Is Seattle’s Minimum Wage Boost Costing Jobs, or Isn’t It?

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Is Seattle’s Minimum Wage Boost Costing Jobs, or Isn’t It?

Nicole Knight

Economic policy analysts have pushed back against a recent study charging Seattle's minimum wage hike has cost jobs and pay for some workers.

At least eight states and nine major cities have lifted the hourly minimum wage to between $12 and $15 as the Fight for 15 minimum-wage campaign makes inroads nationwide. These gains have led two sets of economists to newly parse the question: What’s the effect of raising the minimum wage in one of these cities?

The economists, one set from the University of Washington and the other from the University of California, Berkeley, set out to study Seattle, where the $15 minimum wage is among the country’s highest. Passed in June 2014, the city ordinance went into effect in April 2015, gradually raising wages over time.

One research team found no evidence of job loss—in keeping with most other minimum wage research. The other suggests pay hikes cost Seattle workers an average of $125 per monthNeither study was peer reviewed. And critics say one study’s methods are superior to the other’s.

The Berkeley economists focused on Seattle’s food industry, analyzing employment figures before and after the minimum wage increase. They found wages rose, as expected, indicating employers were complying with the new pay scale. They uncovered no evidence of job loss in the city’s restaurants—even as pay for workers in large establishments climbed from $9.47 an hour in January 2015 to $11 in April 2015 to $13 in January 2016 .

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Finding no evidence of job loss was in keeping with the “lion’s share of rigorous academic minimum wage research studies,” said Michael Reich, lead author of the report and co-chair of UC Berkeley’s Center on Wage and Employment Dynamics.

The Berkeley economists compared Seattle’s gradual and varied wage hikes, which depend on business size and other factors, to a control model that they called “synthetic Seattle,” which was comprised of a weighted average of economic conditions in various U.S. cities. 

A dueling report released Monday by the University of Washington takes a different view of Seattle’s wage hike. This research, published as a National Bureau of Economic Research working paper, suggests Seattle workers experienced a slight decline in overall pay due to fewer work hours.

The University of Washington team found that work hours dropped by around 9 percent, although hourly wages rose by around 3 percent. The loss in hours was more pronounced in 2016, when the minimum-wage rose to $13 an hour, according to one of the study’s authors. The results suggest low-wage workers saw their earnings shrink by an average of $125 per month under the new higher minimum wage. Opponents of wage increases—or the existence of a minimum wage—have used these findings to criticize city and state policy makers pushing for a livable wage. 

The two studies used different approaches. The University of Washington study included hours and earnings for workers in all industries. The University of California research concentrated on the food service industry, which is a common data source for minimum wage studies.

Critics point to several shortcomings in the University of Washington research, saying the researchers used flawed study methods that proved insufficient to tease out the effect of the minimum wage from a hot local job market. Seattle’s unemployment rate is 3.2 percent. And when the University of Wash­ing­ton economists focused on the food industry, they found no adverse em­ploy­ment ef­fects—the same as the Berkeley study, as Ben­jamin Sachs, Kestnbaum pro­fes­sor of la­bor and indus­try at Har­vard Law School, explained. Sachs called the findings from the University of Washington study an outlier.

“Our best explanation for the study’s outsized findings is that the statistical techniques employed were not capable of isolating the effects of the minimum wage from a range of other simultaneous changes in the Seattle labor market,” the Economic Policy Institute wrote in a post critiquing the University of Washington findings. “In particular, the strong performance of the Seattle labor market in recent years appears to have overwhelmed the ability of the authors’ methodology to measure accurately the specific wage and employment impacts of the wage ordinance.”

Meanwhile, local reports suggest that advocates are playing politics behind the scenes. Seattle Mayor Ed Murray, a minimum wage proponent, requested the Berkeley research after getting advance notice that the University of Washington study would be less than positive. Murray insists the wage increase is an overall gain for workers, telling the Seattle Weekly, “raising the minimum wage helps ensure more people who live and work in Seattle can share in our city’s success, and helps fight income inequality. It isn’t just the right thing to do, it’s the smart thing to do.”

Merchants, however, are more cautious.

Angela Stowell, owner of Ethan Stowell Restaurants, which operates 14 restaurants in the Seattle area, told the New York Times it’s too soon to judge the effect of the city minimum wage ordinance. She said the chain hasn’t cut back on hiring, despite having to pay a higher minimum wage, but has raised some menu prices and adopted a 20 percent service charge. 

Jillian Henze, a spokesperson for the industry group Seattle Restaurant Alliance, urged city leaders to take the University of Washington study seriously, “because the data echoes the anecdotes we’ve been hearing.”

Earlier reports paint a rosier picture about the effect of raising the minimum wage.

A separate study released last year by the University of Washington looked at the interplay of consumer prices and Seattle’s minimum wage, and found “little or no evidence” that Seattle grocery stores, restaurants, and retailers were raising prices, despite having to pay employees the new minimum wage.

When asked about price hikes, 62 percent of Seattle employers in the survey initially told researchers they expected to raise prices. But when the University of Washington team analyzed actual prices, they found the threatened price increases failed to materialize.

Meanwhile, a statewide minimum wage increase in Arizona, which went into effect in January, hasn’t quashed hiring in the restaurant industry. The number of people working in restaurants and bars in March increased at a rate six times higher than the economy as a whole, according to a month-to-month comparison by the state Office of Economic Opportunity. Restaurant industry employment jumped 8 percent over the last year, as Capitol Media Services reported.