Seattle provides test case for what happens when minimum wage is raised to $15
SEATTLE, Wash. — As states and cities have forged ahead in raising their minimum wages, early evaluations have found fears of widespread job loss to be mostly unfounded. It’s been less clear, however, which workers have benefited more than others.
A new study out of Seattle, one of the earliest jurisdictions to adopt a path toward $15 an hour, offers a look under the surface. The economic ripple effects of the wave of minimum wage increases are hard to measure precisely, making the Seattle experience an important test case.
Congress hasn’t raised the federal minimum wage since 2009. Instead, local politicians and voters have led the way in the past few years. Ten large cities and seven states have passed minimum wages to between $12 and $15 through August.
Seattle has served as a national guinea pig for the policy since 2014, when its voted to gradually raise its minimum wage from $9.47 to $15.45 for large employers this year and $16 in 2019. The latest research, released Monday, shows that workers made more money despite getting fewer hours — but that experienced workers made out the best.
The study, conducted by economists at the University of Washington using state unemployment insurance data, found that the increase added about $10 per week on average to the earnings of low-income workers through 2016, even while reducing weekly hours slightly. But more experienced workers made $19 more per week, the research found, partly by making up for lost hours in Seattle at second jobs worked outside city limits.
In addition, employee turnover decreased, which the authors believe suggests that employers tried harder to retain their most productive staff members as wages went up. That’s a plus for existing workers, but potentially an obstacle for inexperienced or new workers trying to get that first line on their resume.
Indeed, the study showed that fewer new workers entered Seattle’s low-wage labor market compared to the rest of Washington. “Seattle’s minimum wage ordinance appears to have delivered higher pay to experienced workers at the cost of reduced opportunity for the inexperienced,” the study’s authors wrote.
The authors noted that younger workers priced out of fast-food or other low-wage industry jobs by the higher minimum wage are in the best position to get the training they would need to find better jobs. At the same time, higher minimum wages help make cashier, dishwasher or janitorial work into viable long-term employment for those who can’t move up the career ladder.
Critics say studies overstated loss of new workers
The new findings update an initial study released last year by the same team of University of Washington researchers that found a net decrease in the earnings of low-wage employees in Seattle, drawing fire from some economists over methodology.
A critique published Monday by the left-leaning Economic Policy Institute says problems with the first study haven’t been fixed, and thus the new study overstates the reduction in new entrants to Seattle’s labor market. Since it defines “new entrant” as someone making less than $15 an hour, the study would count someone who got hired at $16 or $17 an hour as a lost job instead of a better one.
In response, the University of Washington team says that even counting new workers making up to $19 an hour, Seattle still saw a decrease in its rate of new entrants compared to the rest of the state.
A different study released last month by the Institute for Research on Labor and Employment at the University of California at Berkeley showed no employment loss in six cities that had raised wages above $10 by 2016— Seattle, San Francisco, Chicago, Washington D.C., Oakland and San Jose. Rather, that study found that average weekly earnings for workers in the food service industry went up between 1.3% and 2.5% for every 10% increase in the minimum wage.
“Recent studies of restaurant workers have arrived at a consensus: They find little to no detectable negative effects of minimum wages on restaurant employment,” the authors wrote.
States lead the way, and Congress may follow
The findings come as the political calculus around the minimum wage has been shifting, with inequality on the rise and ballooning housing costs eating up more and more of the average worker’s paycheck. Amazon’s plan to increase its minimum wage to $15 on November 1 has added corporate heft to efforts to raise pay nationally.
If Democrats regain control of the House, they will prioritize a bill to raise the minimum wage to $15 by 2024, and then index it to inflation, according to a spokeswoman for the minority staff of the House Education and Workforce Committee. Democrats believe some Republicans might get on board, giving it a shot at passing the Senate even if Democrats don’t control the chamber.
Meanwhile, state and local efforts continue. This year, ballot initiative efforts have failed in North Dakota and Michigan. But a $15 minimum wage bill was signed into law by Massachusetts Governor Charlie Baker, a Republican, and labor unions have won increases of up to $19 for workers at ports and airports. Voters in Arkansas and Missouri will decide on more modest increases on Election Day.
Although raising local minimum wages has so far appeared to deliver benefits for workers, researchers caution that all recent studies have taken place in the midst of an economic expansion, and in particularly hot urban areas. Bringing a small town in New Mexico up to the same level, for example, might not yield similarly positive results.
And even some supporters of Seattle’s minimum wage ordinance worry about the future.
“Are we making decisions that we’re getting away with because of the economic boom?” asked Ryan Calkins, a Seattle Port Commissioner who until 2016 ran an import and distribution company. He said putting more money in the hands of low-wage workers is good for business, but that higher labor costs might not always be so easy to absorb. “What happens when things tighten up as the business cycle turns down?”