Analysis: Minimum wage increase will save 4,000 lives in first ten years

This morning, Scioto Analysis released a new cost-benefit analysis exploring what the impact of raising Ohio’s minimum wage would be. Research on minimum wage increases has shown that it can lower the suicide rate, prevent homicides, and lower infant mortality. Our model predicts that because of these three impacts, raising the minimum wage to $15 an hour in Ohio would save approximately 4,100 lives over the next 10 years. 

The primary cost of raising the minimum wage in Ohio would be an increase in unemployment. We estimate that as many as 73,000 Ohioans could lose their jobs as a result of this change, which amounts to a rise in unemployment of a little over 1%.

Using commonly accepted values for the costs and benefits, we estimate that raising the minimum wage in Ohio will generate about $25 billion in economic value for the state by 2036. The benefit of reducing deaths outweighs unemployment costs from an economic perspective. 

Currently, there are two minimum wage proposals Ohio is considering. There is a ballot initiative that would raise the minimum wage to $15 an hour by 2026 and Senate Bill 256 which would raise the minimum wage to $15 an hour by 2028. Our model is based on the ballot initiative parameters, which suggests that if Senate Bill 256 is passed we should expect slight lower costs and benefits, as the real impact on wages will be lower.

Policy analysis with an open mind

In the most recent edition of the Journal of Policy Analysis and Management, there was an article titled Medicaid generosity and food hardship among children. In this paper, the researchers Nicholas Moellman and Cody Vaughn explored the impact that Medicaid had on food insecurity. 

They found that having a child eligible for Medicaid reduced household food insecurity by 20%. This effect was stronger for Black and Hispanic households.

At first glance, this seems like a surprising result. Medical expenses covered by medicaid are not always consistent like food expenses. 

More generally though, resources are resources. If a family has unavoidable medical expenses, then Medicaid may allow them to not sacrifice spending in other parts of their lives. As noted in the Federal Reserve’s Survey of Household Economics and Decision Making, 37% of adults would not be able to cover a $400 emergency expense with cash. 

One inpatient day at an Ohio non-profit hospital costs on average $3,402 according to data from Kaiser State Health Facts. It makes sense that if a low-income family had to pay for a hospital stay for any reason, it could impact their ability to afford food. 

This result is interesting in itself, and policymakers should pay attention. Additionally, this paper reveals some key insights about the policy analysis process. In particular, I think it highlights the importance of two steps of the Eightfold Path.

Problem Definition

Food insecurity is not strictly an issue about lacking food, it is an issue about lacking resources. There are very few places in the United States where the reason someone is food insecure is only because they don’t have access to food, even though they have enough money. 

Food insecurity is often the result of people having to stretch their limited resources too thin, and sacrificing food intake as a result. As these researchers show, when we reduce resource burdens in one area, we find that people shift their consumption in response. 

As policy analysts, the lesson we can learn is that no problems exist in a vacuum. When identifying and defining problems, it is important to find the root cause.

Imagine a hospital is regularly over capacity. Without understanding why, we might predict the best course of action is to build a new hospital wing. However, if we know that the primary reason the hospital is always crowded is because the city’s drinking water is contaminated, then we can more efficiently address the problem. 

Criteria Selection

When selecting what criteria to measure a policy on, it is important to be open minded. All parts of the economy are connected, and analysts should always be thinking about what the impacts of a policy change might be several steps downstream.

This isn’t to say that analysts should always consider every possible impact. Policy analysis is always resource constrained, and there it is impossible to fully explore all outcomes. A skilled analyst should be able to both think outside the box and realize when certain avenues aren’t worth their time. 

At the beginning of a project, everything should be on the table. Criteria selection is one area where a lot of analyst bias can inadvertently be introduced. Giving some consideration to what may appear to be unrelated criteria is one way to increase the validity of an analysis.

