Seattle’s experience with minimum wage increases continues to draw national attention. In particular, the University of Washington report finding that the increase to $13 an hour cost low-wage workers jobs and earnings has led to some thoughtful (and some not-so-thoughtful) analysis.
American Enterprise Institute scholar Michael R. Strain offers a thoughtful and nuanced commentary for Bloomberg View.
A team of researchers at the University of Washington, led by economist Jacob Vigdor, found that the number of low-wage jobs in Seattle declined considerably as a consequence of the $13 per hour mandate. They also found that the number of hours worked by low-wage labor declined by 9 percent, while wages increased by only 3 percent. Since hours went down more than wages went up, the net result is that the amount of money earned by low-wage workers actually fell.
The reactions to the Vigdor study have not been edifying. Both the pro- and anti-minimum wage crowds need to stop and take a breath.
Like other economists, he finds the Vigor study credible. He also acknowledges that it is not the final word on the subject, a point the UW research team itself has made. Strain notes,
At the same time, the Vigdor study is just one study. Should it increase our confidence that minimum wage increases can hurt low-wage workers? Of course. Does it prove that point for all time in all places? Of course not.
So where does this leave the debate over minimum wages? Right where it was before: confused.
…In short, there are trade-offs. And so when thinking about whether minimum wage increases are good or bad, you have to think clearly about the social goal you are trying to achieve. If your goal is to help reduce income inequality and to increase the earnings of some middle-class households, then the minimum wage is not a crazy policy.
But if your goal is to help the least skilled, least experienced, most vulnerable members of society to get their feet on the first rung of the employment ladder and to start climbing, then the minimum wage is counterproductive. Its costs are concentrated among those vulnerable workers. It is an obstacle in their paths. It is bad policy.
No economics paper can tell us the right social goal. But a good one can help us understand the effects of a policy. The Vigdor study does that, and does it well.
The New York Times editorial board supports an increased minimum wage and thinks it finds some confirmation in the Vigdor study.
…it seems safe to conclude that Seattle has tolerated its minimum wage increase well and that, by extension, other strong economies could do so. It also suggests that a key to successful large increases is a gradual phase-in that gives businesses time to adjust and experts time to study the impacts as they unfold.
Caution is advisable, because large increases are largely untested. What is not acceptable is to do nothing in the face of uncertainty. Minimum wages have to go up…
Cities and states are experimenting with higher minimums because Congress has failed to raise the federal minimum. The experiment appears to be working.
Apparently, for them, the social goal is boosting the earnings of some middle-class households. There was rarely a question of whether Seattle could tolerate the higher minimum wage: The city’s economy is robust and businesses are resilient. Tolerating it, though, has resulted in fewer jobs and earning for, in Strain’s words, “the least skilled, least experienced, most vulnerable” members of the community.
Which brings us to the final of the three commentaries we cite today. Charles Hughes, a policy analyst with the Manhattan Institute, writes in E21 that teens would benefit from a youth minimum wage. He comments on the UW report and draws lessons from recent research in Denmark.
In recognition of the outsized harm the minimum wage might have on young workers, many European countries, including Denmark, have a lower youth minimum wage. This structure leads to a discontinuity in the minimum wage, as it jumps significantly when a person reaches age 18.
In a recent study, Claus Thustrup Kreiner of the University of Copenhagen, Daniel Reck of the University of California Berkeley, and Peer Ebbeson Skov of Auckland University of Technology used administrative data with quarterly information on wages, hours worked, and employment, which allowed them to examine the effect of this minimum wage discontinuity on a range of metrics.
Their main findings are that the approximately 40 percent increase in the average hourly wage rate at age 18 led to a 15 percentage-point decrease in employment, which corresponds to a 33 percent decrease in the number of people employed. Total labor input, which also incorporated changes in hours worked, declined by approximately 45 percent.
The differences in employment rates for workers who did lose their jobs when they turned 18 to those that did not is substantial and persistent. One year after losing a job at age 18, only 40 percent of those young people are working, compared to 75 percent who were able to keep a job. This dynamic is not likely to be driven by underlying worker characteristics because this gap is much smaller in the months before age 18. The adverse effects on young people could last for a long-time and alter the entire trajectories of their working lives, as they lose valuable time to accumulate human capital and work experience.
The Washington Research Council wrote about the relationship between the minimum wage and teenage unemployment in 2014.
The minimum wage level in the study is also higher than it is in the United States, and recent research such as the latest Seattle study suggest that the disemployment effect of minimum wage increases are nonlinear, larger increases elicit significantly large responses. However, the level in the study is in the vicinity of the endpoints of some of the increases passed at the state and local level, and similar to the $15 national wage advocated by some minimum wage proponents.
And, again, referencing the social goal, he concludes.
These findings imply that moving from a regime where everyone is subject to the same minimum wage to one where there is a lower youth minimum wage could substantially increase youth employment and hours worked because labor input for young workers is very responsive to changes in a youth-specific minimum wage. Getting more young people into the workforce would allow them to accumulate human capital and lead to more of them transitioning to higher-paying, better jobs later in life.
Good discussions, important analysis.