Seat­tle’s painful les­son on the road to a $15 min­i­mum wage

The Denver Post - - PERSPECTIVE - By Me­gan McArdle Email Me­gan McArdle at mm­car­dle3@bloomberg.net. Fol­low her on Twit­ter: @asym­metricinfo

In the sum­mer of 2014, the Seat­tle City Coun­cil unan­i­mously passed a bill in­creas­ing the city’s min­i­mum wage to $15 an hour. “No city or state has gone this far. We go into un­charted ter­ri­tory,” said coun­cil mem­ber Sally Clark. The City of Seat­tle, to its credit, ac­tu­ally made some ef­fort to chart the wa­ters as they went, fund­ing an ide­o­log­i­cally di­verse re­search team at the Univer­sity of Wash­ing­ton whose mem­bers range from Ja­cob Vig­dor, who is a fel­low at the con­ser­va­tive Man­hat­tan In­sti­tute, to Hil­lary Wething, a grad­u­ate stu­dent who used to be a fel­low at the left-wing Eco­nomic Pol­icy In­sti­tute.

Since the law raised the wage in stages, they stud­ied it in stages. The re­sults of the first jump, from $9.47 to $11 an hour, were re­leased last year, and seemed to show that the ef­fects on earn­ings were pretty small — an in­crease of about $72 ev­ery three months — and that low-wage em­ploy­ment de­clined slightly. In the long-run­ning bat­tle over the ef­fects of the min­i­mum wage, this pa­per didn’t of­fer much am­mu­ni­tion for ei­ther side, and thus oc­ca­sioned rel­a­tively lit­tle ex­cite­ment in the wonko­sphere.

Now the ques­tion has ac­quired a lit­tle siz­zle. UW is not the only school study­ing Seat­tle’s ex­per­i­ment, and last week a re­port came out from UC Berke­ley, fo­cused specif­i­cally on food ser­vices. Last month,

that study re­ported: “Our re­sults show that wages in food ser­vices did in­crease — in­di­cat­ing the pol­icy achieved its goal. … Em­ploy­ment in food ser­vice, how­ever, was not af­fected, even among the lim­ited-ser­vice res­tau­rants, many of them fran­chisees, for whom the pol­icy was most bind­ing.”

Seat­tle Mayor Ed Mur­ray seemed ec­static at the news; as Michael Salts­man noted at the time, he “con­ve­niently had an in­fo­graphic de­signed and ready to go for the study’s re­lease. His of­fice ex­cit­edly tweeted that the pol­icy had ‘raised food work­ers’ pay, with­out neg­a­tive im­pact on em­ploy­ment,’ link­ing to an up­loaded study ver­sion on the Mayor’s per­sonal .gov web­site rather than a Univer­sity do­main.”

Last week’s data gives am­mu­ni­tion to the mayor’s op­po­si­tion. The Univer­sity of Wash­ing­ton re­leased its sec­ond study, this one cov­er­ing the in­crease from $11 an hour to $13. And this study found huge ef­fects: For ev­ery 1 per­cent in­crease in their hourly wage, low-wage work­ers saw a 3 per­cent re­duc­tion in the num­ber of hours worked. As a re­sult, they lost about $125 in earn­ings a month, claw­ing back the en­tire gain from the ear­lier hike and more.

Mayor Mur­ray did not have an in­fo­graphic ready to go for this study. In­stead, he sim­ply retweeted the in­fo­graphic from the old one.

This is hardly the first time we’ve had du­el­ing stud­ies on the min­i­mum wage; in­deed, by this point, the du­el­ing is so com­mon that the min­i­mum wage prac­ti­cally has its own rules of en­gage­ment. But it’s pretty rare for a city to fund one study and then try to re­but it with an­other. Worse still for the cit­i­zens of Seat­tle, a read of the new pa­per sug­gests that this re­but­tal won’t work.