Scioto Analysis collaborates on report on California's home and community-based services

For the past year, Scioto Analysis has worked with Northeastern University and Caring Across Generations on a report on home and community-based services in the state of California. This culminated in a report that was released last month.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA), which allocated a historic level of funding for Medicaid Home and Community-Based Services efforts in California.

Home and community-based services, also known as HCBS, are services that people with disabilities and older adults utilize to live independently in their own homes and communities. HCBS supports people with disabilities and older adults with activities of daily living, such as getting dressed, preparing meals, assisting with medications, maintaining employment, and using transportation. Over half of the $3 billion in enhanced federal spending sent to California was used to support the state’s caregivers.

Three years later, many of the ARPA funded programs are coming to an end, and this report finds that the specific programs funded that were aimed primarily at in-home caregivers would still leave in place a care system without sustainable investment.

Key findings of this report include:

• Caregivers supporting disabled people, despite state attempts to raise their pay, experience significant dissatisfaction with their pay and working conditions, even as caregivers continue to gain personal satisfaction from their work.

• Paid job training programs aimed at both In-Home Supportive Service (IHSS) and other care workers, were popular and effective but reached relatively few people and continue to overlook the need to make any changes to a system that fails to provide compensation reflective of the knowledge and skill of this workforce.

• Rushed implementation, contractual challenges, and short timelines hampered the effectiveness of new programs, making them more expensive to launch and operate. Spending deadlines approached just as the programs were reaching their peak effectiveness.

• Many family caregivers finally gained new opportunities to access training programs, respite care, and other services, but too few resources were directed at this large population, and these caregivers continue to be underserved by state and federal agencies.

How can we improve transportation budgeting?

When I first moved back to Ohio in 2017, I got reacquainted with Ohio’s state government. As a high school student, I had an internship in a state senator’s office where I learned about constituent relations and how legislators interacted with the public. Now, with a public policy degree in hand, I took a hand at being a budget analyst for the legislature then working for a think tank.

I recall early on seeing the work that was done on the state’s transportation budget. Like many states, Ohio passes a transportation budget separate from its general spending budget. This is because transportation budgets usually come from a different source of funding than general revenues, which in large part are raised through sales and income taxes.

Transportation budgets are focused on long-scale projects: spending that is generally debt-financed. The state has this budget to build things like roads, bridges, and other infrastructure that helps the state economy function.

Transportation budgeting seems like the perfect place for expert input. Unlike social issues or political issues, transportation budgeting is squarely an economic issue. As a matter of fact, cost-benefit analysis was first deployed in the United States by the Army Corps of Engineers to evaluate dam projects during the Works Progress Administration. For nearly a century, policymakers have deployed cost-benefit analysis to aid decision making around infrastructure policy.

And this makes sense. Transportation budgets are ultimately provision of public goods. We don’t have to pay tolls on (most) roads in Ohio because they are built and maintained with public dollars. This allows us to operate them as public goods most of the time.

It also means that our transportation system can be made more efficient by prioritizing construction and maintenance of transportation projects based on economic efficiency. By evaluating the economic value of different transportation projects, we can maximize the use of public dollars, reduce costs of damage to vehicles, and even save lives by making our roads safer.

Unfortunately, cost-benefit analysis, or any analysis at all, has little place in the process for transportation budgeting in Ohio. While members of agencies get to make recommendations for transportation budgeting, no one is conducting cost-benefit analysis to estimate the economic benefit of different transportation projects.

Democracy takes compromises. Having politicians involved with transportation budgeting is an inevitability in a democracy: this is a chance for them to make a concrete (no pun intended) case for what they are doing for their constituents.

But shouldn’t these policymakers have some information about the economic benefit of one project over another?

Since 1990, the Virginia Department of Transportation has employed a “value engineering” framework for designing highway projects. This approach has analysts evaluate value, quality improvements, energy savings, and other benefits of a given project and improve the project while it is being designed.

