The coverage of recent research into the Seattle minimum wage increases continues. A couple of stories we thought worth your attention.
A Wall Street Journal “review and outlook piece” begins with a wry observation.
Some laws of economics are so obvious that they require hundreds of papers to prove, and a classic example is the minimum wage, which increases the cost of labor and in most cases prices some workers out of jobs.
The editorial discusses the University of Washington report that found negative effects on jobs and earnings for low-wage workers and the more positive UC Berkeley report released a week earlier. It found the UW study more compelling and offered this conclusion:
The real and eternal lesson is that political wage-setting hurts the least skilled and lowest-paid workers, as the evidence in Seattle shows.
Economist Jonathan Meer examines the criticism of the UW research. Among his observations:
Many of the criticisms of the UW study suggest a highly selective read of the minimum-wage literature, but they are worth addressing in detail. The first is that the results are somehow “too big” and inconsistent with prior research. Minimum-wage advocates would argue that any negative finding is “too big” and reflects errors in the research — an unscientific argument that borders on the tautological. But there are good reasons why the impacts are so large. This is by far the highest minimum wage that has ever been examined, and the wage increase occurred only in a single city. A bigger increase causes a bigger employment effect.
The UW study’s primary limitation is that it excluded many employers with multiple establishments, because such employers might have some locations in Seattle and some elsewhere in the state. This is the sort of tricky decision that economists have to make all the time. However, the UW researchers conducted extensive surveys showing that multi-site employers in Seattle were more likely to report job reductions than the single-site establishments. To believe that the exclusion of multi-employer establishments negates the results, one would have to believe that multi-site employers somehow massively expanded their operations in response to the higher minimum wage, enough to make up for reductions and slowdowns elsewhere — and yet reported in a survey, en masse, that they had cut staffing.
And, regarding the hot Seattle economy, Meer writes,
EPI and others then claim that the results are overstated because Seattle has been booming. This is exactly backwards: If Seattle is growing faster than expected, then the counterfactual comparison group is not keeping up as well at it should be, understating the extent of the job losses. It also seems strange to claim that low-wage work will do worse in good economic times, when the recent evidence of the Great Recession shows the opposite. More to the point, recent research shows that the negative impacts of the minimum wage are higher during economic downturns, not boom times. There is no cherry-picking here.
Members of the UW research team write in an op-ed in the Seattle Times,
Our research found that during the second phase-in period, hourly wages paid to low-wage employees increased, as intended by the ordinance. However, our estimates also suggest that the higher wages led to the elimination of more than 5,000 low-wage jobs. Standard economic theory predicts that employers will reduce their demand for labor given a higher wage. In percentage terms, the loss of jobs was significantly larger than the gain in hourly wages. As a result, while some low-wage workers may have earned more, we estimate that the net earnings per low-wage job in Seattle fell by an average of $125 per month. For low-wage workers, this is a substantial loss.
There is much that we don’t yet know, and conclusions on the merits of this policy should wait until we have additional information. When data become available, the team will evaluate the ordinance’s longer-term impacts on work and earnings after the minimum increased to $15 this year. The team will also evaluate the ordinance’s impacts on the distribution of earnings (e.g., teenagers versus heads of families, men versus women), overall family income, the prevalence of poverty, child-support payments, health and use of safety-net programs. Policymakers and Seattle citizens may be willing to accept some loss in low-wage employment if they perceive the distribution of gains and losses favorably.
The op-ed also offers three preliminary lessons: 1) The findings should “give some pause” to local governments considering a similar wage hike, 2) There are other policies to combat income inequality and promote economic opportunity, including education, apprenticeships, earned income tax credits and tax reform, and 3) Just because a social experiment may be disappointing doesn’t mean experimentation should cease.
While the findings sometimes disappoint advocates for the policy, good governance relies on being receptive to new information and a willingness to adapt, if necessary.
Seattle Times columnist Danny Westneat writes that for lessons to be learned, city officials need to be open to new information.
The Washington Research Council also offers some thoughts on the research.
More later, no doubt.