Minimum-wage demonstration in downtown Seattle, 2014
Peter Costantini ~ Seattle ~ July 18, 2017
The Seattle minimum wage is rising slowly towards a living wage. But even after every worker reaches $15.00, it will still have a long way to go. The national minimum kept pace with productivity in the two decades after World War II, and hit its peak of real buying power in 1968. However, its inflation-adjusted value has since fallen far behind. If the wage had kept up with productivity as well as inflation, it would have reached $21.72 in 2012 by one estimate, roughly three times its current value of $7.25 an hour.
The declining real minimum wage is the bleeding edge of the much-discussed erosion of incomes for the working and middle classes relative to the very wealthy. As French economist Thomas Piketty put it, “Since 1980 … income inequality has exploded in the United States” to a level “probably higher than in any other society at any time in the past”.
Internationally, the U.S. is a laggard on minimum wages. Ours was lower relatively, at 38.3 percent of the median wage in 2012, than in any other major industrialized country. France’s had the highest ratio at 60.1 percent, while the United Kingdom’s was 46.7 percent.
The $15 minimum wage, then, represents only gradual movement part way back towards an inadequate standard of nearly 50 years ago, not a bold foray into the terra incognita of living wages. Nevertheless, it is at the heart of a significant new upsurge of low-wage workers asserting their rights and interests.
Starting with fast-food workers’ walkouts in 2012, the movement for $15 and other lesser increases at the local and state level have been a powerful grassroots response by low-income workers, their communities, and supportive labor organizations to the crippling long-term decline in living standards. The movement addresses only the bottom of the wage scale, but that’s where workers are having the hardest time.
These efforts have a value in themselves, beyond the income gains they have won: they bring marginalized low-income families into the political and social arena as protagonists and incubate their human capabilities. And as those who participate move up the economic ladder, they carry along the newfound potential to strengthen the labor and community organizations, formal and informal, that are working to improve wages and working conditions up through the middle rungs.
In the recent wave of minimum wage increases, SeaTac, WA, was the first mover, raising the wage for transportation and hospitality workers to $15.00 in one step as of 2014. Since then, several other localities have joined Seattle in gradually stepping up their wages to $15.00 over several years. San Francisco, San Jose, Los Angeles, Washington, DC, and Flagstaff, AZ, approved $15.00 laws in the wake of Seattle. On June 30, the Minneapolis City Council became the latest to pass an ordinance to this effect. Chicago/Cook County and Miami Beach, FL, have upped their future minimums to $13.00 or more.
In 2016, the states of California and New York approved statewide minimum wages rising gradually to $15.00. Washington state voters decisively approved an increase to $13.50 by 2020. And Colorado, Arizona and Maine recently raised their standard to $12.00. Even some conservative, low-cost-of-living states, including Arkansas, Nebraska, South Dakota, and West Virginia, have raised their state minimum above the federal level. All told, more than 40 cities and counties and 20 states have adopted minimum wage increases since 2012.[i]
Since the Federal minimum wage was first established by the Fair Labor Standards Act in 1938, it has been raised many times by Congress. The largest increase was 87.5 percent in 1950. Among states, New York led with a 66.7 percent total increase, followed by Maine at 60.0 percent and Oregon at 59.5 percent. Washington state ranked in the middle with a 42.6 percent total increase over 4 years.
Among the many localities that have enacted large raises over the past two decades, Santa Fe, NM, made the biggest yearly jump at a local level, raising its minimum 65.0 percent in 2004. SeaTac was not far behind with a 63.2 percent yearly increase.
Flagstaff, AZ, has the biggest total raise over several years, 86.3 percent. Los Angeles and Miami Beach follow at 66.7 and 65.3 percent respectively. A few other cities and counties have adopted increases just shy of 60 percent. [ii] A study completed before some of these larger recent raises found that the average of local increases over the past period was 41.4 percent total over the duration, and 16.7 percent yearly.
Seattle was towards the front of the pack with a 60.9 percent total over the seven years until 2021, but by no means an outlier. The precise yearly average here is a bit hard to calculate because of lack of data on relative numbers of large and small firms. But over those seven years, the average increase in compensation, which includes tips and health care, has been estimated at 8.4 percent yearly, roughly half the national average (remember that the increases compound). Even the highest single year, at 16.2 percent, was just below the national average.
