Financial Inclusion

Is Seattle’s Minimum Wage Hike A Job Killer?

Three years ago, the city of Seattle decided to raise the minimum wage to $15 in an effort to close what they called the local wealth gap. New data out of the University of Washington suggests that it did just the opposite. Now, economists on both sides are duking it out, as the future of minimum wage and the retail jobs that go along with them, hang in the balance.

The headlines during the penultimate week of June in The Washington Post regarding the Seattle minimum wage increase might have been a bit confusing to the casual observer. On June 20, the news trumpeted that minimum wage was not killing jobs. Five days later, headlines stated it was possible boosting minimum wage jobs was making life worse for the working class, followed two days by an article noting the program was working just as intended.

So, to sum that up in a sentence: The decision to gradually hike the minimum wage three years ago to $15 an hour from $9.19 an hour by the city of Seattle is not killing jobs but is nonetheless ruining the lives of working class people, unless it isn’t — and it is actually working just fine.

Confused?

Imagine being a working-class citizen in Seattle.

If you want a snapshot of the controversy, we’ve got it here.

Dueling Reports

The first report in the series came from the University of California, Berkeley. Michael Reich, Sylvia Allegretto and Anna Godoey found that the minimum wage increase has upped salaries in the service sector without any hit to the jobs available for workers.

That study, in particular, focused on food service jobs, chosen because before the law was passed, food services was seen as a sector where human workers were gravely at risk for being cut in favor of automated labor. Author Michael Reich said that hasn’t been the case.

“We were surprised,” Reich said when the report was published. “The results were so much clearer than is often the case.”

Reich said that based on an analysis of data from the U.S. Bureau of Labor Statistics (BLS), the “employment effects” in restaurants “were not statistically distinguishable from zero.”

So, hooray — raise the minimum wage for everyone, right?

Ah, but in enters study #2 — this one by a group of economists at the University of Washington. That (not yet) peer-reviewed study found that the average low-wage worker in the city lost $125 a month in income due to the hike in the minimum wage, because it was pushing the market away from lower skilled workers in general.

“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. If I were a Seattle lawmaker, I would be thinking hard about the $15 an hour phase-in,” Autor said.

Well, not all minds were convinced — left-leaning critics like economist Ben Zipperer didn’t find himself so much persuaded as confused.

“Like, whoa, what? Where did you get this? My view of the research is that it seems to work. The minimum wage in general seems to do exactly what it’s intended to do, and that’s to raise wages for low-wage workers, with little negative consequence in terms of job loss.”

The main criticism made by readers like Zipperer is that the study’s authors — in an effort to avoid confusing establishments that were subject to the minimum wage increase with those that were not — focused on small businesses and left out large employers with locations both inside and outside of Seattle in their calculations.

But though that is an unusual feature of the research, proponents have noted this study also makes use of far more detailed data than had been available in past research, drawing on state records of living wages and hours for individual employees at SMBs.

The Worrisome Potential Outcome

The authors of this study’s measure of overall employment in the restaurant industry found that on quick glance, the change in the minimum wage of Seattle did not substantially affect how many people were working in the SMB industry or how many hours they were working. So far so good, and consistent with BLS data.

But, the data noted, seven in 10 workers in Seattle restaurants make more than $13 an hour anyway — meaning they are outside of this minimum wage hike — and that studying restaurants as an industry might not be a reliable guide to how the minimum wage affects workers with low pay.

And, what the University of Washington data found is that while overall employment did not change, the jobs that were being filled did. Employers started replacing low skill, low cost workers with higher skill workers in higher paying jobs. The number of workers making over $19 an hour increased abruptly, the study found, while the number making less than $19 an hour dropped sharply.

The conclusion, according to the University of Washington: Employers at small businesses, being forced by law to pay more for workers, are using the opportunity to upgrade their workforce in general.

Good news for skilled workers, perhaps — not great news for lower skilled workers.

“Basically, what we’re doing is we’re removing the bottom rung of the ladder,” noted Jacob Vigdor, an economist at the University of Washington and one of the authors of the new study.

The Ongoing Debate

As noted, this finding is controversial, particularly the choice to exclude large multi-city employers from the data set.

“I think they underestimate hugely the wage gains, and they overestimate hugely the employment loss,” said Michael Reich, the economist mentioned in reference to the other minimum wage survey.

Opponents also noted large more easily raised wages in response to changes in minimum wage floors — and they are particularly important because individual employees have the least bargaining power at larger firms, which means the minimum wage of Seattle is the likely floor of wage protection.

Still, other critics have noted that because Seattle is a large and booming tech hub, with an economy that has been generating progressively more wealth regardless of living wage status for over a decade — it might not be the best baseline for a study.

So, what’s the answer?

It seems, as usual, when it comes to the minimum wage, the answer is the same as it usually is: The problem is complex, and the solutions are unpredictable in outcome.

Still, if a possible effect is removing the bottom rung of the economic ladder for workers, one might wonder if perhaps a trip back to the drawing board is necessary to be sure that program is not doing the exact opposite of what it was designed to do.

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