Tuesday, August 9, 2016

As a result of the minimum wage, the employment rate of low-wage workers in Seattle declined slightly, as did the hours worked

From Timothy Taylor, Conversable Economist. Excerpts:
"One way to tackle the "compared to what?" question is to use comparison groups. Specifically, the Seattle study team looks at patterns of wages and jobs in Seattle before and after the rise in the minimum wage, and compares it to patterns to four other areas. Seattle is in King County, so one comparison is to King County outside Seattle.  A second comparison is to counties that surround King County, namely Snohomish, Kitsap, and Pierce. A third comparison is to  “synthetic Seattle,” which the researchers define "as a set of regions in the state of Washington that have matched Seattle’s labor market trends in recent years." A fourth comparison is “Synthetic Seattle excluding King County,” to account for potential spillover of the Seattle Minimum Wage Ordinance into labor market of suburban King County

As a starting point, the evidence shows that hourly wages for low-wage workers did rise in Seattle. At they write: "The typical worker earning under $11/hour in Seattle when the City Council voted to raise the minimum wage in June 2014 (“low-wage workers”) earned $11.14 per hour by the end of 2015, an increase from $9.96/hour at the time of passage."

However, the economy in Washington state was doing fairly well in 2015, and wages also rose in the comparison group areas. In describing the higher hourly wages in Seattle, the study team writes: "The minimum wage contributed to this effect, but the strong economy did as well. We estimate that the minimum wage itself is responsible for a $0.73/hour average increase for low-wage workers."

These findings for the wage paid per hour don't take into account possible changes in the number of hours worked. The study finds: " The minimum wage appears to have slightly reduced the employment rate of low-wage workers by about one percentage point. ... Hours worked among low-wage Seattle workers have lagged behind regional trends, by roughly four hours per quarter (nineteen minutes per week), on average. ... Low-wage individuals working in Seattle when the ordinance passed transitioned to jobs outside Seattle at an elevated rate compared to historical patterns. ... For businesses that rely heavily on low-wage labor, our estimates of the impact of the Ordinance ... on hours per employee more consistently indicate a reduction of roughly one hour per week."

Thus, low-wager workers in Seattle were better off as a result of the higher minimum wage if they managed to keep their job or to keep working roughly the same number of hours. But the employment rate of low-wage workers in Seattle declined slightly, as did the hours worked, which would lead to lower total earnings. As the study group notes: "The major conclusion one should draw from this analysis is that the Seattle Minimum Wage Ordinance worked as intended by raising the hourly wage rate of low-wage workers, yet the unintended, negative side effects on hours and employment muted the impact on labor earnings. ... The effects of disemployment appear to be roughly offsetting the gain in hourly wage rates, leaving the earnings for the average low-wage worker unchanged. Of course, we are talking about the average result.""

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