Seattle wins ‘fight for $15,’ but low-skill workers lose
For years, the slogan “Fight for $15” has been a popular liberal rallying cry. The idea of raising the minimum wage speaks directly to people’s concerns about income inequality and fits on a bumper sticker.
In recent years, that has begun to translate into electoral and legislative victories. San Francisco, Los Angeles, Pittsburgh, San Marcos, Texas, and Missoula, Mont., are among cities where a $15 minimum is set to go into effect. California has a statewide law being phased in. And New York will go to $15 an hour in and around New York City.
There is just one problem. Extreme minimum wage increases can backfire on the low-skill workers they aim to help.
Witness the city of Seattle, where civic leaders adopted a phased-in $15-an-hour wage in 2014. Though it is not fully in place, a study by the University of Washington and the National Bureau of Economic Research found that employers have already cut back on hours to compensate for the higher wages.
The study, backed by the city and with unusual access to employment data, found that the second round of wage boosts to $13 an hour produced a 3% increase in average wages. But employers cut back on hours by 9%, meaning that the city actually suffered a 6% drop in the total wages paid.
The result shouldn’t come as a surprise. The Seattle minimum wage is more than double the national minimum of $7.25, and 61% higher than Washington state’s at the time of its adoption. That is too far above the going rate to avoid adverse effects.
Other communities should take notice. If $15 is too much in Seattle, a booming and wealthy city whose region is home to the likes of Amazon and Microsoft, it is too much elsewhere.
It is certainly way too high to be imposed nationally, as some progressive lawmakers such as Sen. Bernie Sanders want. If rural employers had to pay anything near $15, they might not just cut back on hiring, they might shut down entirely.
A good indication of what could be in store comes from the unlikely source of Puerto Rico. As a U.S. territory, it is subject to the federal minimum wage of $7.25 an hour. Yet its economy is much less developed than the rest of the United Sates. Its median annual household income is less than half of what it is in the 50 states.
That makes for a huge disparity — between the fair market rate for labor and what Washington says needs to be paid. That disparity has weighed heavily on Puerto Rico and is one reason for the island’s fiscal crisis
Backers of the $15 minimum wage respond to the report by doubting its validity. They cite other studies that have shown a more benign impact.
While it is true that one study is hardly conclusive, this one is the most up to date and comes from a credible group of economists with no political axes to grind. What’s more, it is up to those pushing for rate increases to show that rewards are greater than the risks.
States and communities should carefully examine what happens in Seattle over the next few years before pushing ahead with their own $15 minimum. It may fit on a bumper sticker. But that does not make it a good idea.