UW study on Seattle’s $15 minimum wage: Part 4—The “negative, unintended consequence” of Seattle’s $15 minimum wage law

Jul 27, 2016

This week the University of Washington (UW) research team hired by the City of Seattle to determine the impact of the city’s new $15 minimum wage law delivered their report on the second phase of the study to the City Council.   What the researchers found is not encouraging.

First, the UW researchers heavily stressed that while the city’s lowest wage workers are earning slightly more than they were before the new wage law took effect, “most, if not all” of those higher earnings are due more to the region’s booming economy than the actual wage hike itself.  The study found that, at most, 25% of those workers’ income gains—around a few dollars a week, on average—can be attributed to the wage hike. 

However, the negative impacts of the wage seem to be much clearer and impactful.  

Amidst this robust economy, the UW study found the lowest-wage workers in Seattle have suffered reduced hours and lower rates of employment.  The researchers note these cutbacks have offset, at least partially, the slight wage gains of those workers.  This is exactly what those who opposed the city’s plan to pass a $15 wage law predicted.

The UW study explained that while businesses in Seattle that rely heavily on a low-wage workforce added jobs at the same rate as employers in other cities in the state, they offered fewer hours to their employees.  So workers were earning a higher hourly wage but working fewer hours, resulting in very little net gain.

As the head of the UW research team, professor Jacob Vigdor, summed up:

“While the vibrant local economy is boosting employment and incomes up and down the economic ladder, the positive effects of a higher minimum wage are being at least partly offset by cutbacks in hours.”

In addition, the researchers estimate the city’s new wage law is directly responsible for lowering the employment opportunities of low-wage Seattle workers—their employment rate is 1.2 percentage points lower than what it would have been without the wage law.  Add to that the decline in hours worked per employee, and it perhaps is not surprising that another impact of the city’s wage law has been a 2.8 percentage point increase in low-wage workers leaving Seattle to work elsewhere.

Ignoring these pesky details of the UW study, Nick Hanauer’s Civic Skunk Works blog headline disingenuously declares “New UW Report Finds Seattle’s Minimum Wage is Great for Workers,” explaining that “a new report from the University of Washington finds wages, jobs, and hours up for Seattle’s low-wage workers…”  Clearly the author of that blog missed the part where the UW study warns (in bold font, no less):

“The major conclusion one should draw from this analysis is that the Seattle Minimum Wage Ordinance worked as intended by raising the hourly wage rate of low-wage workers, yet the unintended, negative side effects on hours and employment muted the impact on labor earnings.” 

Continuing the charade, the union-funded group Working Washington that pushed the city’s $15 minimum wage law declares the study proof that the city’s “Chicken Little” critics who predicted the sky would fall on Seattle’s economy were wrong.

No one predicted Seattle’s economy would collapse with a $15 minimum wage law.  What was predicted was that employers would mitigate their increased labor costs by increasing prices and reducing the work hours and employment opportunities of the city’s lowest-skill workers. 

Which is exactly what has happened. 

In the first phase of the UW study released in April, researchers found that while grocery, retail and rent prices increased by just a couple of percentage points, prices in the restaurant and fast food industry, which rely heavily on minimum wage workers, increased an average of 9% from just a year ago.  This is not surprising given the labor-intensive nature of the food service industry.

In that same report, many Seattle employers reported they will no longer hire unskilled and inexperienced workers for what used to be entry-level jobs.  This leaves the workers needing those entry-level jobs the most with few (or none) job opportunities.

Now this second phase of the UW study shows the “negative, unintended consequence” of reduced hours and fewer employment opportunities for the lowest-wage workers in Seattle, whom the higher wage is supposed to benefit.

The UW study only covered the initial phase-in of the city’s $15 wage law.  The law went into effect on April 15, 2015 and increased the minimum wage to $11.  The study examined the subsequent nine months. 

On January 1, 2016, the next phase of the wage law kicked in, with a minimum wage of $13 per hour.  The UW study has yet to study those impacts.  One can only speculate on what “unintended, negative side effects” the UW researchers will find.

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