What Minimum-Wage Foes Got Wrong About Seattle
bloomberg.com
bloomberg.com
> A research team including economists from the University of Washington has put out a paper showing that Seattle’s recent minimum-wage increases brought benefits to many workers employed at the time, while leaving few employed workers worse off. (NYT)
> The workers who worked the most ahead of the minimum-wage increase appeared to do the best....The workers who worked less in the months before the minimum-wage increase saw almost no improvement in overall pay — $4 a month on average over the same period, although the result was not statistically significant. While their hourly wage increased, their hours fell substantially....It’s the final group of workers — the potential new entrants who were not employed at the time of the first minimum-wage increase — that Mr. Vigdor and his colleagues believe fared the worst. They note that, at the time of the first increase, the growth rate in new workers in Seattle making less than $15 an hour flattened out and was lagging behind the growth rate in new workers making less than $15 outside Seattle’s county. This suggests that the minimum wage had priced some workers out of the labor market, according to the authors. (NYT)
In addition, the Bloomberg article claims that the original research contradicts "the vast majority research on minimum wages" which holds that "modest, gradual wage increases have not been shown to reduce employment or hours worked in any significant way", which is irrelevant, because Seattle raised its minimum wage by 37% in one year--neither modest nor gradual.
In short, this is not a summary to be trusted.
This is objectively false.
There is no one year period in which Seattle raised it's minimum wage 37%. The most aggressive increase I can see was 18%, and it only applied to large employers in 2011-2012.
https://www.seattle.gov/Documents/Departments/LaborStandards...
Here is another source that mentions $9.32. https://www.natlawreview.com/article/seattle-minimum-wage-in...
I'm not sure why there are two different numbers, but it was extremely rapid. I'd be happy to leave it using the more conservative figures from your table that they increased it by 36% in two years, as that's still neither modest nor gradual.
For businesses with fewer than 500 employees and earn tips the change was 9.47 (2014) -> 10 (2015) -> 10.50 (2016) and is currently $12/hr.
It's important not to mischaracterize the increases as a monolithic uniform increase, because for many, many businesses the increases have been gradual and modest.
How did you come up with this number?
Even for large employers which don't provide health benefits (the group affected with the most aggressive wage increase), the minimum wage increased from $11 to $15 an hour over the course of three years.
Small employers with less than 500 employees can still use tips and health benefits to reach $15 / hour.
1. the second study claimed a significant negative impact, when the Bloomberg article omits that
2. the first study did not contradict economic orthodoxy, when the Bloomberg article claimed it did
The first is an essential claim of the article. The second is also likely to mislead.
Articles like this irritate me because they’re about proving “the other side” wrong rather than engaging in reasonable debate.
That would force employers to hire more people, increase demand, and therefore increase pay, at the same time as giving people a decent quality of life.
We don't have minimum wage laws where I live, and it's one of the most affluent societies on the planet. So perhaps I am missing something.
https://en.wikipedia.org/wiki/Motivated_reasoning
You might want to ask yourself "why was it important for me to try to find some reason why this information was wrong?"
It's similar to when cannabis was legalized in Colorado. There was a lot of panic and fear. Other communities waited and observed, then embraced.
It has always been this way. It took the Great Depression to usher in Keynesian econ--theories riddled with previously crackpot ideas--and that had to be done by a well-connected and- respected insider, with trendy language and trendy, but to be fair elegant and clever, maths.
Most of the John List's in econ really do become truckers. It's not science or engineering where results matter. Almost alll the results dont matter.
And I never was able to question the min wage dogma in undergrad.
If you have a large increase above market wages, you have a large positive effect on worker pay (for those who continue to be employed) and a large negative effect on costs (costs go up a lot), leading to reductions in employment through businesses closing / increased automation.
A simple thought experiment suggests it is certainly possible to set the minimum wage too high - if that weren’t the case, why not set the minimum wage to $1000 per hour?
They are also the most desirable low-wage jobs as the hours are more consistent. They're challenging to fill because you have to hustle at restaurants, while the average grocery store employee is much less utilized. Bussing tables is a much better gig than folding pants at the Gap, supermarket or whatever -- you easily lose 25-35% of your hours when weather or other variation reduces foot traffic.
example: http://www.aei.org/publication/seattles-new-minimum-wage-law...
That... didn't happen, and it's important to hold predictors accountable if we want to make better predictions in the future.
If you carefully pick the start and end points, you can "prove" a lot of things that just aren't so.
That is key in my view. We should do away with a federally mandated uniform minimum wage all together and instead mandate that states pay a minimum wage that makes sense for their state. Get all the smart economists in a room and figure out what formula makes sense whether its based on the state level GDP (or even county), cost of living in that area, economic opportunity, etc.
While $15 isn't too high for Seattle restaurant workers, it is much too high for a rural North Carolina town with population 15,000 where there are a few restaurants in town and the average plate cost is 9 bucks and the center of the town is the Walmart shopping center.
I'm a big fan of paying a living wage. I'm also not a fan of tipping (just raise the prices and pay people fairly). However, I have no experience in the industry.
He has lengthy (20+ years) experience, from server, bartender, cook, and manager. (all from outside of Seattle - he was a recent transplant) He's a fan of tipping and hates the minimum wage increase.
His experiences (+ fears, hard for me to say which is which) were that: * without tipping, even with the increased base rate, it was hard to get people to show up for the short but intense crunch periods, because with tipping people are used to being able to work a weekend shift and pocket several hundred dollars. * If you aren't in a university area or someplace that would have people with flexible schedules and a need for short bursts of money, you would have hiring issues in general, because people earning minimum wage would just go to a less demanding job with more convenient hours.
