In 2014, officials in Seattle voted to gradually raise the city’s minimum wage to $15 an hour by 2021. The minimum rose from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016 (these figures are for large businesses; smaller employers are allowed to pay a slightly lower wage). In the past week, two studies have been published that reach opposite conclusions about the impact of these increases on low-wage employees, reigniting the controversy over whether minimum wage hikes are actually good for the people they are meant to help.
The first study, released last week by economists at the University of California, Berkeley, analyzed the effects of the $13 wage floor on the city’s restaurant industry and found no evidence of job loss as a result of the increase. The second, conducted by a team of University of Washington economists and published as a working paper on Monday at the National Bureau of Economic Research, looked at a larger data set and came to the conclusion 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.”
Neither paper has yet been subject to peer review.
Opponents of raising the minimum wage have jumped on the University of Washington study, which used data from Washington State’s unemployment insurance program to identify low-wage workers in Seattle and compare them to others throughout the state, as evidence that such hikes are harmful, not helpful, to low-income Americans. The findings are bound to be controversial both politically and within the field of economics, as they appear to contradict what most recent minimum-wage research has found, but many economists seem to find them credible, Max Ehrenfreund reports at the Washington Post:
“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.” … “That’s really a step beyond what essentially any past studies of the minimum wage have been able to use,” said Jeffrey Clemens, an economist at the University of California, San Diego who was not involved in the research.
Jacob Vigdor, one of the authors of the study, stressed to Ehrenfreund that the research is long-term and a work in progress, and noted that when he and his colleagues looked at the restaurant industry, they also found no overall effect on employment rates. However, Vigdor added, that seems to have been because employers replaced low-paying jobs with high-paying jobs—in other words, the low-wage workers lost out as they were replaced by more skilled and productive employees.
While Vigdor and his colleagues used an uncommonly large sample for their study, they did leave some employers out: specifically, large companies with locations both inside and outside of Seattle. Critics say this methodological shortcoming is one of several that may skew their data toward showing a negative impact from the minimum wage increase where none may exist. Ben Zipperer and John Schmitt at the left-leaning Economic Policy Institute explain in detail why Vigdor’s study should not be the last word on Seattle’s experiment:
The study’s findings of employment losses well outside even those generated by a large body of earlier research raises immediate concerns about the study’s methodology. The exclusion of roughly 40 percent of employment from the analysis—especially when multi-site employers are large employers of low-wage workers and may be expected to increase their share of low-wage employment after a minimum wage increase—is a major limitation of the study and one that will be difficult to circumvent. Our best explanation for the study’s outsized findings is that the statistical techniques employed were not capable of isolating the effects of the minimum wage from a range of other simultaneous changes in the Seattle labor market. In particular, the strong performance of the Seattle labor market in recent years appears to have overwhelmed the ability of the authors’ methodology to measure accurately the specific wage and employment impacts of the wage ordinance.
Another complicating factor in drawing conclusions from Seattle is that the Pacific Northwest city already had fairly high wages across the board, Vox’s Jeff Guo points out:
A $13 minimum wage may seem exorbitant compared with the federal minimum wage of $7.50, but most workers in Seattle were already earning more than that. Arindrajit Dube, an economist at the University of Massachusetts Amherst who studies the minimum wage, has pointed out that Seattle’s new minimum wage is not all that lavish when you take into account the city’s high overall wages. In fact, in relative terms, it seems to be roughly as generous as the federal minimum wage in 1968, back before the value of the federal minimum wage was eroded by inflation.
At Fast Company, Adele Peters hears from another co-author, public policy professor Robert Plotnick, who stresses that the study doesn’t provide enough insight to make conclusive inferences about the impact of the higher minimum wage in Seattle, much less how it might play out in other parts of the country:
“To really make a policy judgment or a final judgment you really like to know who those workers are . . . We don’t have that,” he says. “We plan to look at that in the future. If you’re making policy, the distribution matters, along with the average. What we’re presenting is average effects.”
He also makes it clear that the findings of this study don’t necessarily apply to other cities, and not to states. “If a state passes the minimum wage, it’s much harder to shift your workers out of state than it is to move them out of the city,” Plotnick says. Other cities can have very different economic structures, and different geographic proximity to nearby cities where companies or workers could move.
Nonetheless, BloombergView columnist Noah Smith argues that policymakers and activists should take heed of the unexpected findings:
For one thing, it reveals a new and disturbing channel by which minimum wages could hurt the very workers they’re designed to help — reduced working hours. In the past, if an American worker had a job, that generally meant a guaranteed number of working hours per week, even if the job wasn’t full-time. But in recent years that has no longer been the case. A 2015 report by the Economic Policy Institute found that 10 percent of the workforce now has irregular or on-call work shifts. This irregularity is concentrated among low earners in service industries like the restaurant industry.
Non-guaranteed working hours give employers a new way to defray the higher costs imposed by a minimum wage hike. Instead of laying off workers, bosses can just call lots of their existing workforce in for fewer hours each week. Nobody will show up on the unemployment rolls, but workers’ incomes will drop all the same. The University of Washington study raises the possibility that this has been happening a lot more than minimum-wage researchers have realized.