Rais­ing pay but cut­ting jobs

Seat­tle firms trimmed work­ers and sched­ules when the wage floor rose to $13, study says.

Los Angeles Times - - FRONT PAGE - By Natalie Kitroeff

It’s one of the core ques­tions in the de­bate over min­i­mum wage: Does push­ing the pay f loor to $15 lead busi­nesses to cut hours and jobs?

A much-an­tic­i­pated study re­leased Mon­day by a team of re­searchers at the Univer­sity of Wash­ing­ton is likely to in­ten­sify that con­tro­versy — just as Los An­ge­les heads to­ward its own min­i­mum wage in­crease for large busi­nesses, from $10.50 an hour now to $12 an hour on July 1.

The new study has found that jobs and work hours fell for Seat­tle’s low­est-paid em­ploy­ees af­ter the city raised the min­i­mum wage to $13

last year on its march to $15 for all work­ers by 2021.

The anal­y­sis shows that jobs and hours for those work­ers de­clined faster in Seat­tle than in sur­round­ing con­trol ar­eas, where the min­i­mum wage did not in­crease.

That find­ing di­verges from past stud­ies of min­i­mum wage in­creases in Seat­tle and else­where, which have found rel­a­tively lit­tle ef­fect on em­ploy­ment. And some econ­o­mists see it as a pos­si­ble sign that $15 min­i­mum wage laws such as those passed in Seat­tle, New York and sev­eral Cal­i­for­nia cities could hurt work­ers at the low­est end of the wage spec­trum.

Seat­tle has been a leader among the na­tion’s cities in dra­mat­i­cally rais­ing its wage f loor, to one of the high­est in the coun­try. For that rea­son, it has drawn the at­ten­tion and in­tense scru­tiny of aca­demics and pun­dits on both sides of the min­i­mum wage de­bate.

The Univer­sity of Wash­ing­ton’s on­go­ing study, com­mis­sioned by the city of Seat­tle, is well suited to mea­sure the re­sults of that ex­per­i­ment be­cause it looks specif­i­cally at what hap­pened to work­ers who earned low wages, in­de­pen­dent econ­o­mists said.

Wash­ing­ton is one of only four states that ac­tu­ally track how many hours each em­ployee works, al­low­ing re­searchers to iden­tify ex­actly which work­ers are paid the low­est hourly wage and how their pay and em­ploy­ment op­por­tu­ni­ties changed.

Stud­ies of wage hikes in other states and cities have in­stead fo­cused on broad in­dus­tries, such as restau­rants, that tend to pay low wages, or on teenagers, who tend to earn small pay­checks.

“This is a study that has the power to move peo­ple’s be­liefs. It will have a sub­stan­tial im­pact on the de­bate,” said David Au­tor of MIT, one of the coun­try’s lead­ing la­bor econ­o­mists, who re­viewed the paper be­fore it was pub­lished.

“It sug­gests we should be pro­ceed­ing cau­tiously when we start push­ing min­i­mum wages into ranges where they are pretty sig­nif­i­cant,” Au­tor said.

Of course, what hap­pens in Seat­tle could stay in Seat­tle. The city is unique in that it started from a high wage floor. In two dozen U.S. states, the min­i­mum wage is less than $9 today, and there’s no in­di­ca­tion that bring­ing those rates up in­cre­men­tally would do any harm.

Un­der the Seat­tle wage law, com­pa­nies with more than 500 work­ers world­wide that didn’t con­trib­ute to worker health in­surance saw the min­i­mum hourly rate they were re­quired to pay rise from $9.47 in 2014 to $11 in April 2015. That uptick barely changed the num­ber of low-wage jobs in the city, ac­cord­ing to an anal­y­sis re­leased last year by the same group of Wash­ing­ton re­searchers. It was only when the rate went to $13 an hour in Jan­uary 2016 that the econ­o­mists started see­ing signs of trou­ble.

