Study finds minimal impacts from Seattle minimum wage law, but the jury’s still out

A new study from Michael Reich, Sylvia Allegretto, and Anna Godoey of the University of California, Berkeley looks at the effects of Seattle’s minimum wage ordinance. The headline finding is that, as the Seattle Times puts it, “Seattle’s minimum-wage law has led to higher pay for restaurant workers without affecting the overall number of jobs in the industry.” 

However, there are some important points to consider that caution against extrapolating these results to other areas, or even to Seattle itself when the minimum wage is $15 for all employers.

As the Reich et al. paper notes, the $15 minimum wage is being phased in over time, at different speeds depending on the size of business and benefits offered. So, “Any assessment of the impact of Seattle’s minimum wage policy is complicated by this complex array of minimum wage rates.”

The paper only covers through the first quarter of 2016, when minimum wages ranged from $10.50 to $13.00. Thus, the results do not prove that there are no negative effects from a $13 minimum wage (much less a $15 one)—many employers were allowed to pay less than that. Indeed, the paper notes, “Seattle’s complex schedule . . . makes it difficult to compute an average minimum wage effect for each year, as we lack data on how many employees fall under each of the four categories.”

Like the UW study from last year, the Reich et al. paper creates a “synthetic Seattle” to attempt to compare what happened in Seattle to what would have happened in the absence of the minimum wage ordinance. The paper presents its wage and employment findings in terms of elasticities. According to the paper, for every 1 percent increase in the minimum wage, wages at limited-service restaurants increase by 0.229 percent and wages at all restaurants increase by 0.098 percent.

Employment elasticities are positive, except for a negative effect for limited-service restaurants. All are small and are not statistically significant. The paper doesn’t tell us whether employers reduced hours as a response to the ordinance. But the weekly wage data it uses incorporates the effects of any change in hours: “Employers who react to the minimum wage increase by reducing employee hours will thus impart a negative effect on our wage measure.” 

Importantly, the paper notes,

These estimated wage results are subject to a standard caveat. Wages in Seattle may have diverged from Synthetic Seattle just when the minimum wage was implemented for reasons that have little to do with the minimum wage. For example, Seattle’s economy may have entered an especially boom period at that time.

That Seattle may be a special case would also apply to the finding of a lack of disemployment effects. The UW team similarly cautioned against interpreting their “results as likely to be generalizable to other cities nor to the state of Washington . . . . Seattle’s strong economy may make it capable of absorbing higher wages for low-wage workers, and this capacity may not be present in other regions.”

Overall, it’s really too early to tell what the economic impacts of Seattle’s $15 minimum wage ordinance will be. It is not fully phased in yet, and, as the UW research team wrote last year,

Economic theory predicts the long-run adjustments to a regulatory policy change are likely to be greater than short-run adjustments. Prior research shows that in the long-run, certain industries affected by the minimum wage, such as the fast food industry, have more opportunity to relocate, change the composition of their workforce, or invest in technologies that reduce their need for labor.

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