New Study Finds Seattle’s $15 Minimum Wage “Achieved its Goal”
We were warned that higher minimum wages would result in restaurant closures and massive unemployment. A new report from UC Berkeley shoots down those unfounded threats.
If you live in Seattle, you can clearly see the economy booming all around you. We have more restaurants than at any time in our history, our regional unemployment rate is lower than it’s been in nearly a decade, and restaurateurs are paying even higher than the minimum wage in order to attract skilled workers.
Damn you, $15 an hour minimum wage!
Over the weekend, Seattle Times reporters Janet I. Tu, Rachel Lerman and Dominic Gates wrote a story titled “Heated local economy has employers working hard to fill jobs.” When Seattle’s increased minimum wage was first proposed, members of the Chamber of Commerce and the Restaurant and Hotel Association warned us that Seattleites might have to leave the city in order to eat at restaurants that haven’t closed due to higher wages. (Because driving all the way to Bellevue every time you feel like eating a steak for lunch is a perfectly logical thing that Seattleites do all the time.)
On the contrary, the Seattle Times story argues, Seattle’s higher minimum wage is actually forcing surrounding communities to raise their minimum wage to match ours.
The higher wages in Seattle may also be making it harder to fill positions for businesses there and nearby cities that don’t pay as much.
Under Seattle’s 2014 minimum-wage law, the current minimum ranges from $11 to $15 an hour, depending on the employer’s size and whether it pays medical benefits.
“The companies that are struggling the most — their wages are not up to $15 an hour,” said Aleni Mang, a [Department of Social and Health Services] caseworker who works with both employers and DSHS clients seeking jobs.
But the evidence we can see with our own eyes isn’t enough to convince the world that Seattle’s minimum-wage experiment is working. Plenty of restaurant lobbyists and conservative economists and Republican politicians are out there leaping on every anecdotal piece of evidence — say, a single pizza place that closes — while ignoring any anecdotes that disprove their prophecies of doom and gloom — say, when the closed pizza place is replaced with another, better pizza place that is still open to this very day.
This is standard operating procedure for the chattering class, which argues over everything in a context-and-fact-free environment. For many pundits, it’s all about confirming your own biases and spreading your worldview to those who are eager to receive it. You can only combat these fact-free natterers with real, conclusive studies. Facts tend to chase off the pundits, whereupon they set up shop in other cities that are considering raising the minimum wage and spread their fact-free scare tactics all over again.
This time last year, a study group from the University of Washington reported on the first small steps of Seattle’s minimum-wage increase, and they found a ton of good news: wages in Seattle are up, unemployment is down, and the number of hours worked are up. In other words, the minimum wage increase is doing exactly what it should be doing.
And today, researchers Michael Reich, Sylvia Allegretto, and Anna Godoey from University of California Berkeley have released a new Seattle-area minimum wage study with an even larger scope than the UW team. While the UW team only investigated the first quarter of Seattle’s very first minimum-wage bump on the road to $15, the Berkeley team went wide, “analyz[ing] county and city-level data for 2009 to 2016.” Because we’re the first major city to raise the wage, this is just the first in what the Berkeley team projects to be a long-term study that will examine minimum-wage increases in cities and states around the country.
The Berkeley study put Seattle’s real numbers up against “data from other areas in Washington State and the rest of the U.S. to construct a synthetic control group that matches Seattle for a nearly six-year period before the minimum wage policy was implemented.” In this way, they can compare what might have happened in an economy like Seattle’s had the wage not increased. (The UW study used a Synthetic Seattle, too, but their synthetic model was restricted to Washington State only, and for technical reasons it couldn’t incorporate businesses with more than one location — a critical flaw considering how many large employers like McDonald’s, Subway, and Starbucks pay minimum wage. The Berkeley study incorporates high-volume, low-wage employers into its model.)
So, what did the Berkeley team discover?
Our results show that wages in food services did increase — indicating the policy achieved its goal — and our estimates of the wage increases are in line with the lion’s share of results in previous credible minimum wage studies. Wages increased much less among full-service restaurants, indicating that employers made use of the tip credit component of the law. 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.
