New Study Reveals High Costs and Job Losses With Seattle’s $15 Minimum Wage

May 9, 2014

A new, independent study from a Seattle economist reveals the impact of a $15 minimum wage in Seattle may be much greater than indicated in a University of Washington study requested and funded by the Seattle City Council.

The analysis by economist and tenured professor Peter Nickerson, Ph.D., of a $15 minimum wage in Seattle shows the pay hike comes with a significant price tag.  Based on data extrapolated from 2013 wage and hour data from the state Employment Security Department (ESD), nearly 117,000 workers at 10,911 firms would be affected.  The total cost for all industries in the city would be $384 million a year. 

While firms of all sizes would be affected, the study found many more small businesses (those with 1-9 employees) would be impacted than medium (10-99 employees) and large companies (100+ employees).  Just 377 large and 2,818 medium companies would be affected, compared to 7,716 small employers.  Conversely, the large employers would bear more of the cost, due to the high number of workers employed by larger companies.

The study estimates job losses in the city according to three reasonable elasticities of demand for low wage labor.  At the lowest elasticity of -0.1 the potential job loss would be 4,728, at an elasticity of -0.25 job loss would be 11,820 and at an elasticity of -0.40 the job losses would be close to 19,000.  The author notes it is not just the increased cost of labor of the $15 wage that would contribute to job loss, but also the fact the wage would only be effective in Seattle and not in adjacent cities.

The study also concludes that in addition to job loss, there will be fewer hours worked by those who retain their jobs, and the nature of those jobs will change.  For example, a hotel may give maid more rooms to clean in the same amount of time.

None of the data on the number of workers and firms impacted, cost to employers and job loss includes the possible increased wages for jobs above the $15 per hour level.  The impacts would be much greater if employers maintain pay ladders to ensure workers with skills and experience earn more than their entry-level co-workers.

Beyond the increased cost to employers and the estimated job losses, the study acknowledges non-economic impacts that are often overlooked.  Employers and employees would be less able to differentiate by pay employees with different skill and motivation levels.  Incentives to obtain technical training, associate degrees, and even high school diplomas, would likely decrease.  Competition for the $15 per hour jobs would increase, drawing workers from outlying areas to compete for jobs in the city and encouraging people who currently do not work to seek work because of the higher wage.  Turnover would decrease, making competition for jobs even greater.  Workers would likely have fewer opportunities to earn overtime wages.

The study also reinforces many of the arguments opponents of a $15 minimum wage have made: Employers would favor hiring more skilled employees with better language skills over unskilled workers.  Summer and seasonal jobs for teenagers would likely all but disappear.  As the study notes, “some of the lowest skilled people in Seattle will find themselves commuting out of Seattle to find jobs.”

While the UW study acknowledges it is “unlikely” there will be no changes in the labor market with a $15 minimum wage, the study does not provide estimates accounting for the impact of those changes, nor does it take into consideration those changes when determining the benefits of the higher wage.   The UW study notes their analysis is “static as it does not include any number of adjustments which are likely to occur.” 

As the Nickerson study observes, “labor markets and the businesses and workers in those markets are not dull, static entities.  Markets and their participants are dynamic and responsive to change.  When wages change, other things happen in the marketplace even when job losses are minimal or non-existent.”

So while the UW study identifies benefits such as higher wages and reduced poverty, it does not take into account the real world responses such as a shift in demand toward higher skilled workers, reduced hours or size of an employers’ workforce, increased competition for jobs, or that businesses may close or relocate.   Such responses would diminish benefits. The UW study cautions readers “to take these caveats into account.  As is, these results [such as increased wages and reduced poverty] should be taken as upper bounds of the true effect.  Effects of this magnitude are unlikely to occur.”

Perhaps those caveats explain Dr. Nickerson’s motivation in providing an independent analysis of a $15 minimum wage.   Completely self-funded, he says he conducted the analysis “out of concern of a lack of detailed information in the hands of the public.”

As Nickerson points out, “Individuals who would get and keep the $15.00 per hour jobs would certainly be better off.  The cost of that increase, however, would include high unemployment and job loss.” 

Comments

Where is the study?

Let's see the study and it's methodology. Without seeing the actual study, how do we know its findings are credible?

It would be nice if we could

It would be nice if we could get a link to his study so we can gain insight to his numbers and methodology like the UW study.

Study

Thank you for the reminder, I've been meaning to post the study. When I wrote the blog I only had a hard copy of the study, which is why I did not link to it. I wanted to get the blog posted so I planned to come back and figure out how to include a link to the study. Obviously I did not follow through. I will figure out how to get a copy posted in the next few days.

$15 Wage

This is the best article I have seen to date regarding the $15 minimum wage. I suspect none of the liberal/socialist politicians will read it or if they do, willl understand it, or if they understand it, will care one iota. However, it is important that the information surface even if it is ultimately ignored. I am constantly amazed at how little the liberal/socialist establishment understands about economics. The causes and effects set forth in the piece are not really difficult concepts. They are pretty basic. Thanks to the author for doing the homework which the mayor and city council should have done before jumping on the $15 bandwagon.