When Seattle hiked their minimum wages in 2014, low-income workers ended up taking home less in their paychecks and the city lost 5,000 jobs.
Cities considering minimum wage increases have to face new research that challenges whether minimum wage hikes are a good solution to income inequality. This has major implications for women in the workplace who outnumber men in minimum wage jobs.
The research study commissioned by the City of Seattle and conducted by researchers at the University of Washington was published as a working paper by the National Bureau of Economic Research. It examines the impact of the incremental minimum wage increase on low-wage workers in Seattle across all segments of the economy.
Using data only made available by the City, it found that the jump to $13 reduced hours by 9 percent while hourly wages increased by 3 percent leading to an average pay cut in earnings of $125 per month in 2016.
Simply stated by one of the study's authors, Jacob Vigdor: "For every $1 worth of increased wages, we are seeing $3 worth of lost employment opportunities."
This study, which has not been peer-reviewed, is raising eyebrows in a long-running debate on the impacts of minimum wage increases:
"This strikes me as a study that is likely to influence people," said David Autor, an economist at the Massachusetts Institute of Technology who was not involved in the research. He called the work "very credible" and "sufficiently compelling in its design and statistical power that it can change minds."
Pro-minimum wage economists are scrambling:
"Like, whoa, what? Where did you get this?" asked Ben Zipperer, an economist at the left-leaning Economic Policy Institute (EPI) in Washington.
"My view of the research is that it seems to work," he said. "The minimum wage in general seems to do exactly what it’s intended to do, and that’s to raise wages for low-wage workers, with little negative consequence in terms of job loss."
"You’re just seeing an independent shift in the Seattle labor market toward higher wage employment," he said, calling the figures for better-paid workers "a red flag."
This research challenges another study released recently by the University of California which found that employment in Seattle has not been affected since the hike went into effect in 2015. This is consistent with some past research on the impacts of minimum wage increases. However, it only focused on Seattle’s food services industry compared to the U. of Washington study which examined all sectors. It could be true that food services are not as effected as other industries.
The strength of the U. of Washington study is that it draws on records of wages and hours for individual employees – making use of more detailed data than has been available in past research. Past research examined overall numbers of workers or their annual incomes, not hourly pay which tells us more about the individual impacts of the wage hikes. According to one of the authors:
"Our study does something they can't do, and arrives at a very different answer," Vigdor said.
The New York Times argues that Seattle’s “hot” labor market is to blame, but authors contend that the loss of hours drove the results.
For women, who work in minimum wage jobs more than men, these wage hikes could result in smaller paychecks and fewer jobs to sustain themselves and their families.
Policymakers should think very critically about using a minimum wage increase as a shortcut to putting more money in the pockets of American families.