I don’t know much about value engineering, but the benefit of any kind of process is that it opens policymakers and analysts up to alternatives. Cost-benefit analysis is valuable for federal regulatory decision making not only because it helps policymakers figure out dollar value for the project, but also because it helps policymakers think like economists. It helps policymakers conceptualize tradeoffs that will ultimately be borne by regular people in their everyday lives.\

Economics is where the rubber hits the road for policy. So it should be deployed whenever rubber will hit road.

Ohio economists split on role of GDP in policymaking

According to a survey released this morning by Scioto Analysis, Ohio economists are split on whether or not GDP is a valuable economic indicator for policymakers. Of 17 economists surveyed, seven agreed that economic policy would improve if policymakers more frequently relied on non-Gross Domestic Product economic indicators, eight disagreed, and two were uncertain. 

GDP measures the total output of an economy, but it does not take into account any measure of how that output is achieved. Some economists believe that by using GDP growth as a proxy for economic wellbeing, policymakers end up making inefficient decisions. 

Rachel Wilson from Wittenberg University agreed that other economic indicators are more important, writing “GDP was invented in response to the great depression. It is necessary but insufficient. There are other alternatives like the Better Life Index or Genuine Progress Indicator. These other measures put more weight on goods and services that contribute to well-being, such as volunteer work and higher education, and deducts impacts that detract from well-being, such as the loss of leisure time, pollution, and commuting.”

Conversely, some economists believe that GDP should play a larger role in economic policy decisions. Researchers have shown that GDP is correlated with other indicators such as the Human Development Index, which suggests that policymakers might make efficient choices by maximizing GDP. 

Why unpaid labor has economic value

Earlier this week, I was reading a new working paper titled “Gendered Change: 150 Years of Transformation in US Hours” by L. Rachel Ngai, Claudia Olivetti, and Barbara Petrongolo. These researchers built a model of the US economy over time to try and understand how labor market changes impact the amount of hours that people spend participating in the labor market. 

In their paper, they mention the fact that in order to properly model these labor market fluctuations, they needed to count informal homemaking work in the 19th century as formal labor market participation. The justification they give for this decision is that in heavily agricultural societies, this type of informal labor is actually directly related to the formal market activities of the farms these people live on. 

For example, many farms that employ ranch hands offered room and board as part of the salary. These would almost certainly be provided by the wife of the farm owner, and although she would never receive a salary for her work, she directly contributed to the output of the farm. 

Non-market labor activities are an extremely important part of any economy. In our most recent calculation of Ohio’s Genuine Progress Indicator, we estimate that non-market labor contributes roughly $61 billion to Ohio’s economy. If Ohio’s unpaid labor market was its own country, it would have the 84th largest economy in the world by GDP, just behind Slovenia. 

This information is important to policymakers because it highlights the fact that economic output is not limited to the formal labor market. People spend a significant portion of their days creating economic value outside of the labor market. If people spend fewer of their hours on their job, they aren’t necessarily creating less economic value as a result. They’re often moving their labor from the formal market to informal markets such as housekeeping, child and elderly care, and home meal preparation.

A common example of this is labor provided by people when they spend their time volunteering. According to the Independent Sector, the current value of volunteer time nationally is $33.49 per hour, and it is rising quickly. Just five years ago volunteer time was valued at just above $25 per hour. This is extremely valuable economic activity that goes uncounted by our current system.

In Ohio, volunteering is slightly less valuable on average, with the value of volunteer time being $31.18. Still, this is significantly higher than many real jobs in the labor market. This suggests that there could even be economic gains if there was a policy that encouraged people to leave their jobs and spend time volunteering. 

Another point about non-market labor is that it is not evenly distributed across our society. Caretaking for family members, homemaking, even the tasks performed by volunteers, all can be paid for by professionals in the labor market if there is enough cash available. This means that often it is people with lower incomes that end up participating in these activities, and that we are undervaluing their economic contributions.  

Policymakers need to care about the entire economy, not just the labor force. While it is certainly true that the majority of economic activity takes place in the formal labor market, there is a great deal of other activity as well.

Ohio’s democratic decline is bad for business

In 2012, I had just graduated from college and I was looking for my first job after finishing up my Bachelor of Arts in Philosophy at Denison University.