One particular area of disagreement - he felt that the national chain's policies made it very hard for him to adjust to Seattle's quirks - rules made to pay $2-$4/hr didn't work here, but he couldn't change them and blamed Seattle's rules. I argued that if the business model didn't work, the answer was to change the business model, but it sounded hollow and elitist even to me (even while I still believe it).
I've talked with a few other acquaintances that have done server jobs and they all echo similar thoughts - even those that hated tipping agreed that they would use it to get a lot of cash on short notice and were skeptical that the current system would survive a transition into a flat wage. What I've not heard is any ideas on how to DO that transition, or if it's worth doing. (I have beliefs, but not facts)
As for tipping, people don't tend to tip based on quality of service (see Adam Ruins Everything) [https://www.youtube.com/watch?v=q_vivC7c_1k], and instead tends to be based more on attractiveness and ethnicity. A normal wage is fairer.
I understand the problem, I want the next step of "how do we get to a less crappy system?"
I guess that isn't exactly flat wages, but it isn't tips either. I think it beats both.
So at the restaurant, early evening on Valentine's Day would pay a lot more than the late afternoon on an uninteresting day.
In other words, without tips you'd have to pay people more. But didn't we already know that?
That's not obviously true.
The reality is that there is an extreme shortage of restaurant labor in Seattle, so employees have all the leverage right up to the point where it breaks the business. The employees I know have told me that if you want to take three weeks off etc, at this point you just tell the manager because they can't say no or even negotiate really -- they won't fire you because they won't be able to replace you, and they know the employees will quit if they don't say yes and would be employed equally well within an hour of looking.
To make matters even more crazy, there are investors running around Seattle offering buckets of capital to the employees at restaurants to start their own restaurants. I know a few former-employees-now-restauranteurs that have taken the money, and had very tech startup-like learning curves which has been fun to talk about. (Like I said, oddly analogous to tech boom craziness.)
These things ebb and flow. At some point in the not-too-distant future, the businesses will have all the leverage again.
https://perfect-free.typepad.com/the-perfect-and-the-free/20...
What also always seem to go unmentioned is the wage share. Surely it can go up, not just down?
The assertion that this demonstrates anything useful about minimum wages, rather than the fact that the city has a severe labor shortage and is swimming in money, is dubious. Show me the data from a city with median economic growth and median unemployment statistics and I would find it more convincing.
> Now of course, we should consider the argument that Seattle’s economic growth has been so strong that it overwhelms any negative effects from the higher minimum wage. No one should ignore that possibility and we will be among the first to acknowledge that this could be the case. We may never know for sure, because in economics you don’t get a chance to run control experiments; you only have the facts at hand.
>The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay. Approximately one-quarter of the earnings gains can be attributed to experienced workers making up for lost hours in Seattle with work outside the city limits. We associate the minimum wage ordinance with an 8% reduction in job turnover rates as well as a significant reduction in the rate of new entries into the workforce.
The real argument isn't about the model, but rather the shape of the demand curve for low skill labor.
I think taking the two versions of this study as separate analysis is interesting, since it shows a shift in employment from individual restaurants to chains. Which itself is a real impact from the rising minimum wage, but one not (itself) impacting labor.
> Much of the hand-wringing was based upon a deeply flawed University of Washington study. As we noted in 2017, the study’s fatal flaw was that its analysis excluded large multistate businesses with more than one location. When thinking about the impact of raising minimum wages, one can’t simply omit most of the biggest minimum-wage employers in the region, such as McDonald’s and other fast-food chains, or Wal-Mart and other major retailers. These are the very employers that were the main target of the minimum-wage law; indeed, the law established an even higher minimum wage of $15.45 an hour for companies with 500 or more employees.
It's possible that without the minimum wage hike, there would have been even more than 150K jobs, and the minimum wage hike limited the number of jobs to only 150K.
> How did we get here? Our analysis shows there have been two major regimes since 1960. Before 1980 too much money was being injected into the Labor loop. Consumers had more demand than investors could supply, and inflation was on the rise. After 1980, we entered a new regime that favored investors. The change in regime was likely due to tax changes implemented during the Reagan presidency, cutting taxes on investments. We see that this change was a good idea, but it went too far and has remained in place for too long.
The big question then is how do we escape the capture of tax policy by investors who individually like being able to save but who collectively are extracting rent from consumers, at the cost of human development?
Especially with politically charged studies there will be conflicting data reported. It's hard to tell which data accurately collected and reported.
[0] Journalists
Not all child care has equally strict limits on the ratio (it depends where care is being provided), increasing wages may drive people to more loosely regulated child care, or just push it into the informal sector, or make more women stay home rather than work.
I don't see how they couldn't. It seems to me raising minimum wage is just pouring gasoline on the inflation fire.
NGDP levels in America have mostly been on a straight line since 2009 or so. (But they had a big change in trend compared to before.)
Still, that doesn't answer anything about the effects of minimum wage. An NGDP target would still make minimum wage laws a bad idea. But since NGDP evolution is fixed, you'd see an RGDP decrease and hence an inflation hike.
The American sort-of Fed fixes inflation instead.
If you are into this kind of thing, do read George Selgin's Less Than Zero. (Eg at https://iea.org.uk/publications/research/less-zero). It gave me an appreciation of the classic gold standard---and how it managed to keep NGDP stable under the right regulatory circumstances, that I was missing before.
Otherwise, cost of living in the region was already increasing. I've been in Seattle for the last six years and can't really recall many other dramatic price increases.