Novel research adds to our understanding of Seattle’s minimum wage

The UW team that is studying the impacts of Seattle’s minimum wage ordinance released a study yesterday that finds that the increase to $13 last year (for some large employers) resulted in reduced hours for low-wage workers, which had the net effect of lowering their earnings by $125 a month on average.

This study is contrary to the Reich et al. paper that was released last week. That paper looked at workers in the food service industry (as a proxy for low-wage workers) and found that their wages increased without disemployment effects.

The UW team uses data from the state that includes both wages and hours worked. Most states don’t collect quarterly hours data, so other research (like Reich et al.) look at the effects on industries that tend to have lower wages. The data is limited in that it doesn’t include contractors or multi-site employers (because of the way the data is transmitted to the state). Still, it seems to be a more precise look at actual low-wage workers rather than all workers in an industry (who may or may not earn low wages). Also, the study has data through the third quarter of 2016 (Reich et al. had data through the first quarter of 2016).

The UW study looks at jobs with hourly wages under $19. It finds larger impacts from the increase to $13 in 2016 than the increase to $11 in 2015. For example, relative to the second quarter of 2014, hours were reduced by an average of 1.9 percent when the minimum was $11 for some employers, but they were reduced by an average of 9.4 percent when the minimum increased to $13. They note that there is “statistically weak evidence of reductions in the first phase-in period followed by larger significant impacts in the second.”

Further, the UW study replicates earlier studies that focus on the restaurant industry to “examine the extent to which use of a proxy variable for low-wage status, rather than actual low-wage jobs, biases effect estimates.” It finds that “focusing on restaurant employment at all wage levels . . . yields minimum wage employment impact estimates near zero. Estimated employment effects are higher when examining only low-wage jobs in the restaurant industry, and when examining total hours worked rather than employee headcount.”

This study (and the contrast with the Reich et al. paper) is getting a lot of national press. Opportunity Washington has a couple of posts linking to many of the commentaries. There has also been pushback. Mayor Murray’s office asked Michael Reich to review the paper; PubliCola links to his letter questioning the UW study’s conclusions and methodology.

Similarly, Ben Zipperer and John Schmitt at the Economic Policy Institute note, “One initial indicator of these problems is that the estimated employment losses in the Seattle study lie far outside even those generally suggested by mainstream critics of the minimum wage.” Of course, that doesn’t mean the UW study is wrong. As the UW study shows with its replication of previous restaurant-industry-focused results, “by using the imprecise proxy of all jobs in a stereotypically low-wage industry, prior literature may have substantially underestimated the impact of minimum wage increases on the target population.” Further, the $13 minimum wage is high by historical standards, so it is to be expected that effects would be larger than those of more modest increases.

Another common complaint is that Seattle is booming, so the lost hours may represent people moving up to higher wage levels rather than having their hours reduced at their low-wage jobs.

The Seattle Times reports,

Jacob Vigdor, a UW public policy professor and one of the authors of the UW report, stood by the team’s findings.

He said the team assessed the economic boom as an “alternative hypothesis” but that that explanation wouldn’t explain why the big drop in employment effects were “statistically invisible” until January 2016 when the second jump in the minimum wage occurred.

“There’s nothing in our data to support the idea that Seattle was in economic doldrums through the end of 2015, only to experience an incredible boom in winter 2016,” he said.

As to the criticisms on the team’s methodology, “when we perform the exact same analysis as the Berkeley team, we match their results, which is inconsistent with the notion that our methods create bias,” Vigdor said.

The UW paper assesses the minimum wage increases from a new angle. But, as I wrote last week, it’s too early to tell what the effects of Seattle’s ordinance will be in the long run.

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