While the number 15 carries great symbolic weight as a rallying cry, the specific dollar amount is not economically significant in itself. Except for SeaTac and Santa Fe, NM, in 2004, all of these localities and states have been phasing in the increases over varying numbers of years. What matters is not the absolute value, but the percentage increase each year, the relation to the local median wage, and the numbers of workers affected.
For Seattle’s ordinance, as well as most of this new generation of local minimum wages, the relative yearly increases involved are nearly all moderate, falling within the middle of the range of previous increases over the past two decades. The value relative to the local median is also within the range of previous increases where studies found little or no effect on employment.[iii] The numbers of workers affected will grow each year, but the percentage increases will usually fall off, leaving only tiny impacts on the great majority of businesses.
Seattle certainly deserves credit as a leader in the movement for 15, but it did not go far out on a limb beyond the rest of the country. The magnitude and pace of wage increases here, softened by employer credits for tips and health insurance, don’t qualify as a noble, risky experiment. Rather, they have been a prudent extension of widespread and much-studied efforts to counter the decline of low wages by raising the wage floor.
Let’s zoom in from an international and national overview to a ground-level closeup, and look at what matters most from the point of view of low-wage workers. The ultimate measure affecting them is total income - average hourly wage times total hours worked - over a longer period of time, say a year. This figure would incorporate seasonal and some business fluctuations. As minimum wages grow, they may eventually reach a point where total hours are reduced significantly for some workers. But as long as the wage increase is big enough that total income still grows or remains stable, this is a gain for those workers. Earning a greater or equal income for fewer hours means more hours for whatever else you need to do: taking a second part-time job, helping the kids with homework or caring for elderly parents – in short, living the rest of your life.
Keep in mind, too, that any “lost jobs” in most areas of low-wage work are not how most of us may tend to imagine them. In manufacturing or mining, when a factory or mine closes down or moves jobs to another state or overseas, those jobs are not likely to come back any time soon. Whole towns and neighborhoods are often decimated economically.
In most low-wage service work, though, especially in a boom town like Seattle, employment is notoriously volatile, and most workers work well less than 40 hours a week. Jobs are constantly appearing and disappearing as businesses open and close, gain and lose market share, and respond to growing and shrinking demand. Workers are hired, laid off, fired and hired again, in a giant economic game of musical chairs with a plentiful supply of chairs. Hours frequently fluctuate up and down, according to the needs of employers and sometimes employees.
The problem is rarely extended unemployment: few workers can collect much unemployment insurance or can otherwise afford to stay out of the job market for long, and there are usually plenty of job openings. In this environment, then, a “lost job” is rarely a life-changing setback: what it really means is more or fewer hours between jobs, and more or fewer weekly hours in the next job. For their part, employers are more likely to make adjustments by raising or lowering hours than eliminating a job completely, as separations and hirings can represent considerable business costs.
The economic realities of low-wage work, then are often far from what some of the headlines imply. And minimum wage increases may actually help to reduce the volatility and stabilize jobs by reducing turnover.
Given the generalized understanding of the economics of minimum wages, the whole movement towards 15 has hardly been a leap into the unknown. The effects of many of these minimum wage increases have been widely studied for decades, as much as any area of labor economics.
Over the past 20 years, the mainstream of minimum-wage research has shifted away from over-simplified neo-classical theoretical models, which hard-wired raising minimum wages to reducing employment without paying too much attention to actual evidence. They have moved towards more rigorous and empirical methodologies using more advanced econometric techniques. During this period, labor economists began to use regression analysis to decode large datasets derived from actual minimum wage increases, teasing out causality from amidst numerous related factors that affect wages and employment. Research teams developed and refined designs of meaningful control areas with similar characteristics against which to measure the locality in question.
What was then dubbed the “New Minimum Wage Research” took flight with a 1994 study by David Card of the University of California, Berkeley, and Alan Krueger of Princeton University. They used an ingenious pairing of contiguous counties of New Jersey, which had raised its minimum wage, and Pennsylvania, which had not, to evaluate the effects of the raise in New Jersey.
These days, though, the New Minimum Wage Research is no longer new nor experimental: it has become the effective standard for studying minimum wages and a dominant current of labor economics. It is a widely-verified and accepted set of methodology and algorithms for evaluating the effects of minimum wage increases. An extensive literature by many researchers around the country and world has applied and expanded the methods pioneered by Card and Krueger to investigate and quantify many years of local, state and national experience.
