Seattle’s Cautionary Minimum Wage Tale

Seattle is a mecca for progressive policies.  The city that is home to a self-identified Socialist City Councilwoman and is openly toying with defying state law in establishing a local income tax on high earners ($200K in Seattle is not high earnings in reality).  But, recent data from Seattle’s latest minimum wage hike should give progressives some pause to think on their policies (it probably won’t though).

Back in 2014, Seattle voted to raise it’s minimum wage from the state average of $10.10 to $15 by 2021.  Big employers (50 or more employees) had to hit this target earlier this year or next (depending on whether they offer health insurance) while all small employers will have to hit this target by 2021 and continually adjust based on the CPI going forward.

Seattle, cognizant of the fact the wage hike was new and relatively untested across the study partnered with the University of Washington to study its impacts over the next several years (especially how it impacted low-wage workers).  The first hike in 2015-2016 studied by UW found that there was a negligible impact on worker wages and hours.  On average, low-income workers, particularly in the restaurant industry, took home $131 annually.

But, UW’s latest findings are bad news for minimum wage advocates.  Specifically, the study found that when the $13 minimum wage took hold (big employers not offering benefits), low income workers suffered.  The study found not just a steep reduction in hours and income for low wage workers but a steep increase in the number of workers earning more than $19 an hour.  In other words, the minimum wage hike seemed to stimulate job growth for those the ordinance did not seek to help.

In the restaurant sector, the study found a 10.7 percent reduction in jobs paying less than $19 an hour, but no overall change in employment, implying jobs that paid more than $19 increased by a whopping 20 percent.  Yikes!

The study’s initial report found workers took home a little more but the effect was muted by decreased hours and other factors.  Minimum wage advocates cheered the news, particularly because businesses did not close shop. This go-round, local advocates silence is deafening.  The study found, “The minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”  That means the latest hike ate up any gains low wage workers made in the first increase and than some.

Predictably, researchers, such as those at UC Berkley, and political advocates of the hike have argued the study suffered from methodological and statistical flaws.  That’s funny considering the UW team is considered to be politically neutral and was hand selected by the City Council and Mayor (the people who passed the ordinance in the first place.

There is another reason not to doubt the data.  Due to being on contract with the city the research team has access to data other researchers do not.  They have access to data voluntarily provided to the city by businesses and individuals that is confidential by nature.  In other words, the UW team has better data than anybody else.

The obvious inference from this study (sorry UC researchers) is that different minimum wages have different impacts depending on the local economy, the prevailing wage, local politics, education level and more, in the area.  Blanket minimum wage hikes, which is what many advocates want, just do not seem feasible.

Still, this is but one study in one city.  Other studies of minimum wage hikes have not found the same results.  That said, many of these studies come from California or areas with lower minimum wage hikes.  Local factors might be driving their results as much as the hot economy of Seattle might be driving the UW team’s results.

When the UW team released their first report they found the city’s unemployment rate was the lowest in the nation and the strength of the economy seemed to be overriding the minimum wage hike.  Many restaurants in Seattle offered more than $13 wages and it’s possible low wage jobs have disappeared because employers are so desperate to attract employees.

Again, in the interest of fairness, the study is limited to one city over one time period. The study also admits to leaving out multi-site employers such as fast-food and retail chains due to lack of data.  This group also is the largest employer of low wage workers, accounting for almost 38 percent of the workforce.

Critics point to these holes as evidence the study is flawed.  But, critics ignore, as I have mentioned over and over about polling, that data should find divergent results depending on a multitude of factors.  When different data sets say the same thing over and over you have a problem (I am looking at you global warming alarmists).

Regardless of the holes in the data, the study should not be disregarded out of hand.  It points to the fact minimum wage hikes should not be arbitrary, as advocates scream, but measured and deliberate.  For example, many states in the last few years like Arkansas and Arizona increased their minimum wages.  But, they did so by only about a $1 and did not make it a continuous increase year over year.  A local business can absorb a wage hike of $1 in a year far better than $5 over three years.

For local municipalities, like Los Angeles, and states like New York, the data is damning.  LA intends to hit $15 by July 1, 2020 while all of New York will get there by 2021.  The data is particularly damning for New York because mandating a statewide minimum wage ignores the massive variances in local economies like those of a major metro area like New York City and rural Hornell (pop., less than 9,000).

The study’s results probably won’t change minds on the issue.  Advocates “fighting for $15” would probably still support higher minimum wages if it put millions in poverty (group think is great).  Conservatives and businesses will point to it as an “aha” moment and argue they were right the idea is self-defeating.

Nowhere might this be more relevant than Illinois.  In Cook County, a patchwork of local cities have raised minimum wages while others have oped out.  Meanwhile, Democrats passed a statewide $15 minimum wage by 2022 but Governor Rauner has said he will not even look at it until a budget is passed.

In truth, the data indicates neither is right.  It indicates minimum wage impacts are nuanced and depend on many factors.  However, it does say one thing clearly.  Statewide minimum wage hike mandates are likely to damage local economies while bigger cities with more robust economies will be better able to weather them.  Are you listening Governor Cuomo?

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