Low-wage work­ers in Seat­tle — peo­ple earn­ing less than $19 an hour — saw their hours de­crease by about 9% from 2014 to 2016, com­pared with the sur­round­ing con­trol area, the study found. The num­ber of low-wage jobs over­all de­clined by nearly 7% rel­a­tive to the con­trol group.

Em­manuel Saez, an econ­o­mist at UC Berke­ley who also re­viewed the paper, agreed that the study was well de­signed. But he was less sure of its neg­a­tive im­pli­ca­tions.

Saez said it’s pos­si­ble that a boom­ing Seat­tle job mar­ket drove away lowwage jobs. Seat­tle’s un­em­ploy­ment rate has dropped to record lows in re­cent months, reach­ing 3.2% in May, and em­ploy­ers may have been forced to pass out raises even with­out a higher min­i­mum, he said.

“I am not yet con­vinced by this study that the Seat­tle min­i­mum wage has cre­ated large em­ploy­ment losses,” Saez wrote in an email.

Seat­tle’s 2014 law ap­plied dif­fer­ent min­i­mum wage rates depend­ing on the size of the busi­ness and whether em­ploy­ees got med­i­cal ben­e­fits or tips. Fran­chisees — say, in­di­vid­ual McDon­ald’s restau­rants — were counted as large busi­nesses and sub­ject to higher rates.

“The cost of la­bor is go­ing up and em­ploy­ers are try­ing to ad­just to that by cut­ting hours worked,” said Katya Jardim, a coau­thor of the Univer­sity of Wash­ing­ton re­port. “It sug­gests there are at least some work­ers be­ing im­pacted neg­a­tively by higher min­i­mum wages.”

It is im­pos­si­ble to know for sure how a sim­i­lar jump will play out in Los An­ge­les, which has a dif­fer­ent econ­omy from Seat­tle’s. But some econ­o­mists said there’s rea­son to worry.

“Los An­ge­les should be alarmed by this,” said Ed­ward Leamer, an econ­o­mist at UCLA. Seat­tle is packed to the gills with high earn­ers, he said, and is the type of city that econ­o­mists ex­pect to weather min­i­mum wage in­creases bet­ter than most.

In Seat­tle, the av­er­age hourly wage is about $36, com­pared with $28 in Los An­ge­les, ac­cord­ing to the Bureau of La­bor Statis­tics.

“A high min­i­mum wage in Los An­ge­les is likely to do more harm be­cause you have more mi­nor­ity, low-pay, low-skill work­ers,” said David Neu­mark, an econ­o­mist at UC Irvine.

In Los An­ge­les’ fa­vor is that it is sur­rounded by ur­ban cen­ters that are also push­ing quickly to­ward a $15 wage floor, giv­ing fewer op­tions to com­pa­nies look­ing to move to greener pas­tures. In Wash­ing­ton, Seat­tle is the only ma­jor city that’s quickly ap­proach­ing $15.

By 2016, Seat­tle restau­rants had cut hours and jobs for low-paid work­ers, but had hired more highly paid em­ploy­ees, the study found.

The re­searchers con­ducted two sur­veys of 500 busi­nesses, which seem to sug­gest that restau­rants are mov­ing to­ward a model of ei­ther lim­ited ser­vice — where peo­ple pick up their food at a counter and bus their own ta­bles — or lav­ish, full-ser­vice joints — places where a salad can cost, say, $25.

“It’s an evo­lu­tion in the types of restau­rants you see in Seat­tle and it’s an evo­lu­tion in terms of restau­rants hir­ing ex­pe­ri­enced work­ers,” said Ja­cob Vig­dor, who coau­thored the re­port.

All restau­rants ap­pear to be re­ly­ing more and more on higher-paid work­ers. That could be hap­pen­ing be­cause Seat­tle is boom­ing and hordes of new tech work­ers need fancy places to eat.

“This is hap­pen­ing in Seat­tle any­way, re­gard­less of the min­i­mum wage; we are see­ing a shift away from lowwage jobs and to high-wage jobs,” said Ben Zip­perer of the Eco­nomic Pol­icy In­sti­tute, a lib­eral re­search group.