The new model, and the data it has analyzed, have proven persuasive beyond academia, and sometimes even on the right. In the U.S., the business-friendly news service Bloomberg has editorialized in favor of raising the U.S. minimum. Many in the numerous localities and states that have raised their wages have been swayed by the evidence.
Internationally as well, The Economist, the influential and conservative British journal, said in 2014 that it had moved from opposition to raising the minimum wage to accepting that fifteen years of experience in the UK, and the most recent international evidence, had demonstrated that moderate increases do not produce negative effects on employment. The French managing director of the International Monetary Fund, Christine Lagarde, urged the United States to raise its national minimum wage to stimulate stagnant low incomes and advance “inclusive” growth. She previously served as Finance and Economy Minister for the center-right French government of Nicolas Sarkozy, and chaired the Group of 20. George Osborne, the Chancellor of the Exchequer for the Conservative Party in the UK, proposed substantial increases in the minimum wage over five years. And in Germany, Chancellor Angela Merkel of the center-right Christian Democratic Union signed her country’s first minimum wage legislation in 2014.
Back in Seattle, two studies published in the past few weeks on the effects of minimum wage increases here provide conflicting conclusions about their effects.
The first of the two studies, prepared at the request of the Seattle Mayor’s Office, was published by University of California, Berkeley’s Center on Wage and Employment Dynamics (CWED). (See link in References below.) This institution has long been one of the national leaders in studying minimum wages and related labor economics issues. It is also currently working on other studies of minimum wage increases in Chicago, Oakland, San Francisco, San Jose and New York City.
The lead author for this report is economist Michael Reich, co-director of the CWED, who also led a team that produced a study of minimum wage legislation and economics for the City of Seattle before the passage of the minimum wage ordinance. Reich has been practicing labor economics for over three decades, with frequent emphasis on low-wage labor. He has published many papers and several books on minimum wages and related topics, including some of the most influential studies, and is widely recognized as one of the leaders in the field.
Sylvia Allegretto, a co-author of the study, is co-director with Reich of the CWED. She too has published considerable research on the minimum wage over several years. She was the lead author on two major papers on the construction of synthetic control areas for minimum-wage studies, which is one of the key issues with the University of Washington report. The rest of the CWED staff not listed as authors on this report also represent years of experience with minimum-wage and related research.
The Berkeley study investigates the effects of the Seattle minimum wage increases in 2015 and 2016 on workers’ weekly incomes and employment, using standard techniques they have applied in several previous studies and are applying in several current studies of other cities. Their report focuses on the food-service industry, which is a common focus of minimum-wage research. This is because the relationship between food services and the larger economy is very well known: food services generally have the highest proportion of low-wage workers affected by minimum wages, and the highest ratio of payroll to total expenses, of any sector in the economy. Therefore, any income and employment effects of increases are very likely to be larger than in any other sector.
Several studies have found that most food-service businesses tend to respond to minimum-wage increases mainly with small price increases, rather than with cuts in hours or jobs. This response would be expected particularly in a city like Seattle, with growing disposable incomes.
To control for which effects are caused by the minimum wage and which by other economic and social factors, the Berkeley study uses what the authors call “synthetic control estimation” to construct a “Synthetic Seattle” that did not raise the minimum wage (except for indexing to inflation), but that otherwise had very similar pay and employment trends to Seattle for several years. Because Seattle’s economic growth is much stronger than most of the rest of the state, the study team used algorithms to select counties from around the country that were good matches for Seattle. The complicated methodology for selecting control areas is one of the most critical areas of minimum-wage research, and Allegretto and Reich have both published major contributions to this.
The Berkeley study concluded that the 2015 and 2016 increases in minimum wages, up to a maximum of $13 for some workers, had no detectable effect on employment in food services – in other words, they didn’t “kill jobs”.
The study found that a 10 percent increase in the minimum wage raised wages for low-wage workers in food service overall by one percent. Keep in mind that higher-paid workers in the industry did not get any raise, and most workers affected by the change did not get the full increase. For example, if the wage is raised from $10.00 to $11.00, only workers earning $10.00 will get the full 10 percent or $1.00 raise; those earning $10.10 will get a $0.90 raise, and those at $10.20 will get $0.80, while those at $10.90 will get only $0.10, and those already at $11.00 will get no mandated raise - although most studies have found that actual wages at and just above the new legal minimum tend to be bumped up slightly by a “ripple effect”.
