Fraser Forum

Getting the facts straight on Seattle minimum wage study

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Given that the City of Seattle is one of the first jurisdictions in Canada and the U.S. to commit to a $15 an hour minimum wage, its experience is bound to attract attention. Indeed, we recently penned a blog post that summarized a study by University of Washington researchers on the short-term effects of Seattle’s initial minimum wage hike.

But there appears to be some lingering confusion about what this study actually finds. As the minimum wage remains a hot topic of debate, it’s important to get the facts straight. And the facts show that to date, Seattle’s minimum wage increase has hurt the job prospects of low-wage workers and failed to produce higher earnings for the average low-wage worker.

First, let’s be clear about the period covered by the study. Seattle’s $15 minimum wage will be implemented in stages, with full implementation not happening until 2021. The first increase took place in April 2015 and amounted to a hike from $9.47 to $11.00 per hour. The data in the study ends nine months after this initial minimum wage increase came into force, meaning the study does not measure the full range of adverse economic effects, which won’t be realized for years.

Critically, the study strives to answer two separate questions. The first is: how has Seattle’s labour market performed since the city passed the minimum wage ordinance in mid-2014? The second, and entirely different, question is: what are the short-run effects of the initial minimum wage hike to $11 per hour on Seattle’s labour market? Conflating these two questions has clearly led to a fundamental misunderstanding of the study’s findings.

The answer to the first question is that the labour market has performed well. As we note in our original post, “Seattle’s job growth rate tripled the national average from mid-2014 to the end of 2015.” But the study attributes Seattle’s strong employment performance to booming tech and construction industries—not the minimum wage.

In fact, Seattle’s overall labour market performance does nothing to answer the second question about the minimum wage’s effect. As the authors clearly state: “Many things have happened in Seattle’s labour market since June 2014, most of them having little or nothing to do with the minimum wage itself.”

The study goes on to say that looking at Seattle’s overall labour statistics “does not indicate what would have happened in the absence of an increased minimum wage.”  So to gauge the effect of the minimum wage, the researchers compared what happened in Seattle with other, similar Washington communities where the labour market also performed well but where the minimum wage did not increase. They find that employment for low-wage workers would have gone up even more if it was not for Seattle’s minimum wage hike. In other words, low-wage workers lost out on potential job opportunities because of the minimum wage hike.

Specifically, the study finds that:

• Seattle’s minimum wage hike led to a 1.2 percentage point decrease in the employment rate of low-wage workers (defined as earning $11.00 an hour or less).
• The number of hours worked by low-wage workers fell due to the minimum wage hike (by an average of 4.1 hours per quarter).  
• The likelihood of low-wage workers continuing to work in Seattle dropped by 2.8 percentage points, meaning more low-wage workers were seeking jobs outside of the city limits.

The authors characterize these negative consequences as “concerning” and worry that “the long-run effects are likely to be greater as businesses and workers have more time to have more time to adapt to the ordinance.”

The study does note that the median hourly wage of low-wage workers increased due partly to a strong local economy and partly to the minimum wage hike. But this does not provide supporting evidence of the minimum wage’s success. Of course, when a minimum wage hike occurs, some low-wage workers (often the most productive) will retain their jobs and see a boost in their hourly wage. But to assess the overall effect of the policy, we must look at total earnings, which is a function of both the hourly wage and the number of hours worked.

The results for earnings are sobering after accounting for the reduction in employment and hours worked. In fact, the authors conclude that the negative effects on employment “appear to be roughly offsetting the gain in hourly wage rates, leaving the earning for the average low-wage worker unchanged.”

The bottom line is that this study, like the mountain of existing academic research, finds that minimum wage hikes negatively affect the employment prospects of low-skilled workers.

 

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