As cities across the country pushed their minimum wages to untested heights in recent years, some economists began to ask: How high is too high?
Seattle, with its highest-in-the-country minimum wage,1 may have hit that limit.
In January 2016, Seattle’s minimum wage jumped from $11 an hour to $13 for large employers, the second big increase in less than a year. New research released Monday by a team of economists at the University of Washington suggests the wage hike may have come at a significant cost: The increase led to steep declines in employment for low-wage workers, and a drop in hours for those who kept their jobs. Crucially, the negative impact of lost jobs and hours more than offset the benefits of higher wages — on average, low-wage workers earned $125 per month less because of the higher wage, a small but significant decline.
“The goal of this policy was to deliver higher incomes to people who were struggling to make ends meet in the city,” said Jacob Vigdor, a University of Washington economist who was one of the study’s authors. “You’ve got to watch out because at some point you run the risk of harming the people you set out to help.”
The paper’s findings are preliminary and have not yet been subjected to peer review. And the authors stressed that even if their results hold up, their research leaves important questions unanswered, particularly about how the minimum wage has affected individual workers and businesses. The paper does not, for example, address whether displaced workers might have found jobs in other cities or with companies such as Uber that are not included in their data.
Still, despite such caveats, the new research is likely to have big political implications at a time when the minimum wage has returned to the center of the economic policy debate. In recent years, cities and states across the country have passed laws and ordinances that will push their minimum wages as high as $15 over the next several years. During last year’s presidential campaign, Hillary Clinton called for the federal minimum wage to be raised to $12, and she faced pressure from activists to propose $15 instead. (The federal minimum wage is now $7.25 an hour.) Recently, however, the minimum-wage movement has faced backlash from conservatives, with legislatures in some states moving to block cities from increasing their local minimums.
The reality is while an $11 minimum wage had little to no deleterious effects, going to $13 is beginning to cause issues in at least one study.
Monday’s report looks at the impact of the second wage increase under the law: the January 2016 hike to $13 an hour for large employers. This time, the findings look very different: Compared to a counterfactual in which Seattle didn’t raise its minimum wage, the number of hours worked by low-wage workers (those earning less than $19 an hour) fell by 9.4 percent over the first nine months of 2016, and the number of low-wage jobs fell by 6.8 percent. Cumulatively, those add up to the losses of 5,000 jobs and 3.5 million hours of work. The average low-wage employee, they found, saw his or her monthly paycheck shrink by $125, or 6.6 percent.
The study is far from the last word on the impact of Seattle’s law, let alone the $15 minimum wage movement more generally. Indeed, just last week another study used similar methods to reach seemingly the opposite conclusion: A report from the Institute for Research on Labor and Employment at the University of California, Berkeley, found that Seattle’s minimum wage, “raises pay without costing jobs,” as a press release on the study announced.
The Berkeley study, however, looked exclusively at the restaurant industry. That has been a common practice in minimum-wage research, because the industry is one of the largest employers of low-wage workers. But the University of Washington study suggests a possible flaw in that approach: That research, too, found essentially no job losses in the restaurant sector as a result of the city’s minimum wage hike. That suggests that studies that focused on the restaurant industry might have missed larger effects in other sectors. (Michael Reich, one of the authors of the Berkeley study, said he was confident in his findings. Bernstein said focusing on restaurants, especially fast food, was a widely accepted approach that was well grounded in economic theory.)
The Washington study has one big advantage over most past research: The authors had access to detailed data on the hours and earnings of nearly all employees in Washington state, allowing them to measure the effects of the minimum wage much more directly than is possible with less complete datasets.3 But the study has its own weaknesses. Because the researchers had data only for Washington state, they had only a limited pool of places they could compare Seattle to — a key step for figuring out the effects of the minimum wage policy. (The Berkeley paper, by contrast, compared Seattle to similar communities across the country.4)
The Washington researchers also had to exclude many multilocation businesses, which means their sample could leave out major low-wage employers such as fast-food chains. Reich, in a letter to Seattle’s mayor responding to the study, called the findings “not credible” in part because they differed so much from those of past research. But Jeffrey Clemens, an economist at the University of California, San Diego who has studied the minimum wage, said it isn’t surprising that Seattle’s minimum wage would have an unusually big impact because it is so much higher than most other minimums.
Even if the Washington study stands up to scrutiny — and it will get lots more scrutiny — it carries important caveats. Vigdor cautioned that the study makes no claims about individual workers: It is possible, for example, that workers who lost their jobs after the wage hike quickly found other jobs outside of Seattle, or that they made up for lost hours by driving for Uber. Neither shift would show up in the researchers’ data.
It's a cautionary tale, but again the categories of jobs and employers in the studies are not complete. What this really means is that we don't know what Seattle's minimum wage hikes will mean truly without more data and more expansive research. Meanwhile, several other cities are set to join Seattle soon at that $15 point, and we'll have more data in more locations pretty rapidly over the next several years.
I know that's all pretty clinical when we're talking about a living wage for Americans out there working every day to put food on the table, but the issue has to be dealt with in a country where the federal minimum wage isn't a livable wage in any single county in the US. That has to increase. The question is "by how much". We have one set of data points, but right now we're still largely in the "here be macroeconomic dragons" section of the chart.
However, keep in mind that the answer as long as the GOP is in charge is "it will never increase because we think that's already too high."