Seattle is a high cost/high wage/high income area. For a minimum wage to hurt them it would have to be higher then it would have to be somewhere else.
Also the economy generally being healthy in Seattle isn't evidence that a $15/h minimum wage isn't harmful even there, just evidence that its not harmful enough to be even close to the dominant economic factor in the city. Make it $35/hour there or $20/h in Mississippi and it likely would be the dominant factor and certainly would at least be an important one.
And there is evidence that even in Seattle it has had a negative employment effect -
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Seattle's Minimum Wage Rise Is Reducing Employment In Seattle - I Was Right In Predicting This
JUL 26, 2016 @ 06:32 AM
Tim Worstall , CONTRIBUTOR
I have opinions about economics, finance and public policy.
Opinions expressed by Forbes Contributors are their own.
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We’ve all been having the most wonderful fun in snarling at each other over the effects of raising the minimum wage. More specifically, there has been a certain back and forth between myself and various acolytes of Nick Hanauer over what the effects of the minimum wage rise in Seattle will do to employment prospects in that fair city. My claim was, by the standards of basic and conventional economics, an entirely uncontroversial one. Which is that a rise in the price of something will lead to people purchasing less of that thing. A rise in the price of low skill labour will lead to employers purchasing less of that low skill labour.
The claim is not that, and the claim never has been that, raising Seattle’s minimum wage will cause the economy to become some howling wasteland of huddled masses desperately looking for a job. Only that with a higher minimum wage there will be less low skill employment than without a raise in that minimum wage. Further, yes, of course, the effects of a minimum wage are going to be marginal when laid against all the other things that can happen to a labour market.
But then it is at the margins that all economics happens.This is, as I say, entirely conventional economics, nothing radical about it at all. And yet I’ve been pilloried as just not getting it by those who believe in some alternative universe where the simplicities of economics just do not hold.
Seattle’s labor market has thrived since the city became the first major metropolis in the country to pass a law setting its minimum wage on a path to $15 per hour.
The city’s job-growth rate has been triple the national average, for example.
Much of that success, though, can be attributed to trends separate from the minimum-wage law itself, such as the growth of Seattle’s tech sector and its construction boom, according to a new report that University of Washington researchers presented to the City Council on Monday. At which point we can go and have a look at what has happened. Because we now have a report on exactly what has been happening in Seattle’s labour market.
I have no problem with any of that. Sure, employment is up, unemployment is down. But those other factors entirely swamp the effects of a minimum wage change. OK, and?
Pay for low-wage workers climbed more in real Seattle than in synthetic Seattle, while their employment rate and hours climbed slightly less. And that’s the important finding here. The one that agrees with my initial analysis. This is an empirical finding recall, while my original one was working entirely from theory. And how nice it is to see that theorising from econ 101 gets confirmed by an empirical study like this.
Employment rates and hours climbed, yes, because the economy is booming. But they climbed less in areas where the minimum wage was raised than they did in areas where it was not. The difference between those two is the employment lost to the higher minimum wage.
It’s worth quoting from the report itself in detail and at length because they explain their points very well:
This report presents the short-run effects of the Seattle Minimum Wage Ordinance on the Seattle labor market. The Seattle Minimum Wage study team at the University of Washington analyzed administrative records on employment, hours, and earnings from the Washington Employment Security Department to address two fundamental questions:
1) How has Seattle’s labor market performed since the City passed the Minimum Wage
Ordinance, and particularly since the first wage increase phased in on April 1, 2015?
2) What are the short-run effects of the Minimum Wage Ordinance on Seattle’s labor
market?
While quite similar at first glance, these two questions address very different issues and require very different methods to answer.
The first question can be studied with a simple before/after comparison. Although the comparison is simple, it risks conflating the impact of the minimum wage with other local trends. Many things have happened in Seattle’s labor market since June 2014, most of them having little or nothing to do with the minimum wage itself. The City has enjoyed steady expansion in tech sector employment, and a construction boom fueled by rising residential and commercial property prices. Even the weather – a key determinant of economic activity in the Puget Sound region – was favorable in 2015, with record-low precipitation in the early months of the $11 minimum wage. The before-after comparison can tell us the net impact of all these simultaneous trends, but this comparison cannot distinguish among them.
