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- According to a University of Washington study released on 26 June, the first two stages of Seattle’s Minimum Wage Ordinance have caused reduced hours and reduced payroll for employees who work low-wage jobs.
- The city of Seattle raised the minimum wage from $9.47 to $11/hour in 2015 and again to $13/hr in 2016 as part of a plan to gradually increase the minimum wage to $15/hr by 2021 for employers with 500 or fewer employees.
- While the first increase yielded “more modest effects,” the second wage increase led to reduced hours for low-wage workers in Seattle, negating the positive effects caused by the increase and lowering “low-wage employees’ earnings by an average of $125 per month in 2016,” according to the study.
- The study analyzed jobs that paid less than $19/hr, categorizing workers in this group as “low-wage employees.” Researchers found that the number of low-wage jobs dropped by 6.8% in Seattle as a result of this wage increase, representing 5,000 jobs lost.
- The study found that increasing the minimum wage did not cause a decrease in the number of jobs in the restaurant industry.
- The researchers concluded that, when considering Seattle’s Minimum Wage Ordinance, the increase in wage rates did not compensate for the lost wages from cut hours.
“Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%… The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.”
- The study noted:
“One cannot assume our specific findings generalize to minimum wage policies set by other localities or at the federal or state level. The impacts of minimum wage policies established by other local governments likely depend on the industrial structure, characteristics of the local labor force, and other features of the local and regional economy.”
- Seattle’s Minimum Wage Ordinance went into effect on 1 April 2015, gradually increasing the city’s minimum wage to $15/hr by 2021 for employers with 500 or fewer employees.
- Employers with 501 or more employees have until 2018 to reach the $15/hr threshold, if the employer contributes to employees’ medical benefits.
- The federal minimum wage is $7.25/hr, but states and cities can set their own minimum wage rates above that floor.
- Other cities and counties plan to raise minimum wages to eventually reach $15/hr.
- On 1 July 2016, Los Angeles County began increasing its minimum wage from $10.50/hr in 2015 to $15/hr by 2021.
- On 26 April 2017, Senate Minority Leader Chuck Schumer and Sen. Bernie Sanders (Vermont) announced a bill backed by 20 Democratic Senators that would raise the federal minimum wage to $15/hr by 2024.
- The Fight for $15, an organization that supports raising the minimum wage, was created in 2012 after fast food workers in New York City staged a walk-out to demand a $15/hr minimum wage and union rights.
Critics of the Study
- Fight for 15 said the University of Washington study “is not credible” and tweeted that one of the sponsors of the study “spent $50M to gut public pensions.”
— Fight For 15 (@fightfor15) June 27, 2017
- In a report from the Economic Policy Institute, Ben Zipperer and John Schmitt argued that the study is biased due to methodological issues and data limitations. They said the study’s job loss estimates are “far outside the range of earlier estimates.” They wrote:
“… over the two-year period since the passage of the Seattle minimum wage increase, the number of jobs paying under $19.00 per hour fell by 8.5 percent. At the same time, higher-wage job growth soared: the number of jobs paying over $19.00 per hour grew by 21.2 percent, and, as a result, overall the Seattle labor market grew by 11.8 percent, much faster than the national average of 4.2 percent over the same two-year period.”
- Professor Michael Reich from University of California at Berkeley wrote a letter addressing the study’s findings. Reich argued that the small data pool, exclusion of multi-site businesses (which includes 48 percent of Seattle’s low-wage workforce), and exclusion of jobs earning more than $19/hr (which Reich argues is too low for the purposes of this study) led Reich to conclude that the study’s findings are “not credible.”
Critics of Raising the Minimum Wage to $15/hr
- In 2015, Mark Perry from the American Enterprise Institute warned of the potential negative outcomes that could result from large increases in minimum wage, saying:
“Simply put, we would rather see unskilled workers employed at a market wage – even if that wage is only $5, $6 an hour – that allows them to gain valuable work experience and on-the-job training, than to be unemployed at $0.00 an hour. And unfortunately, a $15 minimum wage maximizes the probability that an unskilled worker will be unemployed at $0.00 an hour instead of being gainfully employed.”
- The Cato Institute has argued that raising the minimum wage will lead to job loss, hurting those low-skilled workers it was meant to help, without making a positive impact on poverty.
“Some policymakers are proposing to raise the minimum wage, but that policy would be harmful. Research shows businesses would respond to the increased costs by reducing employment, particularly for low-skilled workers. Some businesses may pass the higher costs on to consumers. Despite the hope of proponents, the minimum wage does little, if anything, to decrease poverty.”
- During a Republican primary debate in 2015, Sen. Marco Rubio (Florida) said:
“If I thought that raising the minimum wage was the best way to help people increase their pay, I would be all for it, but it isn’t. In the 20th century, it’s a disaster. If you raise the minimum wage, you’re going to make people more expensive than a machine. And that means all this automation that’s replacing jobs and people right now is only going to be accelerated.”
Elizabeth Rhodes contributed to this report.