In limited-service restaurants, mostly fast-food places that don’t have tipping, the pay was raised 2.3 percent for each 10 percent raise in the minimum wage. In full-service restaurants that depend on tipping, the tip credit in the Seattle ordinance allowed overall wages to remain static in this period, apparently because tips made up the difference for total increases in compensation.
The findings of the Berkeley study were consistent with the majority of studies of comparable minimum wage raises in other cities, and with those focusing on the food-service industry.
The University of Washington study was the second report in a series of studies also funded partly by the City of Seattle. (See link in References below.)
The UW team is led by economist Jacob Vigdor of the UW’s Evans School of Public Policy and Governance. Economists Mark Long and Robert Plotnick, also of the Evans School, are also team members. Apparently, none of them had previously published on minimum wages.
Since the study was first announced, and after the UW team’s first report last year, its methodology, data and assumptions have been questioned by several other researchers.
The most improbable finding of the UW report is what it calculates to be a major drop of roughly 9 percent in hours worked at wages below $19.00/hour, caused - in their estimation - by the January 1, 2016 minimum wage increase. This loss of hours is at least three times as great as anything previously found after comparable wage increases by other researchers most pessimistic about minimum wages. It is also inconsistent with other findings of the UW study, and of the Berkeley study, that the increases had no effect on hours or employment in the food-service industry.
If there had been a loss of hours of that magnitude for low-wage jobs, we would expect to hear an outpouring of complaints and soul-searching, and to see demonstrations against the minimum wage outside workplaces and City Hall. Nothing of the kind has occurred.
This report reveals several major methodological faults that cast serious doubt on the study’s findings. Some of the more severe problems have to do with the sample of the study, and some others with the control area it used.
Sample
If a statistical study cannot use data on the entire population being studied, it needs to find a way to accurately generalize to the whole from whatever part of the population on which it can get data. For some purposes, researchers may try to construct a random sample of the population, but this would be difficult in studying minimum wages in Seattle.
The UW study chose to use a large, non-random chunk of the Seattle workforce. But the study does not make a convincing case that this sample is representative of the whole workforce. On the contrary, available evidence suggests that it is quite different.
The problem goes back to the way the State of Washington collects information on employment for employers with more than one location. Significant parts of this data do not distinguish between which employees work in Seattle and which outside the city. As a result, the study team decided to use employment data only from businesses with only one location or from multi-site businesses that report data separately from each location. The UW study’s data “… therefore exclude multi-site single-account businesses from the analysis, referring henceforth to the remaining firms as ‘single-site’ businesses.” The study reports that 62 percent of the statewide workforce works for single-location businesses, by this definition, and 38 percent for multi-location ones that are excluded from the study.[iv] But in the biggest and probably strongest economy in the state, Seattle, it would not be surprising if a yet larger percentage of employees worked for multi-site employers, because multi-site businesses might plausibly have more than one site in the biggest city than elsewhere.
Yet even if the Seattle figure were the same as statewide, using an inadequate, skewed sample of only one major category of employees, and excluding another major group with more than one-third of the workforce, means that the study can no longer claim to be using a representative sample. Its results therefore lose their claim to statistical validity.
We don’t know much about how employees of multiple-site businesses compare to those of the single-location sample. The study fails to make the case that they are equally or more likely to reduce hours because of the raise in the minimum wage. On the contrary, the mainly larger multiple-location employers would seem likely to have greater resources, flexibility and business experience, and thus would plausibly be able to absorb minimum wage increases more easily than most single-location employers without reducing hours or employment. Multiple-location, larger firms could be expected to have more employees well above minimum wage, such as accounting or human-resources departments. This means that low-wage employees would represent a smaller part of the payroll. These firms would also be expected to have larger expenses for things like plant, equipment and inventory, so that payroll will be a smaller part of total business expenses. Many of them would likely have over 500 employees, and so would pay the higher level of minimum wage for the first several years, although many others could be under 500 employees and pay the lower schedule.
However, we don’t know the answers to any of these questions. Unless the study can credibly provide all of this information, the team can’t claim their sample is valid. there is no way to make statistical inferences about the entire economy without data on the large and distinct category of multi-site employers. Single-location firms are not a valid sample, and you can’t generalize from it to the whole workforce.
In defense of the single-location sample, the study refers to a survey the UW team conducted of “over 500 business owners” before the increase on whether they intended to reduce hours of their minimum-wage employees, and after the increase on whether they did reduce their hours. The results of this survey are meaningless for two main reasons: first, because the survey could not have been a valid random sample of all Seattle employers - how could you know that voluntary responses generated a representative sample? - and second, because there is no way to know whether the employers’ answers reflect what they actually did.
