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A few years ago, Seattle lawmakers embarked on a bold experiment in public policy. Between 2014 and 2017, the city hiked its minimum wage from $9.47 to $15 an hour — a plan so aggressive that economists weren’t sure what would happen. Could employers afford the spike in labor costs? Or would this drive low-wage jobs out of Seattle?
On Monday, researchers at the University of Washington announced that Seattle’s efforts may indeed have backfired. According to their calculations, when the minimum wage reached $13 an hour in 2016, Seattle employers substantially cut back on low-paying jobs. Even though average pay went up for people at the bottom, there was less work, so they became worse off overall. Between job losses and reductions in hours, Seattle new minimum wage policy may have cost low-wage workers about $125 per month each, the researchers say.
Though the paper has not yet been peer-reviewed, it is already the focus of a fierce debate because it seems to contradict more than two decades of economics research showing that the benefits of small to moderate increases in the minimum wage largely outweigh the costs. Just last week, a competing study from economists at the University of California Berkeley found that the restaurant industry in Seattle — a big source of low-wage jobs — did not shrink its labor force despite raising wages to comply with the new law.
But the University of Washington study differs from previous studies in a significant way: It takes advantage of a much richer source of data. The researchers had access to state records for individual employees, which included how much time they worked and how much they were paid. Because this kind of information has been hard to come by in the past, much of what we know about the minimum wage has relied on research about specific low-wage sectors (like food service) or specific groups of lowly paid people (like teens).
In contrast, the University of Washington researchers were able to track low-wage workers across all parts of the economy, which may explain why they found different results.
“There aren’t a lot of good data resources that will tell you who’s working what wage,” said Jacob Vigdor, a professor of public policy at the University of Washington and a co-author on the paper. “Previous studies have tried to work around this limitation by focusing on the restaurant industry, focusing on teenage employment, with the hypothesis that most teenagers are in low-wage jobs, that most restaurant workers are in low-wage jobs.”
“Here in Washington state, we have data that tell us how everybody’s pay breaks down,” he continued. “The data that we’re using is pretty rare.”
The University of Washington study has significant limitations of its own. The detailed data set it uses has two major blind spots. First, it excludes independent contractors — like Uber and Lyft drivers, who started working in Seattle around 2014. Even though independent contractors aren’t covered by the city’s minimum wage law, that kind of gig economy work may have served as hidden safety net for low-wage workers squeezed out of Seattle’s regular economy.
Second, the study excludes many people employed by larger businesses with multiple locations in Washington state, because researchers could not figure out which of those employees were based in Seattle. For this reason, about 38 percent of Washington state workers had to be left out of the study, possibly skewing the calculations.
The study could revolutionize minimum wage research
It is of course dangerous to overgeneralize from a single paper about a single city, particularly a paper that has not passed the full gauntlet of peer scrutiny. But the University of Washington study is an unusually meticulous look at an issue that has come to the fore in recent years with the Fight for $15 and other campaigns to establish a living wage. Seattle is one of many jurisdictions, including New York, Chicago, and California, that have led the nation in raising their minimum wage to significant new heights.
Some have interpreted the University of Washington paper as evidence that these efforts have gone too far. Though there are sound theoretical reasons why a modest hike in the minimum wage might not depress employment, most economists agree that if you set the minimum wage high enough, at some point you will start destroying jobs. It may be that Seattle has finally reached that breaking point.
But then again, prevailing wages in Seattle were high to begin. A $13 minimum wage may seem exorbitant compared with the federal minimum wage of $7.50, but most workers in Seattle were already earning more than that. Arindrajit Dube, an economist at the University of Massachusetts Amherst who studies the minimum wage, has pointed out that Seattle’s new minimum wage is not all that lavish when you take into account the city’s high overall wages. In fact, in relative terms, it seems to be roughly as generous as the federal minimum wage in 1968, back before the value of the federal minimum wage was eroded by inflation.
The far more controversial interpretation of the University of Washington study is that it might overturn — or at least throw into doubt — much of the past two decades of research on the minimum wage. The study seems to highlight a limitation with minimum wage studies that focus on industries dominated by low-wage workers — which is a popular methodology.
When the University of Washington researchers used their data to look at only the restaurant industry, they arrived at results that lined up with previous work: Minimum wage hikes did not noticeably affect overall employment in food services in Seattle. This also agrees with the finding from the Berkeley study, which used methods similar to past research on the minimum wage.
But the UW researchers had the advantage of being able to delve deeper. Instead of looking at the entire food services industry, they could focus specifically on lower-wage restaurant workers. Among these employees, the minimum wage indeed led to lost jobs or cutbacks in hours, the researchers found. They suggest that past research may have missed this effect because it could not distinguish between higher-paid and lower-paid restaurant workers.
This finding will continue to be debated in the coming months, but for now, despite its flaws, it is still one of the most persuasive pieces of evidence yet for the view that minimum wage policies hurt workers at the bottom of the economy. This, of course, was long the prevailing view among economists until empirical research in the 1990s showed that minimum wage hikes didn’t seem to have much of a measurable effect on employment — or even if some jobs disappeared, workers still benefited overall.
David Card, an economics professor at Berkeley, authored one of those papers, a famous study with Princeton economist Alan Krueger showing that New Jersey’s fast-food industry did not shed jobs when the state increased its minimum wage in 1992. Card and Krueger’s paper has long been cited as the seminal piece of evidence in the recent consensus that the minimum wage might be good for workers.
Now, with more detailed data, the picture is getting more complicated.
Card, who was traveling, said in an email that he had not yet read the paper, but cautioned overinterpreting this single study. “My guess is it will take some time to get this straightened out by professionals and that in the end the media will interpret it as an ‘unresolved dispute,’” he said.
