A new report from University of Washington economists finds that Seattle’s minimum wage ordinance has not provided the benefits proponents claimed. Their research was published today by the National Bureau of Economic Research (full report available for purchase). The abstract neatly summarizes the findings:
This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies. (Emphasis added.)
This doesn’t seem altogether surprising to us. Logically, the second increase would have more pronounced effects than the first. The reduction in hours worked would be the anticipated response from employers trying to manage costs. The zero effect on restaurants employment was, we’ll admit, was not what we expected.
Last week, we wrote of a study by University of California, Berkeley, economists who reported that the Seattle minimum wage law increased wages without job loss. We found that study unpersuasive. The University of Washington study, conducted by a research team hired by the city, appears to be more comprehensive and credible. And, yet, we note that full impact of the wage hike has yet to be realized; that job losses are already appearing, as found by the UW team, should concern the city’s political leadership.
The new study has already garnered considerable comment. Washington Post “Wonkblog” writer Max Ehrenfreund has an thorough discussion of the research.
When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect…
The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city.
He reports the paper has already received positive reviews.
“This strikes me as a study that is likely to influence people,” said David Autor, an economist at the Massachusetts Institute of Technology who was not involved in the research. He called the work “very credible” and “sufficiently compelling in its design and statistical power that it can change minds.”
And there are critics, including proponents of wage hikes who cite perceived methodological shortcomings. Among them,
“I think they underestimate hugely the wage gains, and they overestimate hugely the employment loss,” said Michael Reich, an economist at the University of California, Berkeley who was part of a group that published its own study of the minimum wage in Seattle last week.
Economists might not readily dismiss the new study as an outlier, however. The paper published Monday makes use of more detailed data than have been available in past research, drawing on state records of wages and hours for individual employees.
As a result, the paper is likely to upend a debate that has continued among economists, politicians, businesses and labor organizers for decades.
Janet I. Tu reports in the Seattle Times on the research. Regarding that $125 a month in lost wages,
“If you’re a low-skilled worker with one of those jobs, $125 a month is a sizable amount of money,” said Mark Long, a UW public-policy professor and one of the authors of the report. “It can be the difference between being able to pay your rent and not being able to pay your rent.”
The report also estimated that there are about 5,000 fewer low-wage jobs in the city than there would have been without the law.
She also writes of the differences between the Berkeley and UW findings.
Jacob Vigdor, a UW public policy professor and one of the authors of the UW report, stood by the team’s findings.
“When we perform the exact same analysis as the Berkeley team, we match their results, which is inconsistent with the notion that our methods create bias,” he said…
As to the substantial impact on jobs that the UW researchers found, Vigdor said: “We are concerned that it is flaws in prior studies … that have masked these responses. The fact that we find zero employment effects when using methods common in prior studies — just as those studies do — amplifies these concerns.”
He added that “Seattle’s substantial minimum-wage increase — a 37 percent rise over nine months on top of what was then the nation’s highest state minimum wage — may have induced a stronger response than the events studied in prior research.”
In FiveThirtyEight, Ben Casselman and Kathryn Casteel write,
Many economists, meanwhile, have acknowledged substantial uncertainty over the likely effects of the recent wage hikes. Most — though by no means all — past research has found that modest increases to the minimum wage have little impact on employment, and that if employers do eliminate jobs or cut back hours, those losses are dwarfed by the income gains enjoyed by the majority of workers who keep their jobs. But those studies were mostly based on minimum wages that were much lower than the ones beginning to take effect now. Even some liberal economists have expressed concern, often privately, that employers might respond differently to a minimum wage of $12 or $15, which would affect a far broader swath of workers than the part-time fast-food and retail employees who typically dominate the ranks of minimum-wage earners.
Economists say that any negative effects of the minimum wage could become more evident when the economy inevitably cools. And Vigdor said that while experienced workers have probably benefitted from the higher wage, new entrants to the labor force, including teenagers, have probably lost out.“This is a ‘canary in the coal mine’ moment,” said David Autor, an MIT economist who wasn’t involved in the Seattle research…
“Nobody in their right mind would say that raising the minimum wage to $25 an hour would have no effect on employment,” Autor said. “The question is where is the point where it becomes relevant. And apparently in Seattle, it’s around $13.”
The Seattle Times editorial board warns city leaders against partisan cherry-picking of the research. Meanwhile, McDonald’s announces new digital ordering kiosks will replace cashiers in 2,500 restaurants.
We understand: The results are still tentative and methodological concerns abound. Still, we find that the results of the UW research are more consistent than not with previous minimum wage research.