New Study Documents (Again) the Harmful Effects of Raising Minimum Wages
The results are in, and they are hardly surprising: A new study has found that the increase in Seattle’s minimum wage has had detrimental effects on exactly those groups such market interventions are supposed to help. This result should give pause to other cities that are considering such a pestilential policy path.
Some background: In January 2014 the Mayor of Seattle formed an advisory committee charged with raising the city’s minimum wage. After deliberation, the committee’s plan was forwarded by the Mayor to the Seattle City Council, which approved the proposed changes. The minimum wage thus far has been increased in two phases: from $9.47/hour to as much as $11/hour on April 1, 2015, and from that level to as much as $13/hour on January 1, 2016. Future increases are on tap to eventually increase it to $15/hour.
To evaluate the impact of the minimum wage hike, the city contracted with researchers at the University of Washington’s Evans School of Public Policy & Governance, who used this policy change to test for three effects:
- Do such wage increases affect the number of low-wage jobs?
- Do workers in low-wage jobs face cut backs in hours worked?
- Do workers in low-wage jobs suffer reductions in total earnings?
Using data from across the state, the researchers formed a control or comparison group to which changes in employment conditions in Seattle could be compared. Their control group covered all low-wage jobs—not just jobs in one or two industries (such as the restaurant sector), as is sometimes the case in such studies. So what did they find?
The UW study, which is available here (https://evans.uw.edu/policy-impact/minimum-wage-study) and here (https://evans.uw.edu/sites/default/files/NBER%20Working%20Paper.pdf) finds that the first increase, from $9.47 to $11, had relatively minor effects on low-wage job employees. There were small reductions in jobs available, and little change in the total payroll for low-wage jobs.
After the minimum wage was increased to $13/hour, however, things changed for the worse for existing low-wage workers in Seattle. While hourly wages rose slightly, many low-wage employees suffered a sizable reduction (9 percent, on average) in hours worked under the higher minimum wage. The study also found this wage hike reduced overall payroll for low-wage jobs. Following the 2016 increase in the minimum wage, the annual total payroll for low-wage jobs in Seattle declined by over $100 million. This amounts to about a $125 reduction per month for the average low-wage worker.
The loss of earnings among Seattle’s low-wage workers reflects one of the more nefarious (though usually ignored by politicians) aspects of raising minimum wages: Even though hourly wages rise, the decline in hours worked and/or jobs available can lead to a reduction in the total income of those on the lowest rung of the employment ladder. That outcome, which will only get worse as additional increases occur, is just another flaw in what really amounts to a misdirected welfare program.