The results reported found that slightly more than half of big employers and slightly less than half of medium and small employers claimed to have reduced full-time employment. But these results say nothing about whether this was actually true, or, if so, whether it was done in response to the minimum wage increase or because of other factors. Furthermore, there is no indication of whether those who did not report reducing employment raised employment, or by how much. It is entirely possible, according to the explanation in the report, that the total growth in employment among that half of employers who didn’t claim to reduce employment was greater than the reduction reported by the other half that did, so that overall employment growth could have been positive.
The survey may say something about the attitudes of employers towards the minimum wage increases, but even that is questionable. It most definitely does not provide any support for the representativeness of the study’s sample. The survey’s methodology is so dubious and the results so ambiguous, that citing this survey in support of the report’s sample methodology further drags down the credibility of the whole report.
In contrast, the problems with one-site businesses do not affect studying the food-service industry, as the Berkeley study did. This industry is not proposed as a representative sample of the whole workforce. Rather, it is a sector of the economy that has been confirmed in many studies to have a predictable relationship to the whole workforce. There is no evidence that Seattle is an exception. Food-service firms tend to be among the most sensitive to rises in the minimum wage, because they generally use the largest proportion of low-wage workers, and have the highest ratio of payroll to total operating expenses. (Lodging has comparable shares of low-income workers, but has not been studied as much and may involve a smaller total workforce). If there is little or no loss of hours or employment in food service after a minimum-wage increase, then it is very unlikely that there have been significant losses of these across the whole economy.
A related problem with the UW study’s failure to include multi-establishment firms is that it may be counting as employment losses those employees who leave jobs in single-establishment firms to take jobs in multi-establishment firms. It would not be surprising if many workers were attracted to move to bigger multi-establishment businesses, as these are more likely to have more than 500 employees and thus to have to pay a higher minimum wage and compensation during most of the minimum wage’s seven-year transition.
Other types of employment and earnings not captured by the UW study include “contract or ‘gig’ jobs, work paid ‘off the books,’ self-employment, or work done outside the City of Seattle.” Contract or “gig” jobs, in particular, may be employment types that absorbed significant numbers of workers who left formal employment in the city, and future studies should seek ways to account for all of these possibilities.[v]
These basic problems with the sample could be enough in themselves to disqualify the UW study’s results. But the study’s methodology presents some other serious problems.
Control area
A key part of the methodology of any study of minimum wages is the synthetic control used to construct a strictly defined collection of comparable areas outside the locality being studied. This control area must mirror the subject locality very closely in many other respects, going back for a long period, but must not have experienced the relevant minimum-wage increases.
A control area of some kind is critical to testing what changes are caused by minimum wage increases, and what changes are the result of other factors. For example, after a minimum wage increase, low-wage incomes and employment may change in either direction, but this may be due to a Boeing bust or Amazon boom or national recession or earthquake, rather than the minimum-wage raise. As statisticians say, “Correlation does not imply causation.” The sun does not rise because the rooster crowed.
The way minimum wage studies determine causality is to compare changes in many variables in Seattle to changes in the same variables over the same period in Synthetic Seattle, the control area. They then subject the results to statistical techniques such as regression analysis to infer causality: which changes are cause by the minimum wage and which by other factors.
The Berkeley study used a synthetic control selected by their algorithms from localities around the United States. This broad reach provides a greater range of possibilities, which makes the control area a better reflection of Seattle.
The UW study, however, constructs its synthetic control from areas around Washington state only. Michael Reich of Berkeley has criticized the UW methodology. Their control areas, he says, “do not at all resemble Seattle”, and Washington state does not have enough areas that do to construct a valid synthetic control. Seattle has experienced booming job growth, low unemployment, and strong wage gains, all much more extreme than the rest of Washington state and most of the nation.[vi]
Like the sample, the poorly constructed control area may be enough in itself to invalidate the results of the UW study.
How to and how not to construct control areas has been a key issue in economic debates on the minimum wage. Berkeley co-authors Allegretto and Reich have effectively written the book on how and how not to construct valid control areas.[vii]
Low-wage losses and high-wage gains
The UW study’s use of $19.00 an hour as the upper bound for low wages, when the minimum wage had so far risen to $13.00 or less, also appears to create implausible results. This categorization is not part of the standard methodology, and contradicts previous findings that ripple or spillover effects push wages up for only a small band above the minimum.
