Study: City’s wage hike not a job killer
Raising Chicago’s minimum wage has boosted the paychecks of food service workers while not harming jobs, according to a new study that adds to a growing and conflicting set of literature attempting to address the impact of recent wage hikes.
The study from researchers at the University of California at Berkeley examined how recent minimum wage increases in Chicago and five other big U.S. cities affected earnings and employment levels at restaurants and bars, which employ many low-wage workers. It is the first multicity analysis of the consequences of hiking minimum wages beyond $10 an hour, the researchers said.
The cities analyzed — Chicago; Seattle; San Francisco; San Jose, Calif.; Oakland, Calif.; and Washington – had raised their minimum wages by varying degrees by the end of the study period in 2016, ranging from $10.50 an hour in Chicago to $13 in Seattle and San Francisco.
Chicago is gradually raising its minimum wage — through a series of incremental increases — from $8.25 an hour in 2015 to $13 an hour next July. This summer, Chicago’s minimum wage hit $12 an hour. The Illinois minimum wage currently stands at $8.25 an hour.
Pooling the data from the six cities, the researchers found that a 10 percent increase in the minimum wage raised weekly earnings for food service workers between 1.3 and 2.5 percent. Meanwhile, employment levels in the industry remained relatively flat, ranging from a 0.3 percent decrease to a 1.1 percent increase.
For a typical restaurant worker in Chicago earning $400 a week before the minimum wage increase, the hike meant an extra $13 to $24 in weekly pay.
“Just as intended, the earnings are increasing, but we’re not finding any significant employment losses,” said study co-author Sylvia Allegretto, an economist and co-chair at the Center on Wage and Employment Dynamics at Berkeley.
The study came to a similar conclusion as a report released this summer from the Illinois Economic Policy Institute and the University of Illinois at Urbana-Champaign’s Project for Middle Class Renewal, which compared Chicago with surrounding suburbs in Illinois, Indiana and Wisconsin that did not enact wage hikes. That study found that Chicago’s minimum wage increase had benefited 330,000 workers, about 25 percent of the city’s workforce, with no negative impacts on business or employment growth.
But other studies have not been so rosy.
The Berkeley study was produced by the same team that was behind a 2017 study that examined Seattle’s minimum wage increase, to $13 at the time, and found no job losses in the food service industry. That research came out around the same time as a University of Washington study that also examined Seattle’s wage hike and found there were some negative consequences, causing controversy as economists picked apart the two studies’ methodologies.
The University of Washington study — which was commissioned by the city of Seattle and looked at lowwage workers as a whole, not just food service workers — found that Seattle’s law increased wages by 3 percent overall, but decreased hours worked by 9 percent, resulting in smaller paychecks. The study estimated that, on the whole, the average low-wage worker in the city lost $125 a month because of the minimum wage hike.
Those findings surprised some economists who said the bulk of the literature has found that the potential benefits of raising the minimum wage outweigh the drawbacks. In theory, raising the wage floor results in greater employee productivity, lower turnover and more spending money for low-wage workers to put back into the economy, which offsets negative effects such as automation replacing workers and higher prices dampening sales.
Others say that while some minimum wage workers might enjoy fatter paychecks, the ultimate effect on low-income families is negative because they struggle to pay the higher prices that come when businesses adjust to pay their workers more.
“Raising the minimum wage is a ‘feel good’ policy that actually harms more low-income folks than it helps,” Robert Topel, an economics professor at the University of Chicago, said in an email when asked to comment earlier this summer on Chicago’s minimum wage increase. “There are better ways to help lowincome individuals and households.”
Berkeley’s Allegretto said her new study confirms her team’s original findings for Seattle, as they are bolstered by data from multiple cities and falsification tests to ensure the impact is not being driven by other factors unrelated to the wage increases. The researchers examined economic activity in the cities before and after the wage hikes were enacted and compared them against similar metropolitan areas that didn’t raise minimum wage, controlling for the economic boom happening at the time, she said.
The debate will continue as a growing number of cities and states raise their minimum wage. As of August, 10 large cities, seven states and dozens of smaller cities and counties had enacted minimum wage policies in the $12- to $15-anhour range, according to the Berkeley report. Once phased in, the wage increases will cover well over 20 percent of the U.S. workforce.
The federal minimum wage remains $7.25 an hour, where it has been since 2009.