In 2014 the city of Seattle announced it would be raising the minimum wage to $15 per hour. The minimum wage would increase from the state’s $9.47 minimum to as high as $11 on April 1, 2015. The second phase-in period started on January 1, 2016, when the minimum wage reached $13 for large employers. Under the law, by 2021 all businesses must raise the minimum wage for their workers to $15.
At the time I noted that while this policy was foolish, it would provide a benefit for the rest of the country:
The effect on the citizens of Seattle will be almost entirely harmful. But it will provide a natural experiment on the effect of raising the minimum wage laws that the rest of American can learn from. Anyone who isn’t already convinced that increasing the minimum wage has a detrimental impact on employment and harm minority workers will, in a few years, have solid proof. We will all be able to look to Seattle to see the difference between good, albeit naive, intentions and sound economic policy.
I also predicted the policy would have three specific negative effects: unemployment would increase for low-wage workers; employers will discriminate against low-skill workers; and young African Americans will have a harder time getting jobs.
This week we got solid proof of the impact of the raise. The city of Seattle commissioned a study by a group of economists at the University of Washington to study the impact of the wage increases. Yesterday, the National Bureau of Economic Research published the results as a working paper. Here’s what we now know:
1. Unemployment increased for low-wage workers — While jobs for high-wage workers ($19 or more per hour) were increasing, the employment prospects for low-wage workers fell. (The one exception was in the restaurant industry, which we’ll consider below.) The number of low-wage jobs declined by 6.8 percent, which represents a loss of more than 5,000 jobs.
2. Low-wage workers had to work fewer hours — The basic laws of supply and demand tell us that when the cost of a good or service rises, people use less or substitute more. This is exactly what happened to the demand for low-wage labor. As the researchers note, the data,
[S]uggests that low-wage labor is a more substitutable, expendable factor of production. The work of least-paid workers might be performed more efficiently by more skilled and experienced workers commanding a substantially higher wage. This work could, in some circumstances, be automated. In other circumstances, employers may conclude that the work of least-paid workers need not be done at all.
3. Low-wage workers made less money — Because the wage increase reduced their demand, low-wage workers worked fewer hours and made less money. According to the researchers, the average low-wage employee was paid $1,897 per month. “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 percent), which is sizable for a low-wage worker.”
4. The restaurant industry is an outlier — Dig in to almost any study that finds increasing the minimum wage doesn’t reduce jobs, and you’ll find a common factor: they all use the restaurant industry as a proxy for low-wage workers. As the researchers point out, “Previous literature has not examined the entire low-wage labor market but has focused instead on lower-wage industries such as the restaurant sector, or on stereotypically lower productivity employees such as teenagers.” When the researchers looked at data from all low-wage jobs, the impact of the minimum wage became much more apparent.
These findings are what many economists from across the political spectrum predicted would happen after such a large increase in the minimum wage. And yet many are still unwilling to accept the reality that their preferred policy just doesn’t work as intended.
How long then will we stand by and let the poor suffer because the economic illiteracy of people who have “good intentions”? All of us, but especially Christians, have a duty to speak up on behalf of the urban poor. We should be clamoring for this minimum wage law to be repealed before the law of unintended consequences goes fully into effect.
Seattle has shown that the “Fight for $15” leads to failure. Now it’s time to set aside utopian economics and launch a real fight to protect low-wage workers.