A ‘very credible’ new study on Seattle’s $15 minimum wage has bad news for liberals – Washington Post
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 city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.
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. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.
On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.
The paper’s conclusions contradict years of research on the minimum wage. Many past studies, by contrast, have found that the benefits of increases for low-wage workers exceed the costs in terms of reduced employment — often by a factor of four or five to one.
“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.”
Yet the study will not put an end to the dispute. Experts cautioned that the effects of the minimum wage may vary according to the industries dominant in the cities where they are implemented along with overall economic conditions in the country as a whole.
And critics of the research pointed out what they saw as serious shortcomings. In particular, to avoid confusing establishments that were subject to the minimum with those that were not, the authors did not include large employers with locations both inside and outside of Seattle in their calculations. Skeptics argued that omission could explain the unusual results.
“Like, whoa, what? Where did you get this?” asked Ben Zipperer, an economist at the left-leaning Economic Policy Institute (EPI) in Washington.
“My view of the research is that it seems to work,” he said. “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.”
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. In particular, the results could exacerbate divisions among Democrats, who are seeking an economic agenda to counter President Trump’s pitches for protectionism, reduced taxes and restrictions on immigration.
Meanwhile, states and cities around the country are continuing to implement increases in the minimum wage. In November, voters in Washington approved an increase in the statewide minimum to $13.50 an hour by 2020. The idea is popular in conservative states as well. In Arizona, for instance, the minimum wage will be $12 an hour in 2020 after voters there cast ballots in favor of a hike.
“If I were a Seattle lawmaker, I would be thinking hard about the $15 an hour phase-in,” Autor said.
What makes this study different
Economists have long argued that increasing the minimum wage will force some employers to let workers go. In 1994, however, economists David Card and Alan Krueger published research on minimum wages in Pennsylvania and New Jersey that contradicted this theory, motivating dozens of studies into the issue over the coming years.
Card and Krueger conducted a survey of fast-food restaurants in the two states while New Jersey was implementing an increase in the minimum wage. They found that restaurants in New Jersey had, in fact, added more workers to their payrolls more than restaurants in neighboring Pennsylvania, where the minimum wage remained constant.
Since then, economists have brought better data and more sophisticated statistical methods to bear on the question of the minimum wage, but without resolving the debate.
Their studies examined the overall numbers of workers or their annual incomes, but lacked precise information on how much workers were being paid by the hour. As a result, past research might be less reliable because the results might reflect many workers who are not paid low wages, said Jacob Vigdor, an economist at the University of Washington and one of the authors of the new study.
Their research, using detailed records from the state of Washington, addresses that problem.
“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.
When the authors of the study took the same approach as Card and Krueger, measuring overall employment in the restaurant industry, they found similar results. The minimum wage did not substantially affect how many people were working in the industry or how many hours they were working.
The data, however, shows that about seven in 10 workers in Seattle restaurants make more than $13 an hour, suggesting that the overall level of employment in the industry might not be a reliable guide to how the minimum wage affects workers with low pay.
Indeed, while employment overall did not change, that was because employers replaced low-paying jobs with high-paying jobs. The number of workers making over $19 an hour increased abruptly, while the number making less than that amount declined, Vigdor and his colleagues found.
Vigdor said that restaurateurs in Seattle — along with other employers — responded to the minimum wage by hiring more skilled and experienced workers, who might be able to produce more revenue for their firms in the same amount of time.