I had spent one summer in college studying redistricting, trying to estimate the impact of redistricting on representation. Gerrymandering always struck me as fundamentally unfair, a violation of the tenets of democracy. It seemed to represent the most cynical impulses of political leaders: to consolidate power at the expense of the tenets of popular government.

I ended up interning for an ill-fated campaign to reform redistricting in Ohio. Today, over a decade later, we are still fighting for a fair system for drawing districts in the state.

Many claim gerrymandering is the source of political polarization in Ohio. While it may have some impact on polarization in state politics, I now think gerrymandering is a symptom of a much deeper political sickness in our state. 

Ohio certainly has leaders who have a sincere faith in democratic institutions, but there are others who have cynically joined the trend to erode institutions that keep our democracy strong. Whether it is a $60 million bribe for a sweetheart deal to increase energy rates or historically-low levels of lawmaking, we keep seeing signs that democracy in Ohio is in peril.

Democracy has inherent value: allowing people to determine their own government is good in itself. Democracy has also been found to be associated with more consistent good outcomes for residents of democratic countries. These range from better educational outcomes, more food and housing security, to better health and employment outcomes.

Most recently, Vanessa Williams of the Brookings Institution’s Governance Studies program wrote an insightful piece on the impacts of democratic erosion on economic growth. One finding she shared was from a recent study from the American Economic Review concluding countries with populist leaders, whether on the right or left, see a 10 percent decline in GDP per capita over the first 15 years.

Economists have argued for centuries that strong economies stand on strong institutions. People will only trade openly, invest dollars rather than hoard them or spend them frivolously, and take risks by creating new businesses or spending precious time creating new goods and service if they can use the past as a strong predictor of the future and know with some certainty that their investments will be safe in that future.

Compared to a government based on strong democratic institutions, a government based on strong “leaders” who claim a populist mandate to rewrite institutions creates instability that ripples out into the economy. That means the pie gets smaller: we all get poorer as our democracy gets weaker.

Williamson talks about the kinds of industries that suffer under a declining democracy.

Industries with high exposure to government decisions are endangered by capricious decision making by policymakers. This is how we get to $2 billion power plant bailouts shepherded into being with $60 million bribes.

Industries reliant on public investments or public services lose value as policymakers focus less on creating a strong environment for the economy and more on their self-interest. Ohio prides itself on its strategic location as a hub for logistics and shipping, but if road quality investments are driven by politics rather than strategic investment, it can push businesses in the transportation industry to look elsewhere for their investments.

Businesses investing on a longer time horizon lose the ability to trust macroeconomic stability will be ensured by policymakers. Young people move away as they gravitate toward places with better economic prospects. Media gets weaker as politicians make it their enemy. Scientists, doctors, and educators move to places where they can freely practice their professions. And tourists shun these places for others with less strife and violence.

Democracy is good in itself. Democracy is good for its people. Democracy is good for the economy. Ohio’s future will depend on leaders who care more about this than their own myopic interests.

This commentary first appeared in the Ohio Capital Journal.

How does wealth impact college access?

Earlier this week, I got my most recent copy of the Journal of Policy Analysis and Management in the mail. This journal is published by the Association for Public Policy Analysis and Management, and it is one of the most frequently cited journals by policymakers. 

In the most recent edition, there was one article that caught my eye. The study focused on college admissions and the difference between wealth and income. My colleague Rob Moore wrote recently about some ways we can address the wealth gap, but this paper was focused on one specific disparity created by wealth inequality.

The article is titled The racial wealth gap, financial aid, and college access, by Philip Levine from Wellesley College and Dubravaka Ritter from the Federal Reserve Bank of Philadelphia. 

These authors found that because wealth assets such as retirement savings and home equity are not included in financial aid calculations, the potential students who come from families with these assets get a significant subsidy compared to those that do not. Essentially, colleges and universities are underestimating the capacity that families with these uncounted assets have to pay for college. 

