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Shawn Vestal: Fears of minimum wage hikes ruining economy fall flat

January 25, 2019

You may have heard, sometime over the past year, that minimum-wage increases in Seattle were an economic disaster – leading to job losses and cuts in hours that actually cost low-wage workers money.

And you may have also heard, sometime after hearing about that first economic disaster, that the initial news of the Seattle minimum-wage disaster had been essentially been corrected to show that low-wage workers actually saw net gains in pay that offset the small reductions in hours worked.

Both reactions were based on research by the University of Washington’s Minimum Wage Study into Seattle’s minimum-wage increases, an ongoing project. As is usually the case with minimum-wage studies, people jump to claim the cherries that support their pre-existing beliefs, and ignore those that do not.

Minimum-wage opponents still confidently cite the initial figures, as though the latter ones didn’t exist. And supporters of higher minimum wages (of which I am one) have been quick to pick out the positives that correlate with our opinions – such as demonstrable net gains for low-wage workers – and minimize the negatives – such as the seeming drag on new workers entering the workforce.

In any case, as the new year begins, minimum wages rose in some places – Seattle jumped to $16 for the largest employers and $15 for everyone else, and Washington state’s inched up to $12 – while in other places it remains frozen at the federal minimum that has been unchanged since 2009. As more and more jurisdictions raise their own minimums, the call for a higher national minimum gathers steam.

The UW research is often press-ganged simplistically into service in those debates. But wage research is often complicated and arguable, and any specific study – or city – has limitations that might not apply more broadly.

That’s why a large, broad study of the minimum wage by American and British researchers published as a discussion paper by the London School of Economics and Political Science is useful. The study looked at job data and minimum-wage increases at the state level between 1979 and 2016, to see if higher minimum wages drive down the overall number of jobs.

What they found – which was similar to other such large-scale examinations – was that the effect on the number of jobs was essentially nil. Researchers compared the number of jobs paying below the minimum wage in years before a wage hike with the number of jobs paying at or just above the new minimums.

The research relied on figures from 137 minimum-wage increases with a mean of 10.1 percent – omitting very small changes – and found that total employment “was essentially unchanged.”

May we leap to the conclusion that a $13 or $14 or $15 wage would have no effect on jobs in Spokane? Of course not. But it does suggest that, broadly speaking, as a matter of national policy – to say nothing of national fairness – that the fears of disaster are unfounded.

The Seattle studies have a different focus and the opposite limitation: The wage hike there is larger than average, moving gradually toward the current level since 2015, and it’s focused on a single economy. That economy that has its own unique characteristics, in a way that may not translate to other places. As many have observed: If there is any economy that could absorb a big minimum-wage hike, it’s booming Seattle.

The most recent report from the Minimum Wage Study focused on the ways in which the wage increases have affected different parts of the working population. Among all workers who were already employed in Seattle before the wage increase in 2015, wages went up and hours worked went down slightly – resulting in an average increase in earnings of $12 a week.

Virtually all of those benefits went to the most experienced half of the population studied. During the time that the wage was raised, employers reported less turnover, but Seattle also saw a slowdown in the rate of new workers entering the workforce. More experienced workers benefited at the expense of younger, inexperienced ones, researchers concluded.

A different UW research team surveyed employers around the city and produced the kind of result that so much research on the topic does: a complicated picture.

Here’s how one of the researchers, Jennifer Romich, summarized key findings in a piece written for the Urban Affairs Forum in September.

“(A)bout two-thirds of responding employers made some change in business practice to accommodate the higher wages. … Many firms (almost half) raised wages of employees above the newly set minimum wage rates. About half of all employers reported raising prices to offset increased labor costs. We find that the price increases were far more likely to occur in the food and accommodation sector than other types of industry sectors. Fewer than one in four employers reported reducing their workforces through cuts in hours or headcount. … We did not find much evidence that employers were eliminating benefits to reduce total compensation nor did firms commonly report withdrawing from the city.”

Most recently, the Minimum Wage Study studied the effect on food prices in Seattle supermarkets and detected “no minimum wage effect.”

“Low-income workers may be able to afford higher quality diets if wages increase yet supermarket prices stay the same,” the abstract of the paper concluded.

Meanwhile, the studies – and the arguments – roll on.

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