The Seattle Minimum Wage Experiment: Mixed Results So Far

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I’ve mentioned before—only half jokingly—that I’m happy to see other people experiment with a $15 minimum wage. It’s the best of all worlds: it provides us with test beds to see what happens, but if it’s a disaster it won’t affect me personally.

Seattle was one of the first to do this, and as a first step they raised their minimum wage to $11 about 18 months ago. It’s probably still too early to draw any sweeping conclusions about what happened, but we do have some preliminary results from the Seattle Minimum Wage Study Team at the University of Washington. Their basic methodology is to compare Seattle with surrounding regions (plus a composite “Synthetic Seattle”) to see how it compares. So what have they found so far?

  • Wages up. For starters, they spend a surprising number of pages confirming that, yes, wages went up. Apparently Seattle employers are complying with the law. However, the Seattle economy has been booming recently, so it’s hard to know how much of the increase is due to the minimum wage law and how much would have happened anyway thanks to the tight job market. They conclude that the law was responsible for an average hourly increase of 73 cents among workers who were previously making less than $11.
  • No impact on availability of jobs. But what about jobs? Did the number of low-wage jobs go down? Yes it did—but less than in areas that didn’t increase their minimum wage: “The half-percentage-point reduction in persistent jobs at these businesses between mid-2014 and late-2015 is actually a positive development, as these businesses contracted more slowly than usual in the historical record. We find the exact same pattern in Synthetic Seattle, suggesting that the minimum wage had little or no net impact on the number of persistent jobs.
  • Hours worked decreased. How about hours worked? Did low-wage employers reduce their hours? Yes: “We estimate that hours per employee declined between 7.5 and 9.9 over a quarter, or 35-40 minutes per week.”
  • Employment decreased. How about employment of low-wage workers? Unsurprisingly, it went down: “While these low-wage workers increased their likelihood of being employed relative to prior years, this increase was less than in comparison regions. We estimate that the impact of the Ordinance was a 1.1 percentage point decrease in likelihood of low-wage Seattle workers remaining employed.”
  • No effect on business closures. Did more establishments go out of business? Not really. It was a wash: “For single-location establishments that paid more than 40% of the workers less than $15 per hour at baseline, we find a slightly larger negative impact of 1.0 percentage points. Yet, this modest increase in business closure rates was more than offset by an increase in the rate of business openings….The net effect is an estimated 0.9 percentage point increase in business openings as a result of the Minimum Wage Ordinance. This increase in both business closures and business openings perhaps should not come as a surprise. A higher minimum wage changes the type of business that can succeed profitably in Seattle, and we should thus expect some extra churning.”

Bottom line: wages went up, but employment went down. This is about what you’d expect. However, I’m a little unclear on how to reconcile this employment decrease with the finding that the number of persistent jobs didn’t change. Perhaps there was a decrease in seasonal or intermittent jobs? It will probably all become clearer in future reports.

Needless to say, the real test will come over the next few years, as the minimum wage climbs to $15.

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