Seattle minimum wage will rise January 1; how will employment be affected?

Seattle’s minimum wage will increase January 1. The wage varies, as explained on the city web site. It’s part of a phased-in plan to reach $15 an hour. Seattle Times business columnist Jon Talton asks about the impact on jobs and concludes it’s too early to tell. The evidence so far is mixed.

So, as I wrote earlier, it is an experiment and if any city is prosperous enough to attempt it, that city is Seattle.

 …A new report from the Federal Reserve Bank of San Francisco summarizes the academic research. 

Although Talton doesn’t link to the Fed study, he’s most likely be referring to this report. Economist David Neumark, an established authority on minimum wage policy, reviews the research, draws a few tentative conclusions and promises more analysis.

Thus, allowing for the possibility of larger job loss effects, based on other studies, and possible job losses among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession.

This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages. Moreover, weighing employment losses against wage gains raises the broader question of how the minimum wage affects income inequality and poverty.

Neumark recently wrote about the research in the Wall Street Journal. Acknowledging the balancing considerations he makes in the Fed report, he concludes:

But let’s not pretend that a higher minimum wage doesn’t come with costs, and let’s not ignore that some of the low-skill workers the policy is intended to help will bear some of these costs. 

A post in The American Interest cites Neumark’s Federal Reserve Bank report and explores the implications, particularly if the $15 movement gains momentum.  

The number [of lost jobs] could be debated ad nauseam, but it’s worth taking a step back and wondering: If an anti-poverty strategy necessarily destroys hundreds of thousands of jobs for the most vulnerable workers, is it really the best anti-poverty strategy available?

As we’ve argued before, steep minimum wage hikes threaten to create a permanent underclass of citizens who are shut out of the labor force and unable to get the skills they need for a meaningful career. Surely there are better ways for the government to ensure (as it should) that all working people have a basic, decent standard of living.

In our foundation report, we wrote:

Research is mixed on the effects of incremental increases in the minimum wage, but large increases are clearly associated with declining job opportunities for the young and unskilled.

…Washington employers and residents alike place a high priority on the equitable compensation and protection of those in the workforce. Policymakers must carefully consider wage and benefits mandates…to ensure that such protection are maintained in a cost-effective manner so that employers can create more job opportunities for Washington citizens.

We reported last month that discussions are ongoing regarding increases in the statewide minimum wage, “done right.” Getting it right won’t be easy. But it is important.