UW study on Seattle's $15 minimum wage: Part 9—Minimum wage workers earning less under higher wage law

Jun 26, 2017

Supporters of increasing the minimum wage consistently argue that somehow the principles of basic economics do not apply, paradoxically insisting that increasing the cost of labor will not only not reduce the demand for that labor, but will somehow actually increase that demand.

Bending all the fundamental laws of economics, they argue that by giving workers a higher wage, they will have more money to spend, which will increase business for employers and therefore spur those employers to hire more workers.  It’s rainbows and unicorns, a win-win-win for workers, employers and the economy.

In the real world, the indisputable fact is employers will figure out ways to economize on the high-priced labor.  Some employers will embrace automation, some will favor skilled workers over less skilled applicants, while others may simply make do with a smaller work-force.

Besides the anecdotal evidence of this (check out this Facebook comment from a business owner in Seattle), recent studies of minimum wage hikes in California (this one and this one) show the bottom line is fewer work hours available for the least-skilled over the long run.  That is why the vast majority of studies conclude, “the most prominent employment effect of minimum wage laws is a decline in the hiring of new employees.”

A University of Washington study released this week researching the impacts of that city’s $15 minimum wage law (the third in a series of studies commissioned by the City of Seattle) is no different.  And what the UW researchers found is rocking the $15 Now movement.

According to the UW study, Seattle’s lowest-wage workers are certainly making more per hour, but they are actually taking home less pay as the result of reduced hours.  The UW study reveals the wages of Seattle’s working poor increased by 3% but they worked 9% fewer hours, which amounted to a nearly 7% cut in their monthly earnings.  That pencils out to nearly $125 less each month. The UW study also found the higher wage cost Seattle 5,000 jobs.

Seattle Mayor Ed Murray is refusing to acknowledge the results of the UW study, instead tweeting “the facts” that “Seattle's economy is booming, with wages increasing & restaurants & retail among our fastest growing job sectors.”

This is an oversimplification of what is really happening in Seattle.  Sure, restaurants and stores have continued to open and create jobs, Seattle’s economy is white hot.  But restaurants and stores have not opened at the pace one would expect in such a hot economy.  And according to the UW study, job growth in Seattle has only been strong for workers earning more than $19 per hour, which is well above Seattle’s minimum wage.

The UW research team said the study “suggests that low-wage labor is a more substitutable, expendable factor of production. The work of least-paid workers might be performed more efficiently by more skilled and experienced workers commanding a substantially higher wage. This work could, in some circumstances, be automated. In other circumstances, employers may conclude that the work of least-paid workers need not be done at all.”

As the lead researcher of the UW team, Professor Jacob Vigdor, put it:

"This is a two-edged sword.  And if you raise this minimum wage the way Seattle did you run the risk of actually taking money away from the people you are trying to help."

Of course, this is happening before the full $15 minimum wage has been implemented.  The UW study analyzed the impacts of the wage hikes in Seattle through 2016, when the minimum wage was $13.   The full $15 kicked in earlier this year and those impacts have yet to be studied.