One study of ripple effects found that an 8 percent increase in the federal minimum raised wages of workers just above the new minimum by 2 percent, and those up to 10 percent above it by 1 percent. Another study found much smaller effects. For the biggest Seattle raise in compensation, 16.2 percent up to $11.00 in 2015, proportional effects would mean that those just above the new minimum might expect a 4 percent or $0.44 increase, and those at $12.10 might get a 2 percent or $0.24 increase. Above that, for wages from around $13.00 up to $19.00, no impact from the minimum raise would be expected.
The UW study found that after the minimum wage increases of 2015 and 2016, big job losses below $19 and big job gains above that level occurred, but that the overall workforce neither gained nor lost jobs. It attributed these losses and gains to the effects of the minimum wage raises.
This is improbable, though, given what we’ve just discussed about the effects of minimum wages. More likely, this shows that the study did not properly control for the booming Seattle economy, and that the growth in jobs paying over $19 and losses below that level were due to strong economic growth resulting in sharply rising wages, neither caused by the minimum wage.
As veteran minimum-wage scholars Ben Zipperer and John Schmitt wrote, “Finding a sizable increase in hours where both we and the authors agree there should be ‘negligible estimates’ casts doubts on the reliability of the study’s core methods and the resulting estimates. … Finding large employment gains well above $19.00 per hour poses a serious problem for the credibility of this study.” They conclude that the most likely case is that “much of the higher-wage employment effect estimated by the authors is spurious”, and that “the authors are incorrectly attributing to the minimum wage a reduction in low-wage employment, when in fact there was a large shift in Seattle’s labor market toward higher-wage jobs that was happening regardless of the minimum wage increase.”[viii]
These apparent errors in assigning causality for changes in hours and jobs is yet another issue serious enough to call the study’s conclusions into question.
Other issues
Other problems have been raised by several commentators regarding the data, methodology and conclusions of the UW study. But there is another conceptual mix-up that I don’t believe has received attention.
Mark Long and Robert Plotnick of the UW study team published an opinion piece in the Seattle Times interpreting their study.[ix] When discussing their expectation of some loss of low-wage employment due to a local minimum wage, they observe: “It is easier to relocate low-wage employment outside city boundaries than it is to relocate employment outside a state or country.”
This is undeniable. However, if employers did relocate their business sites or shifted jobs or hours to the suburbs outside the city of Seattle, those jobs or hours would not be lost from the point of view of the employees. Given the significant costs of laying off, hiring and training workers, the probability is strong that most moves would include most of the existing workers. And even if they did not, what matters more to workers is the overall demand for their labor in the metropolitan area, which would not change. Many workers live outside Seattle and work in the city, and many others live in the city and work outside of it. And as we have mentioned, high turnover is endemic in low-wage service employment.
The odds of many businesses moving out of the Seattle area to escape minimum-wage increases are negligible. Runaway shops are unlikely because few manufacturing firms have many low-wage workers. Many of the establishments in sectors with the most low-wage workers, such as food service, lodging, some kinds of retail, and care of the young and elderly, are not very portable. The demand for their services or products is often tied closely to their location, which is sometimes part of their branding. For multi-location businesses, it makes no sense to shift jobs from one store to another one if the customer base and demand have not shifted. For single-location outfits, say a pizza parlor, the owner might be able to move the shop from northern Lake City to Shoreline, or from southern West Seattle to White Center, but the costs and risks of even a short move can be considerable, relative to the small increases in total costs due to the minimum wage.
The bottom line is that moving jobs or hours across a boundary does not usually mean a loss of them for the workers. The move may show up as a loss of employment in a study limited to Seattle, and the city may lose a little of its tax base, but for the workers involved, it means mainly a longer or shorter commute. This small failure to recognize the real-life consequences of minimum wages is symptomatic of the faulty conceptual framework of the UW study.
If a research team with no previous experience in studying minimum wages walks into a well-established academic field with what they claim to be a fresh approach that rejects much of the existing research, they had better lead with a convincing theoretical and practical critique of the state of the art, and replace it with persuasive and water-tight alternative methodologies and results. The UW study has not succeeded in doing either.
Both studies have become the object of considerable interest and commentary by those who practice labor economics. And both have generated a small media storm nationally. The usual ink-stained Chicken Littles are loudly warning of the job-killing perils of minimum wages. The national right-wing echo chamber is amplifying the results of the UW study, and downplaying the Berkeley study. In this environment, it is critical that serious journalists do their homework.
