Minimum wage trade-offs

By: Emily Makings
3:24 pm
October 23, 2018

A late-breaking addition to my review of the recent minimum wage literature last week: Yesterday the University of Washington Minimum Wage Study team released a new working paper on Seattle’s minimum wage increase. Regardless of whether a minimum wage increase has net negative or positive impacts, some workers may benefit while others may be harmed—which type of workers might benefit?

The paper attempts to suss out those differing effects. It finds,

Essentially all of the earnings increases accrue to the more experienced half of the low-wage workforce. The less experienced half saw larger proportionate decreases in hours worked, which we estimate to have fully offset their gain in wages, leaving no significant change in earnings. More experienced workers were also more likely to supplement their Seattle income by adding hours outside the city. Finally, conditional on being employed, both less and more experienced workers were more likely to remain employed by their baseline Seattle employer, implying an 8% reduction in labor turnover rates.

(By “experienced,” the paper means how long a worker had been employed.)

According to the paper, these findings jibe with the team’s 2017 findings because, “evidence suggests that employers responded to higher minimum wages by shifting their workforce toward more experienced workers.” (The 2017 paper found that the minimum wage increase resulted in reduced hours for low-wage workers, which lowered their earnings. Apparently the team updated its 2017 study this May. The revision moderates its findings of negative effects somewhat—instead of a $125 reduction in earnings a month, the earnings reduction is estimated to be $74 per month per job.)

The bottom line: “Seattle’s minimum wage ordinance appears to have delivered higher pay to experienced workers at the cost of reduced opportunity for the inexperienced.”

As with the team’s paper from last year, this paper covers up to the increase to $13 in 2016 for some employers. There have been additional step increases since then, so neither paper studies the impact of the full increase to $15. Also, the paper notes that the approval of I-1433 in 2016, which increased the state minimum wage, “complicates analysis of the effects of Seattle’s minimum wage after 2016.”

Categories: Categories , Employment Policy.