Seattle’s Minimum Wage Increase: An economic Analysis and Implications
Introduction
Seattle, like many cities, raised its minimum wage to $15 per hour, hopeful of bettering the lives of low-income workers. However, the reality has proven to be far more complex. This article delves into the detailed economic analysis and its implications, providing insights into how such policies affect the workforce and businesses.Theoretical Framework and Background
The minimum wage is often touted as a way to lift workers out of poverty. However, economic theory suggests it can have the opposite effect. The minimum wage acts as a prohibition rather than a wage raiser, making it illegal for employers to offer jobs at a rate that is less than the legal minimum. This often results in job cuts, reduced hours, and even the closure of small businesses.Economic Impact of Seattle’s Minimum Wage Hike
A major study conducted by a group of economists has revealed that the hike in Seattle’s minimum wage has had a counter-intuitive effect. The city is gradually increasing its minimum wage to $15 per hour. However, some employers have found it too costly to afford the hikes, leading to reductions in payrolls, delays in new hiring, reduced hours, and even layoffs. According to the study, the costs to low-wage workers outweigh the benefits by a ratio of three to one.Specifically, the hike from $11 to $13 per hour in 2016 reduced the income of low-wage workers. While the average hourly wage increased by 3%, the reduction in hours worked by 9% was much more significant, resulting in a 6% reduction in pay, roughly $125 per worker per month. The study suggests that the further increase to $15 per hour in 2017 likely brought more harm than benefit to low-skilled workers.
Evaluation of the Data and Methodology
The data comes from a study commissioned by the Seattle City Council and conducted by researchers at the University of Washington. The study utilized a detailed dataset from the Washington State Employment Security Department, providing a comprehensive view of employment in all industries and demographics. This data was significantly more detailed than previous studies which often reported little or no adverse effects on employment, especially in the restaurant industry.Critics of the study, particularly those in support of higher minimum wages, have called into question the integrity and impartiality of the research. For instance, Mayor Ed Murray's office reportedly tasked a researcher from the University of California at Berkeley to conduct a counter-study that supported the positives. The emails exchanged reveal a clear bias and an attempt to undermine the original study.
The most credible argument against the UW study’s methodology is the exclusion of businesses with multiple locations, which critics claim skewed the results. However, the UW researchers also conducted separate surveys to confirm the results, which suggested that multi-site employers would impact low-wage workers more significantly.
Another criticism is that the UW study found a higher estimated impact on worker hours and income, which is larger than previous studies. This highlights the need for a more careful and thoughtful approach when considering such policies, especially when the target wage is much higher than previous increases.