The minimum wage in Seattle has gone up, but the sky has not fallen:
Pay for low-wage workers climbed more in real Seattle than in synthetic Seattle, while their employment rate and hours climbed slightly less.
“Seattle’s experience shows that the city’s low-wage workers did relatively well after the minimum wage increased, but largely because of the strong regional economy,” it says. “Although the minimum wage clearly increased wages for this group, offsetting effects on low-wage worker hours and employment muted the impact on labor earnings.”
Real Seattle had more businesses open after the law passed, while synthetic Seattle had fewer businesses close.
“We do not find compelling evidence that the minimum wage has caused significant increases in business failure rates,” the report says.
The results are actually something of a rorschach test, though. The author starts off with the angle that, basically, employment in Seattle is growing like gangbusters and we don’t know whether or not the minimum wage is to thank for that. Which tells you a lot about where he’s coming from on the issue. The Washington Post takes a more sober view:
Things seem to be going pretty well since Seattle bumped the hourly minimum wage for large businesses up to $11 last year, from the statewide minimum of $9.47 an hour. Low-wage workers are getting more time on the job and making more money. Fewer businesses are closing, and more new ones are opening. The technology and construction sectors are booming. Even the weather cooperated for a change. The spring was unusually dry in Seattle, which was good for the city’s fishing fleet.
Yet the actual benefits to workers might have been minimal, according to a group of economists whom the city commissioned to study the minimum wage and who presented their initial findings last week.
The average hourly wage for workers affected by the increase jumped from $9.96 to $11.14, but wages likely would have increased some anyway due to Seattle’s overall economy. Meanwhile, although workers were earning more, fewer of them had a job than would have without an increase. Those who did work had fewer hours than they would have without the wage hike.
Accounting for these factors, the average increase in total earnings due to the minimum wage was small, the researchers concluded. Using their preferred method, they calculated that workers’ earnings increased by $5.54 a week on average because of the minimum wage. Using other methods, the researchers found that the minimum wage hike actually caused total weekly earnings to drop — by as much as $5.22 a week.
Minimum wage critic Adam Ozimek also throws his two cents:
Now, being the heartless bastard that I am, I don’t actually consider the latter part to be a problem. Indeed, that’s one of the arguments in favor of a localized minimum wage. If a job, or a person, does not clear a certain threshold of economic productivity, they might be taking the space of someone that generates more. The employment equivalent of gentrification. Maybe those jobs are better done in Spokane. Maybe the market takes care of this, or maybe it doesn’t. Maybe this is a way to prevent the government from acting as an end-run around these market forces. I’m not sure. There are a lot of moving parts, and many of them are not market-based. The rules are different when we’re dealing with enormous scarcity of space.
The detailed approach taken by the study and the importance of unrelated economic trends highlight the care and precision that must be taken in studying the impact of minimum wages. For example, government administrative data were used, which allowed the same workers to be tracked over time, and ZIP codes were aggregated to create a comparison group.
The research also highlights the difficulty in simply looking at Seattle before and after the minimum wage hike to determine the effects. Seattle’s economy was growing strong before the hike, and as a result, the economists estimated that only 25% of the earnings gains that low-wage workers experienced by late 2015 can be attributed to the minimum wage hike, while the rest is due to a strong economy. Simply showing that Seattle added jobs after the minimum wage hike does not disprove job losses.
Another important takeaway is that this is not yet a test of what a big minimum wage hike does to a city. By the end of this study, Seattle had lifted the minimum wage from $9.47 to $11, which increased low-wage workers’ pay by 7.3% on average. Seattle is still far from the $15 minimum wage it will reach in January 2017.
Finally, the study shows the importance of tracking workers over time. By following low-wage workers who were employed in Seattle to begin with, the economists found that some adjusted to the hike by finding work outside the city. This suggests that even if total employment in an area is not affected by a minimum wage hike, low-skilled workers might be worse off as they are displaced by high-skilled workers and pushed out of the city.
Having said that, I actually find the results here somewhat alarming. If I am thinking of an ideal situation for a city to be able to absorb the impact of a raised minimum wage, Seattle going from just shy of $10/hr to $11/hr is a pretty good one. That there is a measurable effect there makes me wonder what’s going to happen when their minimum wage continues to climb. And what’s going to happen in California, where lower wages are both easier to justify and a competitive advantage in Bakersfield for precisely the aforementioned Spokane jobs.
It’s uncharted territory, and I’m glad I’m not the guinea pig.
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