More on what we know about effects of the minimum wage: It’s complicated and important

Monday we wrote that I-1433, which would raise the state minimum wage, has qualified for the ballot. In that post we also commented on the latest academic evaluation of the economic impacts of the Seattle phased-in minimum wage. 

The Washington Research Council takes a close look at the study

All in all, the findings of this report are fairly modest. (After all, the report only considers the increase from $9.47 to $11.) They show that there are tradeoffs involved—although wages go up for workers who keep their hours, there are disemployment effects. (See here and here for more on the minimum wage in general.)

As the researchers note, the ordinance lowered employment rates for low-wage workers. They suggest that this “needs to be followed closely in future years, because the long-run effects are likely to be greater as businesses and workers have more time to adapt to the ordinance.” 

Finally, the researchers

caution the reader to not interpret these results as likely to be generalizable to other cities nor to the state of Washington . . . . Seattle’s strong economy may make it capable of absorbing higher wages for low-wage workers, and this capacity may not be present in other regions.

I-1433 will be on the ballot in November. It would increase the state minimum wage to $13.50 in 2020—including in areas of the state with economies that are not as strong as Seattle’s.

The observation that economies vary, within and between states, and that the variation makes them more or less “capable of absorbing” a high minimum wage is important. It’s what common sense would tell us, certainly, but common sense can sometimes be swept aside by the broader brushes of public policy.

Oren Cass, with the Manhattan Institute, has studied the issue. MI has published his Reality Check analysis, a 5-page issue brief. The “key findings:”

The size and diversity of the U.S. labor market make a national lens inappropriate for evaluating minimum-wage policy. While the federal minimum wage appears low by historical and international standards, states with median wages significantly above the national average have all instituted higher state-level minimum wages; some high-wage municipalities have raised their local minimums further still. Taking account of these state and local minimums, the ratio of U.S. minimum wages to median wages is slightly above the average for comparable advanced, market-based economies.

Setting the minimum wage based on what advocates want a market to support—rather than on what the market is capable of supporting—is a recipe for economic disruption that will most badly hurt many of those whom the policy is intended to help. A dramatic increase in the federal minimum wage—to $15 or even $12 per hour—would replace a system that tailors policy to local conditions with a system that imposes a single standard from America’s most prosperous cities on less affluent areas that can ill afford it.

His final assessment seems to square with the preliminary findings of the research on Seattle’s minimum wage.

A minimum-wage increase is a by-product of a healthy labor market, not a catalyst for one.

So far, that “healthy labor market” has yet to reach all corners of our state.