Economists at the University of California, Berkeley, have published a new report on Seattle’s minimum wage. The study attempts to draw conclusions from a partially-implemented wage hike in one of the nation’s most robust local economies. A little modesty in the analysis would be appropriate. At best, their findings should be hedged as tentative, if not premature. The authors, however, show no such humility.
The press release leads with this:
Seattle’s groundbreaking minimum wage law is raising pay for low-paid workers without hurting jobs, according to a new report released today by University of California, Berkeley economists. The report, which analyzes employment data before and after the law went into effect, finds no evidence of job loss in the city’s restaurant industry, even as pay reached $13 for workers in large companies.
“Seattle’s minimum wage law is working as intended, raising pay for low-wage workers, without negatively affecting jobs,” said Professor Michael Reich, lead author of the report. “These findings are consistent with the lion’s share of rigorous academic minimum wage research studies.”
We think that overstates things. As we reported yesterday, metro Seattle’s hot economy has created a tight local labor market; the King County unemployment rate in May was 3.1 percent. Last week, the Seattle Times reported,
“We are in a job-seeker’s market,” said Anneliese Vance-Sherman, regional labor economist with the state Employment Security Department. “Job seekers are finding it easier to secure employment, and employers are in a position of needing to compete with other employers for qualified candidates.”
Proof: It’s not unusual these days in Seattle and the Eastside to find job postings for dishwashers starting at $14 to $15 an hour.
It seems likely that the competitive labor market, to paraphrase Reich, is working as intended, raising pay for low-wage workers. And, we’ll continue to question the assertion that the “lion’s share” of minimum wage research supports the proposition that boosting the minimum wage has no negative jobs impact. For more, we again recommend this Washington Research Council special report reviewing minimum wage research. The WRC concludes,
Minimum wages have been consistently shown to reduce employment and mobility. If the goal is poverty reduction, there are much more efficient and targeted methods…
Increases in the minimum wage are a tradeoff. Some gain, but many lose. Those who keep their jobs and their hours benefit. But those employees who lose their jobs or have their hours reduced lose out. Research shows that the negative impacts on individuals and businesses are real and long-lasting.
Reich acknowledges the challenges of investigating the effects of the minimum wage increase in one of the nation’s hottest economies. Janet I. Tu reports in the Seattle Times,
It can be hard to separate out what impact the minimum wage law had on employment in Seattle versus the effect of Seattle’s white-hot economy and tight labor market, but “we do our best,” said Reich.
Tu reports that some small business owners and their employees have experienced negative effects.
Heidi Mann, who with her husband owns a Subway franchise near the Shoreline border, said she had seven employees, including her husband, two years ago.But she’s gradually had to let four of them go and is down to one full-timer, one part-timer and her husband, who’s working 60 hours a week and likely to take on more hours soon, she said.
There’s another reason to question the Berkeley conclusion.
A city-commissioned report by University of Washington researchers last year reached a more mixed conclusion.
That study said the law indeed helped to raise the hourly pay for low-wage workers. But it also concluded that while the employment rate for such workers was better than the historical average due to the booming overall economy, the minimum-wage law itself appeared to have slightly lowered their employment rate and hours worked, relative to regional trends.
Washington Research Council analyst Emily Makings points out other limitations to the Berkeley analysis.
As the Reich et al. paper notes, the $15 minimum wage is being phased in over time, at different speeds depending on the size of business and benefits offered. So, “Any assessment of the impact of Seattle’s minimum wage policy is complicated by this complex array of minimum wage rates.”
The paper only covers through the first quarter of 2016, when minimum wages ranged from $10.50 to $13.00. Thus, the results do not prove that there are no negative effects from a $13 minimum wage (much less a $15 one)—many employers were allowed to pay less than that. Indeed, the paper notes, “Seattle’s complex schedule . . . makes it difficult to compute an average minimum wage effect for each year, as we lack data on how many employees fall under each of the four categories.”
Read her post for a thoughtful discussion of the research. She concludes,
Overall, it’s really too early to tell what the economic impacts of Seattle’s $15 minimum wage ordinance will be. It is not fully phased in yet, and, as the UW research team wrote last year,
Economic theory predicts the long-run adjustments to a regulatory policy change are likely to be greater than short-run adjustments. Prior research shows that in the long-run, certain industries affected by the minimum wage, such as the fast food industry, have more opportunity to relocate, change the composition of their workforce, or invest in technologies that reduce their need for labor.
For what it’s worth, we note that the lead author of the Berkeley report, Michael Reich, champions minimum wage increases. In March, he wrote in the New York Daily News,
Gov. Cuomo is pressing legislators to enact a statewide phased-in $15 minimum wage. Meanwhile, a California campaign seeks to place $15 on its state’s November ballot.
Can states absorb a $15 minimum? A new comprehensive economic study says yes, they can.
In other words, a $15 wage will be paid for by inducing workers and businesses to operate more productively and by slight price increases spread across consumers over the entire income distribution. The adverse effects on businesses of charging slightly higher prices will be largely offset by increased sales generated by the workers who receive raises.
More productivity presumably includes reducing labor costs by operating with fewer employees, precisely the effect identified in the WRC report we cited above.
Indeed, most studies show that mini-mum wages reduce employment of less- skilled workers. The Congressional Budget Office (CBO) in 2014 estimated that raising the federal minimum wage to $10.10 would reduce employment by 500,000 jobs (CBO 2014). A 2014 study from Jeffrey Clemens and Michael Wither found that
“Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to- population ratio by 0.7 percentage point.” (Clemens and Wither 2014)
In other words, there were fewer jobs per person.
And it isn’t just that people lose their jobs, fewer jobs are created. In 2012, Jonathan Meer and Jeremy West found that for each 10 percent increase in the minimum wage, about one-sixth fewer jobs are created: “The most prominent employment effect of minimum wage laws is a decline in the hiring of new employees” (Meer and West 2012).
So, what do we conclude from the latest Berkeley report o the Seattle minimum wage? Not much, really. At best, it’s too early to draw any conclusions, as Makings writes. At worst, the premature analysis becomes another talking point in a national campaign for a $15 minimum wage.