Another Study: $15 Minimum Wage Hurts Low Wage Employees

by Rob Roper

The National Bureau of Economic Research released its latest working paper on Seattle’s $15 minimum wage policy. Vermont legislators, who are contemplating a push for this in 2018 legislative session, should pay close attention and rethink their ambitions. The paper concludes:

… that the second wage increase to $13 [the first increase raised the wage from $9.47 to $11] reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.

Unlike other minimum wage studies that focus on specific industries, such as restaurants, or specific demographics, such as teenagers, this study examines the impact of impact of minimum wage increases “across all categories of low-wage employees, spanning all industries and worker demographics.” It defines “low-wage” as people earning $13 to $19 an hour.

The study also found that the negative impacts of increases in the minimum wage are not linear, but rather exponential. The Seattle law takes a series of steps to go from $9.47 to $15 an hour. The first step from $9.47 to $11 did have negative impacts on low wage workers, but they were slight. The second step, from $11 to $13, representing a 37% increase from the base, inflicted significant damage. One expects that the final step from $13 to $15 will be even more severe. Time will tell.

The study challenges the notion that low wage employers have few or no options but to hire low skilled workers, regardless of the cost. The authors conclude:

The work of least-paid workers might be performed more efficiently by more skilled and experienced workers commanding a substantially higher wage. This work could, in some circumstances, be automated. In other circumstances, employers may conclude that the work of least-paid workers need not be done at all.

A last key point is that proponents of raising the minimum wage will often point to an alternative study showing that such policies have no negative impact on employment. These claims tend to trace back to a 1994 study of New Jersey’s minimum wage increase on the restaurant industry by Card and Krueger. Two issues here. First, just looking at the restaurant industry does not create an accurate reflection of the diversity of low wage labor. And second, technology has changed dramatically since 1994. Think iPad menus.

Let’s hope Vermont legislators learn from Seattle’s mistake.

Click to Read the Report: Seattle Minimum Wage Study.

Rob Roper is president of the Ethan Allen Institute

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