Our second question – the more important one for purposes of evaluating the policy – aims to
isolate the impact of the minimum wage from all the other regional trends seen over the same
time period. Whereas the first question asks “are we better off than we were when Seattle raised the minimum wage” and requires only a simple comparison of yesterday to today, the second asks “are we better off than we would have been if Seattle had not adopted a higher minimum wage?” To answer it requires imagining how the local economy would look in absence of a Minimum Wage Ordinance.
While it is impossible to directly observe what would have happened if no wage ordinance had
been implemented, this report uses widely accepted statistical techniques to compare Seattle in its current state—with the presence of the Minimum Wage Ordinance—to an image of what
Seattle might have looked like today if not for the Minimum Wage Ordinance. We take
advantage of data going back to 2005 to build a model of the way Seattle’s labor market typically works. We also take advantage of data on nearby regions that did not increase the minimum wage to better understand how other factors might have influenced what we observe in the City itself.
That’s exactly what we want to know and that’s exactly how to find out. Of course we’re interested in how the labour market has done overall. But when we want to consider the impact of the minimum wage rise then we want to try to isolate the impact of the minimum wage rise. This means trying to strip out all of the other things which have been happening in the labour market. The way to do this is to look at broadly similar economies under broadly similar circumstances (at least as close to each other as we can manage), one with the minimum wage rise and one without. Fortunately Seattle’s minimum wage rise applies only to Seattle, not the surrounding area. Thus by contrasting the outcomes in the two areas we can isolate the effect only of the minimum wage rise in Seattle.
Good, excellent, that’s what we’re looking for and that’s the way to do it.
So, the result is:
In a region where all low-wage workers, including those in Seattle, have enjoyed access to more jobs and more hours, Seattle’s low-wage workers show some preliminary signs of lagging behind similar workers in comparison regions.
- The minimum wage appears to have slightly reduced the employment rate of low-wage workers by about one percentage point. It appears that the Minimum Wage Ordinance modestly held back Seattle’s employment of low-wage workers relative to the level we could have expected.
- Hours worked among low-wage Seattle workers have lagged behind regional trends, by roughly four hours per week, on average.
- Low-wage individuals working in Seattle when the ordinance passed transitioned to jobs outside Seattle at an elevated rate compared to historical patterns.
Which is absolutely fascinating, isn’t it? And do note that the reduction in employment growth accords very well with David Neumark’s estimations of the elasticity of labour demand here. The actual wage rise (so far) was about 10%. The employment drop was about 1%. So, an elasticity of about -0.1%. Neumark has teen minimum wage elasticity at about 0.15% (in other papers, as far up as -0.2%).
Finally, do note exactly what my prediction was:
No one at all has ever doubted that it is possible to increase employment and the minimum wage at the same time. The impact of the general economy is usually going to be larger than the impact of the minimum wage. The impact of that general economy could mean that employment rises, stays the same or falls, whatever happens to the minimum wage. But that’s not the interesting thing we’d like to know. Which is, what is the effect of raising the minimum wage on unemployment? Freed from the impacts of everything else happening in the economy? And there the standard answer is that it will raise unemployment and no, no one has managed to come up with a convincing case against this standard wisdom. And the the prediction in a simpler form:
Please do note though what is the prediction. Not that there’s going to be a wiping out of employment opportunities, nor that the economy of Seattle is going to become a howling wasteland. Rather, that less human labor will be employed at $15 an hour than would have been employed if the minimum wage had not risen to that amount. That is of course a prediction about what will happen with the full wage rise, this paper today is a study of what has happened with the intermediate rise.
So it seems that I was right. The rise in the minimum wage is reducing the amount of employment compared to what would happen without the minimum wage rise. All of which is going to come as news to those acolytes of Nick Hanauer of course but then there is a reason why my colleague Adam Ozimek calls Mr. Hanauer America’s worst minimum wage pundit.
Nick Hanauer made billions of dollars as a tech investor, and for this reason he is invited to write his thoughts on the minimum wage in various publications. It’s unfortunate, because he is exceptionally wrong and uninformed.
Ho hum.
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