We Are Seeing The Effects Of Seattle's $15 An Hour Minimum Wage

From Tim Worstall.

"Some time back I wrote a piece entitled “We can predict the effects of Seattle’s $15 an hour minimum wage.” It’s here. And without going into boring detail it essentially said that we’d see what we would expect to see from a rise in the price of something, that is a fall in the demand for it. Ever since I’ve had comments from people insisting that human labor just doesn’t work that way. That if wages rise then actually more people are going to get employed. An example came in only this morning:

Between January and December of 2014, while Seatac’s business owners (and their customers) were absorbing the cost of paying minimum wage employees $15, unemployment decreased 17.46%, falling from 6.3% to 5.2%. It turns out that you CAN increase the minimum wage (even in large increments) and increase overall employment at the same time.

No one at all has ever doubted that it is possible to increase employment and the minimum wage at the same time. The impact of the general economy is usually going to be larger than the impact of the minimum wage. The impact of that general economy could mean that employment rises, stays the same or falls, whatever happens to the minimum wage. But that’s not the interesting thing we’d like to know. Which is, what is the effect of raising the minimum wage on unemployment? Freed from the impacts of everything else happening in the economy? And there the standard answer is that it will raise unemployment and no, no one has managed to come up with a convincing case against this standard wisdom.

Do note what actually happened in that general economy over that same time period. The US unemployment rate fell, over that year, from 6.6% to 5.6%. Seatac’s performance is, including the usual boundaries for error, actually the same as the US economy’s. Which isn’t all that surprising really as the minimum wage rise at Seatac affected 1,500 people (yes, that’s all) and we’d not expect to see any effect at all in macroeconomic figures from so trivial a change.

However, we are seeing changes in the rather larger case of Seattle itself, as I predicted we would:

Though none of our local departing/transitioning restaurateurs who announced their plans last month have elaborated on the issue, another major factor affecting restaurant futures in our city is the impending minimum wage hike to $15 per hour. Starting April 1, all businesses must begin to phase in the wage increase: Small employers have seven years to pay all employees at least $15 hourly; large employers (with 500 or more employees) have three.

Since the legislation was announced last summer, The Seattle Times and Eater have reported extensively on restaurant owners’ many concerns about how to compensate for the extra funds that will now be required for labor: They may need to raise menu prices, source poorer ingredients, reduce operating hours, reduce their labor and/or more. Washington Restaurant Association’s Anton puts it this way: “It’s not a political problem; it’s a math problem.”

Restaurants are closing at higher than normal rates. And Seattle is already a fairly high wage place:

Regarding amount of labor, at 14 employees, a Washington restaurant already averages three fewer workers than the national restaurant average (17 employees).

As Don Boudreaux likes to point out one of the reasons we don’t see large job losses (as opposed to small ones) from rises in the minimum wage is because we’ve had a minimum wage for a long time and have already lost a lot of jobs as a result.

And there’s more such reporting going on too:

As the implementation date for Seattle’s strict $15 per hour minimum wage law approaches, the city is experiencing a rising trend in restaurant closures. The tough new law goes into effect April 1st. The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.

The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.

Advocates of a high minimum wage said businesses would simply pay the mandated wage out of profits, raising earnings for workers. Restaurants operate on thin margins, though, with average profits of 4% or less, and the business is highly competitive.

Human labor really is an economic good like pretty much all of the others. Raise the price and the demand for it will drop (another way of putting this is that human labor is not a Giffen Good). Please do note though what is the prediction. Not that there’s going to be a wiping out of employment opportunities, nor that the economy of Seattle is going to become a howling wasteland. Rather, that less human labor will be employed at $15 an hour than would have been employed if the minimum wage had not risen to that amount. And for people who would like to have a job but now cannot find one that’s bad news."