https://fivethirtyeight.com/features/seattles-minimum-wage-hike-may-have-gone-too-far/amp/
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As cities across the country pushed their minimum wages to untested heights in recent years, some economists began to ask: How high is too high?
Seattle, with its highest-in-the-country minimum wage, may have hit that limit.
In January 2016, Seattles minimum wage jumped from $11 an hour to $13 for large employers, the second big increase in less than a year. New research released Monday by a team of economists at the University of Washington suggests the wage hike may have come at a significant cost: The increase led to steep declines in employment for low-wage workers, and a drop in hours for those who kept their jobs. Crucially, the negative impact of lost jobs and hours more than offset the benefits of higher wages on average, low-wage workers earned $125 per month less because of the higher wage, a small but significant decline.
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Many economists, meanwhile, have acknowledged substantial uncertainty over the likely effects of the recent wage hikes. Most though by no means all past research has found that modest increases to the minimum wage have little impact on employment, and that if employers do eliminate jobs or cut back hours, those losses are dwarfed by the income gains enjoyed by the majority of workers who keep their jobs. But those studies were mostly based on minimum wages that were much lower than the ones beginning to take effect now. Even some liberal economists have expressed concern, often privately, that employers might respond differently to a minimum wage of $12 or $15, which would affect a far broader swath of workers than the part-time fast-food and retail employees who typically dominate the ranks of minimum-wage earners. Other economists said there simply wasnt enough evidence to predict the impact of minimum wages that high. The new laws in Seattle and other cities, then, could provide an ideal testing ground.
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Seattles minimum-wage ordinance was one of the earliest and most aggressive of the recent wave. In 2014, the city passed a law raising the citys minimum wage already among the nations highest, at more than $9 an hour to $15 an hour over several years. Economists immediately saw the law as an opportunity to study the effects of an unusually high minimum wage, and the city of Seattle agreed to help fund a team of researchers to look into the policys impact.
The groups first major report, released last year, looked at the first big increase under the law, in April 2015, in which the minimum wage went from $9.47 to $11 for large employers. The report found relatively little effect, for good or ill: The policy led to some lost jobs and hours, the report concluded, but those were more or less offset by the increased income enjoyed by workers. For workers who kept their jobs, the higher wage was a clear benefit; for low-wage workers as a whole, the impact was minimal. One reason for the muted impact: In high-cost Seattle, not many workers earned less than $11 an hour even before the law took effect.
Mondays report looks at the impact of the second wage increase under the law: the January 2016 hike to $13 an hour for large employers. This time, the findings look very different: Compared to a counterfactual in which Seattle didnt raise its minimum wage, the number of hours worked by low-wage workers (those earning less than $19 an hour) fell by 9.4 percent over the first nine months of 2016, and the number of low-wage jobs fell by 6.8 percent. Cumulatively, those add up to the losses of 5,000 jobs and 3.5 million hours of work. The average low-wage employee, they found, saw his or her monthly paycheck shrink by $125, or 6.6 percent.
The study is far from the last word on the impact of Seattles law, let alone the $15 minimum wage movement more generally. Indeed, just last week another study used similar methods to reach seemingly the opposite conclusion: A report from the Institute for Research on Labor and Employment at the University of California, Berkeley, found that Seattles minimum wage, raises pay without costing jobs, as a press release on the study announced.
The Berkeley study, however, looked exclusively at the restaurant industry. That has been a common practice in minimum-wage research, because the industry is one of the largest employers of low-wage workers. But the University of Washington study suggests a possible flaw in that approach: That research, too, found essentially no job losses in the restaurant sector as a result of the citys minimum wage hike. That suggests that studies that focused on the restaurant industry might have missed larger effects in other sectors. (Michael Reich, one of the authors of the Berkeley study, said he was confident in his findings. Bernstein said focusing on restaurants, especially fast food, was a widely accepted approach that was well grounded in economic theory.)
The Washington study has one big advantage over most past research: The authors had access to detailed data on the hours and earnings of nearly all employees in Washington state, allowing them to measure the effects of the minimum wage much more directly than is possible with less complete datasets. But the study has its own weaknesses. Because the researchers had data only for Washington state, they had only a limited pool of places they could compare Seattle to a key step for figuring out the effects of the minimum wage policy. (The Berkeley paper, by contrast, compared Seattle to similar communities across the country. )
The Washington researchers also had to exclude many multilocation businesses, which means their sample could leave out major low-wage employers such as fast-food chains. Reich, in a letter to Seattles mayor responding to the study, called the findings not credible in part because they differed so much from those of past research. But Jeffrey Clemens, an economist at the University of California, San Diego who has studied the minimum wage, said it isnt surprising that Seattles minimum wage would have an unusually big impact because it is so much higher than most other minimums.
Even if the Washington study stands up to scrutiny and it will get lots more scrutiny it carries important caveats. Vigdor cautioned that the study makes no claims about individual workers: It is possible, for example, that workers who lost their jobs after the wage hike quickly found other jobs outside of Seattle, or that they made up for lost hours by driving for Uber. Neither shift would show up in the researchers data.
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