To those who see this as merely a “he said, she said” scuffle between liberals and conservatives, I suggest you read not just the studies and the critiques, but also some of the foundational minimum-wage literature. Economics is a discipline inescapably shaped by political and social perspectives, yet rooted in an evolving quantitative and qualitative infrastructure largely accepted by most practitioners. Some of the Berkeley authors may have political views to the left of center. Some of the UW team may have views to the right of center – Jacob Vigdor, the lead, is a fellow at the conservative Manhattan Institute. That does not mean that partisanship is a significant factor in either case.
However, there is no comparison between the two teams’ experience, mastery of the econometrics and literature, or weight in the profession. The critiques of the UW study by several veteran economists, as well, are based on established methodology and many years of validated research, not politics.
To those who see “partisan cherry-picking” in the City’s reaction to the two studies, I suggest that making value judgements is precisely the job of policy makers, journalists and citizens. Unless you view all research as an undifferentiated field of neutral information created by men in white lab coats, you had better look hard at each study and make informed decisions on their merits. The City’s response to both studies reflected a reasonable understanding of the state of the art of minimum-wage economics and the state of the economy of Seattle.
The dubious results of the UW study do not contribute to the body of work of other researchers who are using rigorous methods and better data to understand the effects of Seattle’s minimum wage ordinance. And this is not the first time the UW team has been criticized for methodology that doesn’t work: its first report last year was widely challenged, including by Jared Bernstein, Vice President Joe Biden’s chief economist. This year, Zipperer and Schmitt, along with others, have published critiques of the UW study. (See References below.)
The City of Seattle has reportedly cut its funding of the UW study because of dissatisfaction with its methodology.[x] Anyone who continues to fund it should take a hard look at their approach and encourage them to bring it into line with current economic practice. At a minimum, funders should require that the next report of the UW team be reviewed by a panel of labor economists with expertise and track records in minimum wage research before it is released. There are probably 30 or 40 researchers around the country who could credibly undertake this task, with clusters at the University of Massachusetts, the University of North Carolina, the Economic Policy Institute, the Center for Economic and Policy Research, and several other institutions.
Of course, more livable minimum wages are only one among a range of necessary policies to remedy economic injustices. Jon Talton of the Seattle Times rightly points out that raising the minimum wage “is no substitute for progressive taxation, strong unions, public investments to create jobs, abundant quality education and job training.”[xi]
For at least the next four years, though, the odds of progress towards any of these at a national level are looking bleak. As the accumulated weight of 20 years of evidence has established, across the globe and across political lines, substantial gradual raises in minimum wages at all levels should continue to play an important role in reducing income inequality from the bottom up.
I have footnoted only more recent references not cited in my paper, “Maximizing Minimum Wages”. For further details, please consult that paper: https://www.dropbox.com/s/59ntnbnobjpzee6/Costantini%20-%20Maximizing%20minimum%20wages%20-%20paper%20%26%20apps.zip
My analysis of the 2016 UW report, "The University of Washington minimum wage study and its critics", is posted at: http://www.huffingtonpost.com/entry/57edc93ee4b0972364deafdd
The Berkeley and University of Washington studies
Michael Reich, Sylvia Allegretto, & Anna Godoey. “Seattle’s Minimum Wage Experience 2015-16”. Berkeley, CA: Center on Wage and Employment Dynamics, June 2017. http://irle.berkeley.edu/seattles-minimum-wage-experience-2015-16