One argument against counting these assets in financial aid calculations is that because they are relatively illiquid, they don’t actually have much bearing on a family's ability to afford tuition. While this is true to some extent, research has shown that families with these assets, particularly home equity, are able to leverage their wealth to smooth their consumption under certain conditions. Essentially, they can spend more now because they know they’ll have money down the road.

Conversely, families that don’t have these assets don’t have the luxury to spend now because they don’t have money waiting for them later on. If someone doesn’t have a retirement savings account or home equity to liquidate later, then they have a lower ability to consume in the short run knowing that they’re going to need to have something once they're done working. 

The equity concern created by this system is that white families are more likely to have illiquid sources of wealth than other racial groups. This means that relative to other racial groups, white students receive a subsidy when they apply for financial aid. 

This is an interesting finding in and of itself, but the authors went further and quantified the impact of this subsidy. Specifically, they found that this particular feature of the financial aid system explains between 10 - 15 percent of the gap in educational advancement and student loan levels between racial groups. 

From a policy perspective, considering all wealth assets available to a family is a fairly simple way for colleges and universities to promote more equitable outcomes through their financial aid processes. It will take some careful consideration to properly adjust the formulas for these types of assets, but these authors have shown that not accounting for them at all is a mistake. 

The goal of financial aid in colleges and universities is to reduce the monetary barriers that prevent families with fewer resources from pursuing higher education. Right now, the formula isn’t benefiting the people who need aid the most, it’s benefiting the people who have generational wealth. If colleges and universities want to ensure their financial aid process is fair and equitable, they’ll have to rethink how they account for certain assets.

Analyzing Ohio’s two $15 minimum wage proposals

Last week, Senate Bill 254 was referred to the Ohio Senate’s Ways and Means Committee.

At a time when momentum is growing to increase Ohio’s minimum wage via ballot initiative, this new bill puts forth an alternative to increasing the minimum wage.

Senate Bill 254 has a few key differences from the proposed ballot initiative.

While the ballot initiative would raise the wage to $15 an hour by 2026, Senate Bill 254 would raise the wage to $15 by 2028. Both proposals index the new wage to inflation. 

If inflation rises at 2% per year (the federal reserve’s inflation target), that means the minimum wage will be about 60 cents lower in 2028 under Senate Bill 254 than the ballot initiative. This gap will be larger if inflation is higher.

Under the current minimum wage of $10.45 in 2024 indexed to inflation, the minimum wage in 2028 would be $11.31 if inflation increases at the reserve target over the next four years. So the Senate Bill is calling for a $3.69 minimum wage hike in 2028 compared to a $4.29 minimum wage hike from the ballot initiative. Effectively, the senate bill is calling for 86% of the minimum wage hike as the ballot initiative is.

Tipped workers would be covered by the ballot initiative, but not by the Senate bill. A long-term goal of minimum wage advocates has been to bring tipped minimum wages in line with overall minimum wages. Tipping culture has been linked to sexual harassment and wage theft and making workers less reliant on tips could help stem both of those issues in the restaurant industry.

A third difference between the two measures is legal. The ballot initiative is being proposed as a constitutional amendment. This shields it from modification by the legislature before or after it is passed. The Ohio Constitution can only be amended by a statewide vote, meaning that the ballot initiative would be the law of the land until another ballot initiative is passed to change it.

Senate Bill 254 could be modified in the Senate or in conference committee before the House. It also could be subject to line-item veto by the governor, changing the effect of the final bill before it becomes law.

A final difference between the two measures is that Senate Bill 254 includes a provision to expand the state Earned Income Tax Credit, a credit that provides tax relief to low-income families. The current tax credit is structured so that cash does not reach some of the most needy families. The change in Senate Bill 254 would expand eligibility for refundable credits, putting cash in the pockets of low-income workers.

