Published June 28, 2017 in Minneapolis Star Tribune
$15 Minimum Wage: Study Was Flawed; Minneapolis Should Still Follow Seattle's Lead
With the Minneapolis City Council set to vote on a $15-an-hour minimum wage as early as Friday, you can expect business lobbyists to tout a controversial new report from the University of Washington (http://bit.ly/2s8Co31) that purports to show Seattle’s groundbreaking move toward a $15-an-hour minimum wage cost the city jobs. Ignore the chicken littles. The sky is not falling in Seattle, and the report itself is fatally flawed. It’s also directly contradicted by a much more credible study released by the University of California, Berkeley, last week (http://bit.ly/2s27SE4) confirming that Seattle’s minimum wage is working: boosting worker pay without hurting the city’s dizzying job growth.
First, what’s not disputed: Since Seattle approved its $15 minimum wage (being raised incrementally, reaching the full amount in 2021), the city’s unemployment rate has fallen to a historic low of 2.6 percent, and jobs have grown in a few years from 510,000 to about 550,000. Pay has been rising at every level in Seattle’s hot labor market, as employers facing labor shortages compete for workers.
Using state-of-the-art research methods, the UC study focused on Seattle’s restaurant industry — the largest low-wage sector where any negative impact from the minimum wage most likely would be evident. It compared pay and job growth patterns from 2009 through 2016 with a composite constructed from comparable metropolitan economies across the U.S. After controlling for many other factors in Seattle’s and the national economy, the comparison shows that pay in Seattle’s food-service industry increased by nearly 1 percent overall and by 2.3 percent in limited-service restaurants such as fast-food franchises. Those findings are what you would expect, since the Seattle minimum wage went up faster for large employers such as limited-service fast-food chains.
When it came to the key question of employment levels, the study found that pay went up but job growth didn’t slow. Those results are consistent with the lion’s share of U.S. minimum-wage research, which has found similar small to negligible effects on jobs when wages have gone up.
The University of Washington researchers reach a very different conclusion: that job growth in Seattle’s low-paying jobs has slowed because of the minimum wage. But the dramatic difference is best explained by key errors in their methodology — as the Economic Policy Institute has detailed in a thorough analysis (http://bit.ly/2sJjtur) published the same day.
First, Seattle’s booming labor market is naturally shifting toward higher-paying jobs. The UW study interprets this drop in low-paying jobs as evidence that the minimum wage is hurting employment — essentially treating every worker who gets a raise to above $19 as the loss of a low-wage job blamed on the minimum wage.
Second, the UW researchers ignore the nearly half of Seattle workers who work at multisite employers such as Starbucks and McDonald’s. As a result, they wrongly count as a “lost job” every time a worker left a single-site restaurant for a higher-paying job at a chain. And that’s something that likely happened a lot, since Seattle’s minimum wage was between $1 and $2.50 higher for such companies with 500 or more workers.
Third, the UW study constructs its “synthetic Seattle” comparison from suburbs and small towns in Washington state that look economically nothing like Seattle and that haven’t experienced the same explosive growth. The UC study builds its synthetic Seattle from similar metro areas from across the U.S., allowing for a more apples-to-apples comparison.
Fourth, because of these errors, the UW study finds the biggest negative effects on jobs in the history of research on the minimum wage. The fact that the UW findings are so out of line with all other research raises alarm bells, especially since the Seattle minimum-wage increase studied — ranging from $10.50 to $13 an hour depending on firm size — is not especially high for a city with median pay as high as Seattle’s, and so is not out of line with past wage increases studied across the U.S. By contrast, the UC findings are consistent with the lion’s share of modern minimum-wage research (http://bit.ly/1Mz08jh), most of which has found similar small to negligible effects on jobs when the minimum wage has gone up.
As Minneapolis moves to pass $15 an hour this week, the noise around the UW study needs to be taken with a heavy dose of salt. The economic evidence that has spurred states and cities to move ahead with significant pay increases remains the same: Raising the minimum wage improves the lives of workers without hurting the local economy.