Seattle Minimum Wage Team (Jardim et al). “Minimum Wage Increases, Wages, and Low-Wage Employment - Evidence”. Seattle: Evans School of Public Policy and Governance, University of Washington, June 2017. https://evans.uw.edu/policy-impact/minimum-wage-study
Articles on the studies
Dean Baker. “Minimum Wage Wars: The Media Celebrate Job Loss”. Washington, DC: Beat the Press (blog) July 1, 2017. http://cepr.net/blogs/beat-the-press/minimum-wage-wars-the-media-celebrate-job-loss
Jared Bernstein. “So far, the Seattle minimum-wage increase is doing what it’s supposed to do”. Washington Post, August 10, 2016. https://www.washingtonpost.com/posteverything/wp/2016/08/10/so-far-the-seattle-minimum-wage-increase-is-doing-what-its-supposed-to-do
Michael Hiltzik. “Why do conservatives keep saying Seattle's minimum wage hike has failed -- without data”. Los Angeles Times, February 23, 2016. http://www.latimes.com/business/hiltzik/la-fi-mh-seattle-s-minimum-wage-kills-jobs-but-data-20160222-column.html
Mark C. Long & Robert D. Plotnick. “Lessons from Seattle’s courageous minimum-wage experiment”. Seattle Times, June 28, 2017. http://www.seattletimes.com/opinion/lessons-from-a-wage-experiment
Daniel Person. “As Relationship Soured, City Council Stopped Funding UW Minimum Wage Research Team Last Fall”. Seattle Weekly, June 30, 2017. http://www.seattleweekly.com/news/as-relationship-soured-city-council-stopped-funding-uw-minimum-wage-research-team-last-fall
Michael Reich. “Letter to Robert Feldstein, Director, Office of Policy & Innovation, Office of Mayor Edward B. Murray”. Berkeley, CA: Center on Wage and Employment Dynamics, University of California, Berkeley, June 26, 2017. http://irle.berkeley.edu/files/2017/Reich-letter-to-Robert-Feldstein.pdf
Seattle Times Editorial. “Seattle should open its eyes to minimum-wage research”. Seattle Times, June 26, 2017. http://www.seattletimes.com/opinion/editorials/seattle-should-open-its-eyes-to-minimum-wage-research
Rebecca Smith. “UW minimum-wage study doesn’t reflect reality of work in Seattle”. Seattle Times, July 5, 2017. http://www.seattletimes.com/opinion/uw-minimum-wage-study-doesnt-reflect-reality-of-work-in-seattle
Jon Talton. “Seattle’s minimum wage: The plot thickens”. Seattle Times, June 27, 2017. http://www.seattletimes.com/business/economy/seattles-minimum-wage-the-plot-thickens
Janet Tu. “Latest study Seattle’s wage law lifted restaurant pay without shrinking jobs”. June 20, 2017. http://www.seattletimes.com/business/retail/latest-study-seattles-wage-law-lifted-restaurant-pay-without-shrinking-jobs
Janet Tu. “UW study finds Seattle’s minimum wage is costing jobs”. June 26, 2017. http://www.seattletimes.com/business/uw-study-finds-seattles-minimum-wage-is-costing-jobs
Danny Westneat. “Real liberals wouldn’t be so defensive about UW minimum-wage research”. Seattle Times, June 28, 2017 http://www.seattletimes.com/seattle-news/politics/real-liberals-wouldnt-be-so-defensive-about-uw-minimum-wage-research
Ben Zipperer & John Schmitt. “The “high road” Seattle labor market and the effects of the minimum wage increase”. Washington, DC: Economic Policy Institute, June 26, 2017. http://www.epi.org/publication/the-high-road-seattle-labor-market-and-the-effects-of-the-minimum-wage-increase-data-limitations-and-methodological-problems-bias-new-analysis-of-seattles-minimum-wage-incr
Other articles
Sylvia Allegretto, Arindrajit Dube, Michael Reich & Ben Zipperer. “Credible Research Designs for Minimum Wage Studies: A Reply to Neumark, Salas and Wascher.” Berkeley, CA: BILR Review 70, 3: 559–92, May 2017. http://irle.berkeley.edu/credible-research-designs-for-minimum-wage-studies-a-response-to-neumark-salas-and-wascher
National Employment Law Project. “Fight for $15: Four Years, $62 Billion”. New York: National Employment Law Project, December 2016. http://www.nelp.org/content/uploads/Fight-for-15-Four-Years-62-Billion-in-Raises.pdf
National Employment Law Project & Economic Policy Institute. “Why America Needs a $15 Minimum Wage”. New York: National Employment Law Project, April 26, 2017 http://www.nelp.org/content/uploads/NELP-EPI-Fact-Sheet-Why-America-Needs-15-Minimum-Wage.pdf
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[i] NELP 12/2016
[ii] NELP 12/2016
[iii] Zipperer & Schmitt 6/26/2017
[iv] Jardim et al 6/2017, p. 14
[v] Jardim et al 6/2017
[vi] Reich 6/26/2017
[vii] Allegretto et al 5/2017
[viii] Zipperer & Schmitt 6/26/2017
[ix] Long & Plotnick 6/28/2017
[x] Person 6/30/2017
[xi] Talton 6/27/2017