling.

Maryland depends heavily on funding from the Department of Defense, and regions with military facilities are especially dependent. Southern Maryland, for example, is home to both the Indian Head Naval Support Facility and Naval Air Station Patuxent River. In total, Maryland hosts 20 military facilities and roughly 8,500 businesses focused on defense sectors. Between 2011 and 2015, the state received over $16 billion in Department of Defense funding, according to USA Spending data.

These figures underestimate the impact of defense contracting on Maryland’s economy, as they do not include classified data from the NSA and other federal agencies. Many contractors on classified projects are based in Maryland.

Mr. Siers explored the effects of five different funding scenarios on Maryland sub-regions to identify which sub-regions were most impacted by each policy change. Using the REMI model, Mr. Siers divided Maryland into five sub-regions and tested (1) the impact of a 10% reduction in DoD funding; (2) the impact of a 10% reduction in R&D funding; (3) the impact of a 10% increase in cybersecurity funding; (4) the impact of any single large defense contractor; and (5) the overall impact of defense contracting.

Mr. Siers calculated that overall, Maryland’s economy relies on defense funding for 3.7% of its employment. Although Southern Maryland is most dependent on defense funding in percentage terms, the Central and Capital regions will experience the largest fluctuations in employment when defense spending levels change. In absolute terms, the Central and Capital regions reaped the largest benefits from the increase in cybersecurity funding, but suffered significantly more from cuts in DoD or R&D funding than did other regions.

Another insight of the study was that Maryland’s defense-reliant jobs tend to be high-paying. Of the 113,000 Maryland jobs dependent on defense funding, 93% require moderate to high levels of education and experience. The most dependent industry is the professional, scientific and technical services sector.

Using these results, Mr. Siers and his team at RESI developed a diversification plan for Maryland’s economy and built an interactive dashboard mapping the defense industry supply chain within the state. These projects will inform further diversification efforts for the Maryland economy.

We would like to thank Mr. Siers for sharing his insights with REMI clients and guests at the webinar.

Energy, Economy, and the Environment Conference

REMI recently welcomed economic impact analysts and guests to our headquarters in Amherst, MA for an annual policy and training conference. Guest speakers and REMI associates presented a variety of topics related to this year’s theme, “Policy in the Trump Era: Energy, Economy, and the Environment.”

Given the considerable changes in public policy implemented by the Trump administration, energy policy and environmental regulations are particularly relevant issues. Dynamic economic modeling can play an insightful role for federal and state policy-makers, who depend on sound analysis to supplement their recommendations.

At the conference, REMI Vice President Billy Leung unveiled a new tool to inform those recommendations: E3+, a model designed to calculate the economic impacts of changes in energy and environmental policy.

A popular topic at this year’s conference was CAFÉ Standards, the regulations designed to increase the average fuel economy of cars and trucks. Several speakers, including Don Pickrell and Brianna Jean of the US DOT Volpe National Transportation Systems Center and Mr. Leung of REMI, presented research on the economic impacts of changes in those standards.

Another highlight was a presentation from long-time REMI user Shah Dabirian of South Coast Air Quality Management District, discussing the macroeconomic impacts of Southern California’s ambitious emissions reduction program.

REMI hosted this conference to highlight the importance of dynamic economic analysis in evaluating changes in energy and environmental policy. The presentations demonstrated how reliable, nonpartisan analysis can improve our understanding of these issues. We want to thank all of the participants for making this year’s conference a success.

REMI Washington DC Luncheon: Energy Efficiency

REMI luncheons are held each month at Metro Center, 700 12th Street, NW, Suite 700, Washington D.C. 20005.

The use of tax deductions to promote energy efficiency inspired an in-depth discussion at REMI’s most recent Washington DC policy luncheon.

Presenting before a packed room at One Metro Center July 29, REMI CEO and Chief Economist Fred Treyz, Ph.D. along with REMI Senior Economic Associate John Bennett shared the results of a recent REMI report on the economic impacts of section 179D of the Energy Policy Act of 2005, which offers the owners, operators or designers of energy-efficient commercial buildings a tax deduction in accordance with the degree of their energy savings.

The REMI report found that extending existing law for an additional 10 years can sustain up to 50,000 jobs across the US economy, and potentially up to 100,000 if the program is strengthened and extended for another 10 years. The audience engaged in a question-and-answer session after the presentation with REMI staff, leading to a discussion of the underlying economic dynamics – energy savings, capital investment, fiscal relief, and more – that connect section 179D to robust economic growth results.

The report, commissioned by a coalition led by the American Institute of Architects, can be found here.

The report was also sponsored by Alliant Group LP, Ameresco, Blue Energy Group, Building Owners and Managers Association (BOMA) International, Concord Energy Strategies, Energy Tax Savers, Energy Systems Group, National Electrical Manufacturers Association (NEMA), the Natural Resources Defense Council (NRDC) and the United States Green Building Council (USGBC).