When evaluating the two options, a clear tradeoff emerges between the two. Senate Bill 254 favors a less generous minimum wage increase in favor of a work subsidy targeted toward low-income workers. What this amounts to is a policy that will likely be less beneficial for workers at or near minimum wage with job security and much less beneficial for tipped workers with job security. On the other hand, it will benefit workers at risk of unemployment (especially tipped workers) and low-income workers not currently eligible for the earned income tax credit.

Both policies are likely to lead to more income for low-income people at the cost of some jobs compared to the status quo.

This may not matter in the scheme of politics. Voters are likely not paying enough attention to evaluate the bill as an alternative to the ballot initiative. That is, unless the General Assembly passed the bill and it was signed by the governor before a November vote. In that case, the ballot initiative would be about constitutional protection, date of phase-in, and tipped minimum wages.

That would be an interesting place to be in November.

This commentary first appeared in the Ohio Capital Journal.

Three steps for the United States to take happiness seriously

We remember 1776 for many reasons.

Certainly the event you associate this year with is the signing of the Declaration of Independence. Rebels against the crown of England put pen to paper to claim rights to self-government, life, liberty, and to pursue happiness.

Four months earlier, though, the most famous text in economic history was published: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. This book laid the groundwork for the entirety of the field of economics up until the present day. Smith’s treatments of division of labor, productivity, and market economics are the groundwork for how we understand economics today.

Less famous than these two texts was a third published that year, an anonymously-published pamphlet titled A Fragment on Government. Within this text, then legal theorist Jeremy Bentham put forth his theory of good government.

“It is the greatest happiness of the greatest number that is the measure of right and wrong…the obligation to minister to general happiness, [is] an obligation paramount to and inclusive of every other.”

Today, the ideals in the Declaration of Independence are echoed in the Constitution and debated by legal scholars daily within classrooms and every year to courts across the country. Questions of these ideals often become the province of the Supreme Court of the United States, one of the most powerful legal bodies in the history of the world.

Smith’s economic ideals reverberate through government, too, in technical workings through benefit-cost analysis required for federal decisionmaking. It also influences a powerful, non-partisan body of economists who have broad latitude to nudge the national economy, the Federal Reserve of the United States.

Yet, despite Thomas Jefferson’s words in the Declaration about the importance of the pursuit of happiness, Bentham’s statement has not taken root in the government of the United States of America.

No federal office specializes in subjective well-being. The United States Census Bureau does not collect data on subjective well-being the way the U.K.’s Office of National Statistics does. This means that policymakers do not have access to happiness data within the United States, even as the United States increasingly lags comparable countries in international happiness studies.

So what would a good happiness infrastructure for the United States look like? I propose three low-hanging fruit the United States could grasp to make happiness a serious part of U.S. policy.

1. Collect happiness data in the American Community Survey

The U.S. Census Bureau already has an annual survey that gives representative data down to geographies of about 100,000 people. Adding a cantril ladder question or, better, four questions mimicking those asked by the U.K., would give researchers a wealth of knowledge they could use to understand happiness trends across the country, across time, and across demographics.

2. Report annually on subjective well-being

The U.S. Census Bureau’s Annual Poverty Reports are some of the most useful reports put out by the U.S. federal government every year. They give regular updates on estimates of the extent of poverty in the United States and were key to explaining the impact of the 2021 Child Tax Credit expansion on poverty in the United States. Regular reports on happiness in the United States would be valuable information for the media, the public, and policymakers.

3. Appoint a happiness economist to the Council of Economic Advisers

The federal Council of Economic Advisers gives the President of the United States ongoing advice about the impacts of her policies on the U.S. economy. If the President is to understand the impacts of her policy decisions on the happiness of U.S. citizens, she needs an expert who can give her unbiased analysis of this topic. This can start with a member of the Council of Economic Advisers.

These are just three first steps. Ideally, the impact of public policy on happiness will be evaluated and happiness analysis can be incorporated into analysis in the Congressional Budget office and the Office of Information and Regulatory Affairs.

We have a long way to go to make Jefferson’s dream of a country centering the pursuit of happiness an ideal. But there are easy first steps to take if we wish.