Seattle’s Minimum Wage Wager | U.S. Chamber of Commerce

Seattle’s Minimum Wage Wager

bloomberg_dollarbills_800px.jpg

Dollar bills
Photo credit: Scott Eells/Bloomberg.

For the last several years, organized labor has engaged in a multi-faceted campaign to raise the minimum wage to an inflated $15 per hour, and unions like the Service Employees International Union (SEIU) have funded the so-called Fight for $15 effort as a broader organizing effort.  Although the SEIU has yet to recruit any new members through this effort, the $15 minimum wage has still taken root in some cities and states dominated by their political allies. 

One such municipality is Seattle, which is gradually raising its minimum wage to the much-desired $15 per hour after passing an ordinance to do so in 2015.  After two years, however, new evidence should make those contemplating a similar action think twice.

In a report released earlier this summer, commissioned by the City of Seattle itself, researchers from the University of Washington (UW) evaluated the effects of the Seattle Minimum Wage Ordinance on wages, employment, and hours worked.  In a nutshell, the report revealed that the sharply escalating minimum wage is having a negative effect on hours worked and total take-home pay for the workers the ordinance was supposed to help. 

The report acknowledges that other evaluations of higher minimum wages have suggested a negligible impact, but it “reaches a markedly different conclusion: employment losses associated with Seattle’s mandated wage increases are in fact large enough to have resulted in net reductions in payroll expenses—and total employee earnings—in the low-wage job market.”  Put simply, the report indicates that small increases in the minimum wage may not have a lot of impact, but the push for $15 is causing low-wage workers to make less money. 

The researchers attribute the difference between their conclusions and those of others to their ability to “circumvent” data limitations present in other research, including the fact that Washington is one of only four states that collects data on both wages and hours worked.  Moreover, the paper observes that other research into the minimum wage typically focuses on a particular industry, such as food service, while the researchers examined “all categories of low-wage employees, spanning all industries and worker demographics.”

In examining the evidence, the report found that Seattle’s most recent minimum wage increase to $13 “associates with…significant hours reductions between 7.9% and 10.6% (averaging 9.4%)” and finds that “employers are not only reducing the number of low-wage jobs, but also reducing the hours of retained employees” by as much as 3.5 million hours per quarter.  The report also suggests that Seattle’s inflated minimum wage “caused the elimination of 6,317 low-wage jobs at single-location firms,” with job losses of about 10,000 when factoring in multi-location firms.

Workers were also affected negatively in terms of wages, as the report suggests that “low wage workers lost $3 from lost employment opportunities for every $1 they gain[ed] due to higher hourly wages.”  The report concludes that the net effect of the higher minimum wage for low wage workers is a decrease of 6.6% in wages per month, or $125. 

The release of the UW report caused a bit of tempest among labor activists and supporters of an inflated minimum wage, who savagely challenged its veracity. Nevertheless, citing an economist at the Massachusetts Institute of Technology who was not involved in writing it, the Washington Post called the report “very credible.”

Perhaps knowing the UW report would not be too flattering, the mayor of Seattle, who publicly supported the minimum wage increase, commissioned a second study from the University of California at Berkeley.  Not surprisingly, the Berkeley report came to a different conclusion, and the mayor released it a week ahead of the city’s official study. In a masterpiece of timing, the mayor’s office had an infographic already prepared to accompany the Berkeley report.  An accompanying celebratory press release failed to mention the UW report’s adverse conclusions. 

Notwithstanding the political posturing, the UW study offers an important insight into the impact of the SEIU’s misguided Fight for $15 campaign.  Supporters of that movement breezily dismissed the UW study, but a more balanced view—one informed by mature economic understanding—would suggest caution as public officials consider whether to buy in to the SEIU’s slogan.