UW study finds Seattle’s minimum wage is costing jobs

by: Seattle Times
Published: June 28, 2017

Seattle’s minimum-wage law is boosting wages for a range of low-paid workers, but the law is causing those workers as a group to lose hours, and it’s also costing jobs, according to the latest study on the measure passed by the City Council in 2014.

The report, by members of the University of Washington team studying the law’s impacts for the city of Seattle, is being published Monday by a nonprofit think tank, the National Bureau of Economic Research.

That lawraises Seattle’s minimum wage gradually until it reaches $15 for all by 2021.

The UW team published its first reportlast July on the impact of the first jump in Seattle’s minimum wage, which went in April 2015 from $9.47 to $10 or $11 an hour, depending on business size, benefits and tips.

This latest study from the UW team looks at the effects of both the first and second jumps. The second jump, in January 2016, raised the minimum wage to $10.50 to $13. (The minimum wage has since gone up again, to the current $11 to $15. It goes up again in January to $11.50 to $15.)

The team concluded that the second jump had a far greater impact, boosting pay in low-wage jobs by about 3 percent since 2014 but also resulting in a 9 percent reduction in hours worked in such jobs. That resulted in a 6 percent drop in what employers collectively pay — and what workers earn — for those low-wage jobs.

For an average low-wage worker in Seattle, that translates into a loss of about $125 per month per job.

“If you’re a low-skilled worker with one of those jobs, $125 a month is a sizable amount of money,” said Mark Long, a UW public-policy professor and one of the authors of the report. “It can be the difference between being able to pay your rent and not being able to pay your rent.”

The report also estimated that there are about 5,000 fewer low-wage jobs in the city than there would have been without the law.

The researchers focused on “low wage” jobs — those paying under $19 an hour — and not just “minimum wage” jobs, to account for the spillover effect of employers raising the pay of those making more than minimum wage.

For instance, an employer who raised the pay of the lowest -aid workers to $13 from $11 may have then given those making $14 a boost to $14.50. (The team had also tested lower- and higher-wage thresholds for the study, and the results did not change, members said.)

To try to isolate the effects of the minimum-wage law from other factors, the UW team built a “synthetic” Seattle statistical model, aggregating areas outside King County but within the state that had previously shown numbers and trends similar to Seattle’s labor market.

The researchers then compared what happened in the real Seattle from June 2014 through September 2016 to what happened in the synthetic Seattle.

In addition to earnings, the report analyzes data on work hours– relatively rare in minimum-wage studies, the researchers said, since Washington is one of only four states that collects quarterly data on both hours and earnings.

Other studies on minimum wage have typically used lower-wage industries, such as the restaurant sector, or lower-paid groups such as teenagers, as proxies to get at employment, they said.

That was the case with a University of California, Berkeley study released last week that found Seattle’s minimum-wage law led to higher pay for restaurant workers without costing jobs in 2015 and 2016.

The UW team’s study actually corroborates the Berkeley conclusion, finding zero impact from the minimum-wage law on restaurant employment — when taking into account jobs at all wage levels within the restaurant industry.

But the UW researchers did conclude that, for low-wage restaurant workers, the law cost them work hours. (Specifically, though the actual number of hours worked by low-wage restaurant workers in Seattle increased a slight 0.1 percent from the second quarters of 2014 to 2016, the researchers’ “synthetic Seattle” model showed that if the minimum wage law hadn’t been in effect, there would have been an 11.1 percent increase in hours for those workers.)

Michael Reich, a UC Berkeley economics professor who was lead author on the Berkeley report, said he found the UW team’s report not credible for a number of reasons.

He said the UW researchers’ “synthetic” Seattle model draws only from areas in Washington that are nothing like Seattle, and the report excludes multisite businesses, which employ a large percentage of Seattle’s low-paid workforce. The latter fact was also problematic, he said, because that meant workers who left single-site businesses to work at multisite businesses were counted as job losses, not job gains in the UW study.

Reich also thought the $19 threshold was too low, and he said the UW researchers’ report “finds an unprecedented impact of wage increases on jobs, ten times more than in hundreds of minimum wage and non-minimum wage studies. … “There is no reason,” he said, that Seattle’s employers of low-paid workers “should be so much more sensitive to wage increases.”

Jacob Vigdor, a UW public policy professor and one of the authors of the UW report, stood by the team’s findings.

“When we perform the exact same analysis as the Berkeley team, we match their results, which is inconsistent with the notion that our methods create bias,” he said.

He acknowledged, and the report also says, that the study excludes multisite businesses, which include large corporations and restaurants and retail stores that own their branches directly. Single-site businesses, though — which are counted in the report — could include franchise locations that are owned separately from their corporate headquarters. Vigdor said multisite businesses were actually more likely to report staff cutbacks.

As to the substantial impact on jobs that the UW researchers found, Vigdor said: “We are concerned that it is flaws in prior studies … that have masked these responses. The fact that we find zero employment effects when using methods common in prior studies — just as those studies do — amplifies these concerns.”

He added that “Seattle’s substantial minimum-wage increase — a 37 percent rise over nine months on top of what was then the nation’s highest state minimum wage — may have induced a stronger response than the events studied in prior research.”

As to how the UW team’s findings jibe with the Seattle area’s very low unemployment rate, tight labor market, and anecdotes from hospitality employers desperately seeking low-wage workers, Vigdor said that, based on data and what he’s hearing from employers, businesses are looking to hire those with more experience.

“Traditionally, a high proportion of workers in the low-wage market are not experienced at all: teens with their first jobs, immigrants with their first jobs here,” he said. “Data is pointing to: Since we have to pay more, employers are looking for people with experience who can do the job from Day 1.”



 

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