Let’s look at those findings, step-by-step.
1. First of all, wages in Seattle food service increased. This is a no-brainer — when you raise wages, wages will be raised — but it’s important to state the obvious.
2. Full-service restaurant employers can apply a temporary tip credit to wages, effectively allowing customers to subsidize wages for a limited time. (This tip credit will go away when the law is in full effect in 2021.) Those tipped workers, obviously, are seeing less of an increase than others.
3. The minimum wage didn’t lower employment — not even at Subways and McDonald’s, which we were warned were especially vulnerable to a minimum wage increase.
4. In fact, the Berkeley study found that “wages increase[d] substantially more in limited service restaurants than in the overall food service industry.” Subways and other fast-food chains were paying so little that when the minimum wage went up, they had to increase wages by a lot in comparison to full-service restaurants in the area.
5. And yet, when those limited-service restaurants like McDonald’s raised their wages, they didn’t stop hiring. They didn’t lay employees off or close locations. They paid the higher wages and business continued as usual. “The evidence collected here,” the Berkeley researchers conclude, “suggests that minimum wages in Seattle up to $13 per hour raised wages for low-paid workers without causing disemployment.”
But how can this be? Why is it that we’ve been promised again and again that if you raise wages, you’ll get less employment? The Berkeley team explains,
Ever since George Stigler’s pioneering 1946 essay, “The Economics of Minimum Wage Legislation,” economists have used the familiar downward-sloping labor demand curve of Econ 101 as the conceptual framework to analyze expected employment effects of minimum wages. In this framework, a higher wage floor implies that a smaller amount of labor will be demanded.
In other words, thanks to Stigler’s faulty theory, students in economics 101 classes have been repeatedly taught that you can’t raise wages without cutting jobs. So whenever economists trained in the Stigler theory investigate minimum-wage increases, they’re automatically trying to prove a negative, which can inspire some truly tortured thinking in the service of confirmation bias.
Imagine, for a moment, a world where medical professionals are trained from the very beginning to believe that Vitamin C causes cancer. From their very first nutrition classes, professors warn students that people who consume more than a healthy portion of Vitamin C are much more likely to develop a wide array of cancers.
So researchers who have been trained to accept this fallacy adopt it into their work. If they’re studying the effects of Vitamin C in rats, they’ll broaden the study to try to confirm their understanding of the world. When they can’t find a direct tie between Vitamin C and cancer, they’ll find anecdotal evidence and wrap the entire study around itself to prove their beliefs. That’s exactly what many modern economists do every time they study the minimum wage: they twist numbers around until they get something that resembles what they believe is the truth.
This Berkeley study is the latest entry in an ever-growing body of research proving that wage increases do not kill jobs. In fact, “Employment effects in food services, in restaurants, in limited-service restaurants and in full-service restaurants were not statistically distinguishable from zero.” These findings, they argue, “are all consistent with previous studies that credibly examine the causal effects of minimum wages.”
Could the problem be that Stigler and his theory doesn’t take into account the fact that when workers make more money, they spend it, thereby promoting the local economy? The Berkeley study is the latest instance of data indicating that could well be the case.
And so the last question: does this matter? If you earn professional wages, it might be easy to think that the minimum wage is an edge case — one which doesn’t affect you or anyone you know. That’s simply not so. In fact, the Berkeley study says that the higher minimum wages implemented in cities and states around the country “already cover well over 20 percent of the U.S. workforce,” and could eventually affect “roughly 30 percent in most areas and as much as 40 to 50 percent of the workforce in some jurisdictions.”
Just imagine the effects on your local economy when anywhere from one in five to fully half of all workers get a much-needed raise. That money will be spent on goods and services in your city, spurring growth not among the top one percent but on the street, where you can see it. And it’s not too much of a leap to consider the fact that if you’re making a good middle-class living as a plumber or a dental hygienist, you’re likely to see an uptick in business from customers who previously couldn’t afford some of life’s basic necessities due to their depressed wages.
The Berkeley study is another compelling piece of evidence toward the case that increasing the minimum wage wasn’t just a raise for a few — it’s a raise for all of Seattle.
