the case in seattle proves minimum wage is a disaster.
Seattle's Minimum Wage Has Been a Disaster, as the City's Own Study Confirms
How Seattle provides a practical example of minimum wages leading to losses in income and employment
Tuesday, June 27, 2017
Alex Tabarrok
The Seattle Minimum Wage Study, a study supported and funded in part by the Seattle city government, is out with a
new NBER paper evaluating Seattle’s minimum wage increase to $13 an hour and it finds significant disemployment effects that on net reduce the incomes of minimum wage workers. I farm this one out to
Jonathan Meer on FB.
This is the official study that was commissioned several years ago by the city of Seattle to study the impacts of raising the minimum wage, in a move that I applauded at the time as an honest and transparent attempt towards self-examination of a bold policy. It is the first study of a very high city-level minimum wage, with administrative data that has much more detail than is usually available. The first wave (examining the increase to $11/hr) last year was a mixed bag, with fairly imprecise estimates.
These findings, examining another year of data and including the increase to $13/hr, are unequivocal: the policy is an unmitigated disaster. The main findings:
– The numbers of hours worked by low-wage workers fell by *3.5 million hours per quarter*. This was reflected both in thousands of job losses and reductions in hours worked by those who retained their jobs.
– The losses were so dramatic that this increase “reduced income paid to low-wage employees of single-location Seattle businesses by roughly $120 million on an annual basis.” On average, low-wage workers *lost* $125 per month. The minimum wage has always been a lousy income transfer program, but at this level you’d come out ahead just setting a hundred million dollars a year on fire. And that’s before we get into who kept vs lost their jobs.
– Estimates of the response of labor demand are substantially higher than much of the previous research, which may have been expected given how much higher (and how localized) this minimum wage is relative to previously-studied ones.
– The impacts took some time to be reflected in the level of employment, as predicted by Meer and
West (2016).
– The authors are able to replicate the results of other papers that find no impact on the restaurant industry with their own data by imposing the same limitations that other researchers have faced. This shows that those papers’ findings were likely driven by their data limitations. This is an important thing to remember as you see knee-jerk responses coming from the usual corners.
– You may also hear that the construction of the comparison group was flawed somehow, and that’s driving the results. I believe that the research team did as good of a job as possible, trying several approaches and presenting all of their findings extensively. There is no cherry-picking here. But more importantly, without getting too deep into the econometric weeds, my sense is that, given the evolution of the Seattle economy over the past two years, these results – if anything – *understate* the extent of the job losses.
This paper not only makes numerous valuable contributions to the economics literature, but should give serious pause to minimum wage advocates. Of course, that’s not what’s happening, to the extent that the mayor of Seattle commissioned *another* study, by an advocacy group at Berkeley whose previous work on the minimum wage is so consistently one-sided that you can set your watch by it, that unsurprisingly finds no effect. They deliberately timed its release for several days before this paper came out, and I find that whole affair abhorrent. Seattle politicians are so unwilling to accept reality that they’ll undermine their own researchers and waste taxpayer dollars on what is barely a cut above propaganda.
I don’t envy the backlash this team is going to face for daring to present results that will be seen as heresy. I know that so many people just desperately want to believe that the minimum wage is a free lunch. It’s not. These job losses will only get worse as the minimum wage climbs higher, and this team is working on linking to demographic data to examine who the losers from this policy are. I fully expect that these losses are borne most heavily by low-income and minority households.
https://fee.org/articles/seattles-minimum-wage-has-been-a-disaster-as-the-citys-own-study-confirms/
Minimum Wage: When Seattle embarked on its progressive path to force up the minimum wage in the city, the results were predictable: Those it was intended to help would be hurt the most. Will policymakers never learn?
It's tragic, but even policies passed with the best of intentions can hurt those they're intended to help. So it is with Seattle's minimum wage.
Last August, we asked: "What will happen when Seattle raises its minimum to $15 an hour in 2017? It could get ugly."
Unfortunately, we were right. Economists at the University of Washington
looked at the recent increases in Seattle's minimum wage from $9.47 to $11 an hour in 2015 to $13 an hour in 2016.
Their findings are devastating for supporters of a higher minimum wage.
"We conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9%, while hourly wages in such jobs increased by around 3%."
The math is not favorable: The average low-wage employee in the city saw his or her earnings decline by $125 a month last year due to the "generous" minimum wage increase.
That's a $1,500 reduction in pay for those who can afford it least. It's likely to get even worse when they really jack the wage up to $15 an hour, and hundreds if not thousands of people lose their jobs because their employers can no longer afford to pay them.
Even the Washington Post took notice of the Seattle minimum-wage disaster, and what it portends.
"The city is gradually increasing the hourly minimum to $15 over several years," wrote
Max Ehrenfreund on the Post's Wonkblog . "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."
It's a fact that those who earn minimum wages are not equipped to earn more without further training, education or skills acquisition.
As economist Mark J. Perry, a fellow with the American Enterprise Institute and professor at the University of Michigan,
noted back in 2015, "minimum-wage workers tend to be young, single, part-time workers with less than a high school diploma."
What do you call people of that description after government forces a business to pay them far more than their productivity suggests they're worth? Disposable.
They lose jobs, or have their hours cut. It's devastating.
Nor is the University of Washington study some kind of statistical outlier.
In what has turned into an indictment of the union-backed "Fight for $15" movement, a study by economist David Neumark of the University of California at Irvine
tallied the results of over 100 minimum-wage studies going back two decades.
His findings were depressing: 85% of the studies said that minimum-wage laws destroyed jobs, led to fewer hours worked, and caused small businesses to close. So saying huge forced hikes in the minimum wage destroy jobs and reduce earnings isn't exactly controversial.
Even the federal government, which itself imposes a national minimum wage on businesses, understands this. A 2014 study by the Congressional Budget Office predicted that raising the minimum wage from $7.25 an hour to $10.10 an hour and indexing it to inflation would kill 1 million jobs.
Who is hurt worst? Young minority workers, African-Americans and Latinos, mostly. Statistically, they have the least education, training and skills of any group in the workforce.
If you wonder why the youth unemployment rate for minority youth remains stuck in the double digits, look no farther than the minimum wage.
A job provides a ladder of opportunity to gain work and life skills and training that ultimately can lead to better things down the road. But what happens when the ladder is removed?
Responding to growing pressure around the country and the prospect of a national $15-an-hour minimum wage, companies such as Wal-Mart, McDonald's, Wendy's and many others today are busy automating their operations, installing digital cashiers in place of human ones, and looking for other ways to cut swelling labor costs.
It's a logical and inevitable response to soaring wages for unskilled workers.
With thousands and thousands losing their jobs, the progressive Democrats and union activists who are behind the "Fight for $15" movement and many local minimum-wage-hiking initiatives have much to answer for.
They talk a great game about helping the poor and uneducated better their lives, but then push destructive policies that ensure those very same people lose their jobs and end up on welfare.
"Fight for $15"? How about a new movement, one based not on destroying jobs and reducing incomes, but on creating jobs and raising workers' earnings. Call it "Fight Against $15."
https://www.investors.com/politics/...-wage-disaster-hurts-those-its-meant-to-help/