To un­der­stand why not, you first need to un­der­stand a lit­tle bit of the his­tory of min­i­mum wage re­search. Such re­search has of­ten fo­cused on res­tau­rants, be­cause they em­ploy a lot of low-wage work­ers, which would seem to make them a good proxy for a va­ri­ety of low-wage in­dus­tries. The most fa­mous study in the field is prob­a­bly David Card and Alan Krueger’s study of fast food res­tau­rants from 1994. When you hear some­one on the left claim that “re­search shows” min­i­mum wage in­creases don’t hurt em­ploy­ment, then you can al­most cer­tainly trace that state­ment back to Card and Krueger.

Re­al­ity was al­ways more com­pli­cated. We are not work­ing with a model in a text­book where un­dif­fer­en­ti­ated wid­get man­u­fac­tur­ers hire in­dis­tin­guish­able work­ers from a gi­ant pile of bod­ies marked “la­bor.” Dif­fer­ent in­dus­tries, dif­fer­ent firms within those in­dus­tries, and dif­fer­ent work­ers within those firms may all have very dif­fer­ent ex­pe­ri­ences un­der a min­i­mum wage: some un­af­fected, some bet­ter off, some driven into in­sol­vency. So while Card and Krueger was im­por­tant, it was by no means the fi­nal word that some took it for.

The new pa­per, un­like Card and Krueger, has broad data cov­er­ing all of Wash­ing­ton’s work­ers, not just those em­ployed by fast food fran­chises that hap­pened to be op­er­at­ing at the be­gin­ning of the study. This is no slur on Card and Krueger, mind you; Wash­ing­ton State just hap­pens to have un­usu­ally rich data avail­able com­pared to most other states.

Lead­ing la­bor econ­o­mist David Au­tor told The Wash­ing­ton Post that “This strikes me as a study that is likely to in­flu­ence peo­ple,” say­ing the study is “very cred­i­ble” and “suf­fi­ciently com­pelling in its de­sign and sta­tis­ti­cal power that it can change minds.” In other words: if you thought it was set­tled sci­ence that rais­ing the min­i­mum wage is good for work­ers, be pre­pared to think again.

And par­tic­u­larly be pre­pared to re­think very high min­i­mum wages, like those sup­ported by the “Fight for $15” folks. For as the au­thors note, the first round of hikes had rel­a­tively small im­pacts, while the sec­ond round had huge ones, sug­gest­ing that the ef­fects may be non­lin­ear. And that makes sense. Rel­a­tively few peo­ple in this coun­try make the min­i­mum wage, so a small in­crease doesn’t make that much dif­fer­ence to most work­ers, or most em­ploy­ers. But a large jump af­fects more peo­ple, and the wage in­creases are much big­ger for the low­est-paid staffers. If you make $9 an hour, but gen­er­ate $10.50 in rev­enue for your boss, a law that raises the wage to $10.45 may cause her to shrug and de­cide it’s eas­ier to keep you on as long as she’s mak­ing some­thing. But a wage that forces her to pay you far more than you bring in? Con­tin­u­ing to em­ploy you would just be bad busi­ness.

It’s worth not­ing that Card and Krueger’s fa­mous study in­volved an in­crease in the min­i­mum wage from $4.25 an hour to $5.05. That was a sig­nif­i­cant in­crease — about 18 per­cent. But Seat­tle’s min­i­mum wage has al­ready in­creased by 37 per­cent, and it still has roughly an­other 20 per­cent to go.

At some level, we all in­tu­itively un­der­stood that this was true. If the min­i­mum wage in­creases by a penny an hour, prob­a­bly even most rock-ribbed con­ser­va­tives would not pre­dict mass fir­ings. On the other hand, if the wage was ar­bi­trar­ily set to $100 an hour, even ar­dent la­bor ac­tivists would pre­sum­ably ex­pect wide­spread un­em­ploy­ment to fol­low. You can’t flat-out say “min­i­mum wages don’t in­crease un­em­ploy­ment,” be­cause the size of the in­crease, and the level of the re­sult­ing wage, ob­vi­ously mat­ter at some mar­gin.

Seat­tle may have dis­cov­ered that mar­gin. And un­for­tu­nately, it may yet discover even fur­ther, uglier mar­gins when the data is in on the full in­crease to $15. That’s the dan­ger of strik­ing out for un­charted ter­ri­tory; some­times, you end up where there be dragons.

Steve Breen, San Diego Union-Tribune

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