Seattle proves a $13 minimum wage doesn’t necessarily kill jobs
More evidence that America’s minimum wage could be much higher: Seattle has one of the highest minimum wage rates in the country, and new research finds it hasn’t destroyed jobs.
The incredibly affluent, liberal Northwestern city is pushing the minimum wage envelope, with the mandated hourly rates rising to as high as $13 an hour in January 2016 and $15 an hour being phased in with large employers this year, per a 2014 City Council vote for a series of increases over a few years. That’s made Seattle a real-time experiment showing how high minimum wages can go without resulting in job losses.
In a new paper, University of California, Berkeley economists analyzed the impact of the change on Seattle’s fast-food workers in 2015 and 2016. They found the increase not only boosted weekly wages (if employers cut hours in response to higher minimum wages, it could potentially lower earnings) but also, more importantly, it didn’t kill jobs. “These findings of no significant disemployment effect of minimum wages up to $13 significantly extend the minimum wage range studied in the previous literature,” the authors wrote.
It’s important to note that the Berkeley paper — prepared at the behest of the office of Seattle’s mayor — looks at the number of jobs and finds no evidence of job loss. But economists at the University of Washington also looked at the situation in Seattle and reported in a July 2016 paper that they found a slight negative impact on the number of hours worked. (It’s not necessarily a bad thing if your income goes up as you’re working less.)
That University of Washington paper also noted that while Seattle’s low-wage workers have done well since the minimum wage laws went into effect, employment rates for those workers could have been roughly 1 percentage point higher without minimum wage increases. But even the University of Washington paper describes negative impacts of the minimum wage increase on hours and employment as “modest.”
The federally mandated minimum wage flatlined at $7.25 in 2009. (And adjusted for inflation it’s much lower than that now.) The Washington Center for Equitable Growth estimates that the state average minimum wage in 2016 was $8.21.
But in recent years liberal state, county, and city governments — Seattle, Portland, Santa Fe, Oakland, San Francisco — have enacted a flurry of minimum wage hikes that, in many cases, raise the pay floor to levels that are high enough to impact a much bigger share of area workers than ever before.
These hikes are fertile ground for economists who use changes in local law as natural experiments that allow them to study the impact of lifting minimum wages. And reports on those impacts become ammunition in the politicized debate over minimum wages that has been reinvigorated as groups such as Fight for $15 pushed the case for wage hikes in recent years.
Once upon a time, economists theorized that when you raise the price of anything, you automatically get less of it. That went for wages — the price of labor — too, meaning any effort to raise minimum wages would automatically destroy jobs.
Then economists actually started looking at the numbers in a series of groundbreaking papers that used natural experiments in which one state or locality raised minimum wages and others nearby didn’t. They found that, despite decades of theorizing, there was no ironclad rule that higher minimum wages always killed jobs. Today, economists mostly think that minimum wage increases can be beneficial for workers. However, they stress that there is some unknown ceiling after which they will be counterproductive, kill jobs, and hurt the lower-wage workers they’re trying to help.
But how high is too high? That’s where Seattle and other places are breaking new ground.
For the record, the fact that Seattle hasn’t seen job losses with high minimum wages doesn’t mean that $13 minimum wages would work for every city. Seattle is a very expensive, affluent place, and is much better positioned to absorb higher prices than, say, rural Ohio.
And it’s possible that Seattle’s booming economy could be insulating the area from negative effects of minimum wage hikes. Or theoretically, Seattle might be booming even more without high minimum wages. That said, Seattle’s experience is another bit of proof that it’s just not true that higher minimum wages automatically destroy jobs.
