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.

Boom!

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:

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.

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.

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.


Category: Statehouse

About the Author

Will Truman (trumwill) is a southern transplant in the mountain east with an IT background who bides his time taking care of their daughter while his wife brings home the bacon. You will probably be relieved to know that he does not generally refer to himself in the third-person except when he's writing short bios on his web page.

15 Responses to Minimum Wage! Yiah!

  1. Murali says:

    Has there ever been a case where an existing minimum wage law was modified to lower the minimum wage? Or does everyone just expect inflation to catch up and do the work for them?

  2. Murali says:

    Pressed reply to soon:

    My point being that we should be enormously reluctant to do something if the evidence favouring it is mixed at best and actions which are relevantly similar are never or almost never undone.

    • trumwill says:

      I agree with this. It’s also an advantage to federalism, though, because we can learn from everybody else’s mistakes! The Democrats didn’t get the memo, though, as they want to take it national before we know the effects in Seattle.

      • Murali says:

        Well, its now happened in California. Suppose that goes pear shaped. Even if no one else adopts it, would California ever reverse it? Federalism is at best a damage control measure in this case. It seems inadequate as a response. Jaybird once proposed a sunset clause to all regulations so that those which work will be rolled over while those that don’t will be allowed to expire That seems like a good idea now, but is likely to cause uncertainty. There was a Vox analysis of how making regular trade with China less contingent on legislative renewal shifted the trade balance by a large amount. We should have a moral norm about being a lot more cautious even at the state level.

  3. DensityDuck says:

    There is a default assumption, among living-wage advocates, that of course you should live where you work. It’s part of the desire for high-density urbanity.

    • trumwill says:

      I sort of agree with them on that. My point, though, is that if somebody lives in Seattle and the best they can do job-wise is to work at McDonald’s, maybe it’s actually better that McDonald’s automate so that the space they take up living and working there can be taken up by someone who generates more economic growth.

      It’s a little bit similar to the more-popular-on-the-left argument of “We’re subsidizing corporations by letting them pay so little!” An argument I am not a fan of… but at the end of the day if they can’t earn enough to stay in Seattle without help, maybe there’s work for them in Spokane.

      • Brandon Berg says:

        It’s worth pointing out that part of the reason market wages for unskilled and semi-skilled jobs are so low relative to cost of living in certain coastal cities is that the government makes it possible for so many un- and semi-skilled workers to live there.

        If the government stopped subsidizing them, people would move out until wages for those jobs rose enough that the workers who did then them could

        • Brandon Berg says:

          …afford to live there.

          I’m inclined to say government should never provide housing assistance in high-cost-of-living areas. If you’re not working, you need to make room for someone who is. If you are and you still can’t afford housing, you’re contributing to the oversupply of low-skilled workers in that area, driving down wages and driving up rents.

  4. Brandon Berg says:

    As I said (or at least thought) a couple of years ago, Seattle, SF, and NYC are one-way tests for the viability of a federal $15 minimum-wage. If it fails in those cities, it’s definitely a bad idea everywhere. But if it works out all right in those places, that gives us very little new information about its viability in the heartland.

  5. Michael Cain says:

    Colorado’s minimum wage is $8.31 (it’s inflation-adjusted, so comes in at funny amounts). Here in the western Denver suburbs, the fast food places all have “Now Hiring” signs up. The Burger King I stopped at yesterday had a small sign on a counter-top tripod offering $10.50 an hour to start. Lots of other places, too; went by a private ambulance company last week with a “We’re Hiring Paramedics” sign out front. Clearly, the bottom end of the employment ladder is having trouble filling positions.

    • That’s one reason why it was a shock to me when I moved from Cibolia to Sangamon. It was REALLY hard to find the type of low-wage work I was used to doing when I moved to Big City. Not that I really “suffered” from that state of affairs. My grad program and some connections permitted me to do plenty of jobs for much better pay and better conditions. And frankly, I was and am much better off than the type of person who normally works those jobs. But it was sobering to know jobs aren’t as easy to come by here.

  6. fillyjonk says:

    Local minimum wage is $7.25. I have noticed a number of fast-food places have signs out advertising they are hiring at $9 an hour. Maybe not as hard to find workers as in Colorado but apparently there’s not a surplus of people available/willing to do those jobs.

    (I made $11/hour for summer teaching after taxes. I’d still rather do it than flip burgers)

  7. J. Hanley says:

    I’m skeptical about your gentrification thesis. It certainly conflicts with the common claim about more efficient businesses always driving out the mom and pop stores (although that claim is generally made too strongly). But in general, landlords will raise rates if they think the market will bear them, which often drives out the less productive tenants (both commercial and residential). And if High Productivity Co. wants to set up shop, they can generally buy out the Inefficiency Brothers to get their space.

    What you’re talking about is artificially speeding up this process, but that’s not necessarily efficient. It means High Productivity Co. gets that space earlier than the market actually warrants. If they couldn’t afford to buy out the previous tenant/owner then they aren’t as greatly more productive as we might imagine, because what they have to pay is roughly the expected future net profits of Inefficiency Brothers. If they can’t afford to do that, then they’re not that much productive.

    • trumwill says:

      It’s not so matter of efficiency as labor type.

      Call Center A may involve high-level technical support, may need people with college degrees, may pay them well.

      Call Center B may just need warm bodies that can speak English clearly enough and read from a computer monitor.

      Both may be equally efficient, but one depends on big city human capital and can more easily afford to pay accordingly, while the other depends on a workforce that would have to relocate in a free market system but stays in the big city in part due to other government intervention.

      The free market answer may be to simply get rid of the government intervention that keeps that from happening, but that’s more of an immovable object simply pricing out their labor.

      I use two call centers as an example, but it could just as easily be one (headcount intensive) industry versus another (capital-intensive) industry.

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