It could also show that the min­i­mum wage is achiev­ing one of its in­tended goals, by lead­ing cities away from be­ing cen­ters of low­pay­ing gigs in fa­vor of more lu­cra­tive job op­por­tu­ni­ties.

Ei­ther way, that shift could pro­duce losers: teenagers, for in­stance, and other peo­ple who don’t have the skills to vie for po­si­tions that pay top dol­lar.

“If you are some­one try­ing to break into the la­bor mar­ket, get your first job, a young per­son or im­mi­grant, that’s where it re­ally seems like it’s be­come more dif­fi­cult,” Vig­dor said.

Re­searchers at UC Berke­ley pub­lished a sep­a­rate re­port on food ser­vices busi­nesses in Seat­tle ear­lier this month, which found that pay went up in the sec­tor and the num­ber of jobs didn’t change, com­pared with a con­trol group that in­cluded ar­eas out­side of Wash­ing­ton.

The re­searchers did not have the hourly data that the Wash­ing­ton re­searchers used, so they could not dis­en­tan­gle low-paid servers and cooks from higher-paid ones, or look specif­i­cally at work hours.

“You have to have the spe­cial mi­cro-data, which only they have. It’s not pub­licly avail­able,” said Michael Re­ich, an econ­o­mist at UC Berke­ley and the lead au­thor of that re­port.

Re­ich said he was skep­ti­cal of the Univer­sity of Wash­ing­ton re­search be­cause it found that em­ploy­ers were con­sid­er­ably more sen­si­tive to small changes in the av­er­age wage than in any pre­vi­ous study.

“Their re­sults look way off the charts,” Re­ich said.

He faulted the re­searchers for us­ing a con­trol group that only in­cluded re­gions within Wash­ing­ton, when big­ger cities out­side the state have job mar­kets that act more like Seat­tle’s. He also took is­sue with the ap­proach be­cause it fo­cused al­most ex­clu­sively on em­ploy­ers that have one lo­ca­tion in Seat­tle, which ex­cludes re­tail and restau­rant chains.

The re­port could have over­stated the im­pact on em­ploy­ment, Re­ich said, be­cause some peo­ple who lost jobs at sin­gle-site em­ploy­ers may have ac­tu­ally de­cided to go work at a mul­ti­site em­ployer. The re­port would have la­beled that move a job loss.

The Wash­ing­ton re­searchers said they couldn’t track mul­ti­site em­ploy­ers be­cause those busi­nesses don’t iden­tify the spe­cific lo­ca­tions where their em­ploy­ees re­port to work.

How­ever, in sep­a­rate sur­veys, where the re­searchers talked to both types of busi­ness, the ones with mul­ti­ple lo­ca­tions were ac­tu­ally more likely than sin­gle-site em­ploy­ers to say they had cut jobs and hours when the wage went up. That sug­gests there may have been an even greater job loss for low-paid work­ers in those big­ger busi­nesses.

It is pos­si­ble that em­ploy­ers didn’t cut as many jobs as it ap­peared in the study, be­cause some bosses could have re­sponded to a higher min­i­mum by mov­ing low-wage work­ers into in­de­pen­dent con­tract po­si­tions rather than fir­ing them. The re­searchers didn’t have data on in­de­pen­dent con­trac­tors, and so they didn’t cap­ture that dy­namic.

Elaine Thomp­son As­so­ci­ated Press

AR­TURO RAMIREZ works at a Seat­tle restau­rant in 2015. In Los An­ge­les, the min­i­mum wage will rise to $12 an hour on July 1 and will even­tu­ally reach $15.

David Ry­der Getty Im­ages

SEAT­TLE MAYOR Ed Mur­ray, cen­ter, cel­e­brates with sup­port­ers af­ter sign­ing a min­i­mum wage law in 2014. Low-wage work­ers in Seat­tle — peo­ple earn­ing less than $19 hourly — saw their hours fall about 9% from 2014 to 2016, com­pared with the sur­round­ing con­trol area.

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