In 2014, the Seattle City Council voted to up the minimum wage from the requirement at that time of $9.96 per hour, to be phased in beginning in April 2015 and to eventually reach $15 per hour. The city also contracted with a team of experts at the University of Washington to study the effects of the wage increase on the labor market. The following is from the executive summary of the report covering 18 months after passage of the ordinance, including the first 9 months under the increase to $11 per hour (my bolded section):
Low-Wage Workers:
-- In the 18 months after the Seattle Minimum Wage Ordinance passed, the City of Seattle’s lowest-paid workers experienced a significant increase in wages.
⦁ 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.
⦁ 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.
-- In a region where all low-wage workers, including those in Seattle, have enjoyed access to more jobs and more hours, Seattle’s low-wage workers show some preliminary signs of lagging behind similar workers in comparison regions.
⦁ The minimum wage appears to have slightly reduced the employment rate of low-wage workers by about one percentage point. It appears that the Minimum Wage Ordinance modestly held back Seattle’s employment of low-wage workers relative to the level we could have expected.
⦁ Hours worked among low-wage Seattle workers have lagged behind regional trends, by roughly four hours 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.
-- Seattle’s low-wage workers did see larger-than-usual paychecks (i.e., quarterly earnings) in late 2015, but most-- if not all--of that increase was due to a strong local economy.
⦁ Increased wages were offset by modest reductions in employment and hours, thereby limiting the extent to which higher wages directly translated into higher average earnings.
⦁ At most, 25% of the observed earnings gains--around a few dollars a week, on average--can be attributed to the minimum wage.
-- Seattle’s low-wage workers who kept working were modestly better off as a result of the Minimum Wage Ordinance, having $13 more per week in earnings and working 15 minutes less per week.
Jobs:
-- Overall, the Seattle labor market was exceptionally strong over the 18 months from mid-2014 to the end of 2015.
⦁ Seattle’s job growth rate tripled the national average between mid-2014 and late 2015.
⦁ This job growth rate outpaced Seattle’s own robust performance in recent years.
⦁ Surrounding portions of King County also had a very good year; the boom appears to fade with geographic distance.
⦁ Job growth is clearly driven by increased opportunities for higher-wage workers, but businesses relying on low-wage labor showed better-than-average growth as well.
-- For businesses that rely heavily on low-wage labor, our estimates of the impact of the Ordinance on the number of persistent jobs are small and sensitive to modeling choices. Our estimates of the impact of the Ordinance on hours per employee more consistently indicate a reduction of roughly one hour per week.
⦁ Fewer hours per employee could reflect higher turnover rather than cutbacks in staffing.
⦁ Reductions in hours are consistent with the experiences of low-wage workers.
https://evans.uw.edu/sites/default/files/MinWageReport-July2016_Final.pdf
The authors caution that this is a study of short-run effects, and that the impact of the wage increase could change.
Nevertheless, the findings are that the increase in wages that affected workers saw was mostly, if not entirely, due to Seattle's exceptionally strong economy, not due to the increase in minimum wage, yet at the same time, the ordinance seems to have resulted in a 1% reduction in employment of low-wage workers (the reduction the number of workers earning under $11/hour exceeded the increase in workers earning $11-19/hour), and possibly a decrease in their hours. There has been apparently little (if any) benefit to low-wage workers due to the ordinance (at most, about $5.50 per week increase in real income, and possibly a decrease in quarterly earnings), while a couple of thousand low-wage jobs were eliminated.
Until the 1990s, economists (et al.) had little reason to doubt whether minimum wage increases reduce employment among low-wage workers--the evidence of such an effect was fairly consistent. Robert Murphy notes that "Brown et al. (1982) surveyed a large number of time-series studies from the 1960s and 1970s and reported a consensus in the literature that a 10 percent increase in the minimum wage reduced teenage employment by 1 to 3 percent."
http://www.econlib.org/cgi-bin/printarticle2.pl?file=Columns/y2014/Murphyminimumwage.html#footnote1
Yet in the 1990s, some researchers found that by using regional economic trends, different control groups, and/or focusing on particular sub-groups of low-wage workers (e.g., restaurant workers) in their analyses, the negative effects on employment due to small increases in minimum wage became insignificant. Unfortunately, since then, the issue of the effect of minimum wage increases on employment has taken on a somewhat partisan ideological aspect.
Two recent, highly cited studies finding insignificant effects on employment due to small minimum wage increases are: Dube et al., "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," 2010:
http://www.irle.berkeley.edu/workingpapers/157-07.pdf , and Allegretto et al., "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," 2010/2011:
http://escholarship.org/uc/item/7jq2q3j8 . Neumark and Salas provide an in-depth critique of their respective methodologies, showing that improper (non-matching) controls and bounding their time series with the recessions of the early 1990s and 2008 were the factors that washed out the negative effects on employment:
https://www.epionline.org/wp-content/uploads/2014/07/Neumark-01-2013.pdf Note that the Seattle study used regional economic trends in projecting what would have happened in the absence of the increased minimum, yet still found negative effects on the job market, even under the fairly modest increase from $9.96/hour to $11/hour. To the best of my reckoning, the four control groups used in the Seattle study are entirely adequate and justifiable.
In any case, if anyone wishes to argue that increases in minimum wages do not negatively affect employment, please do.
To my mind, any government measure that reduces or that will likely reduce employment opportunities for workers on the lowest rung, especially during times of high unemployment, merely in order that the wages of those fortunate enough to keep their jobs can (hopefully) increase by some amount, is unfair. It's Robin Hood in reverse--taking from the poorest in order to (negligibly) enrich the more fortunate.
In 2013 President Obama proposed a nation-wide increase of the minimum wage to $10.00/hour. Clinton has proposed an increase to $12.00/hour, and one of the primary planks of Sanders' campaign was to more than double the federal minimum to $15/hour. Naturally Trump has asserted both his support and opposition to a national minimum wage increase.
Congress considered the matter a couple of years ago and commissioned the Congressional Budget Office to study it. The CBO Director testified on the findings in a Senate committee hearing in March 2014. CBO examined two options: (1) raising the minimum wage to $10.10 in three phases (2014, 2015, 2016), after which the wage would be adjusted annually for inflation according to the consumer price index; and (2) raising the minimum wage to $9.00 in two stages (2015, 2016) without subsequent adjustment for inflation. Among the CBO's findings:
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers (see Table 1).
https://www.cbo.gov/sites/default/f...-2014/reports/44995-MinimumWage_OneColumn.pdf
While raising the minimum wage is intended to lift people out of poverty, CBO found that the vast majority (81%) of the $31 billion in projected increased earnings under the $10.10 option would accrue to families with incomes above the poverty line, with 29% of the increased earnings going to families with incomes at 3 times the poverty level.
CBO also published answers to questions for the record following the Committee hearing, one of which concerned comparing the minimum wage increase with an increase in earned income tax credits (EITC), which, in contrast to minimum wage increases, goes almost exclusively to lower-income families. CBO found that:
. . . achieving any given increase in the resources of lower-income families would require a greater shift of resources in the economy if done by increasing the minimum wage than if done by increasing the EITC. Another difference between the two approaches is that increasing the EITC would constitute a cost for the federal government, whereas raising the minimum wage would have only a small net effect on the federal budget. In 2007, CBO estimated and compared two costs: the cost to employers of a change in the minimum wage that increased the income of poor families by a given amount, and the cost to the federal government of a change in the EITC that increased the income of poor families by roughly the same amount.2 The former was much larger than the latter.
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45391-QFR-MinimumWage.pdf
Thus, evidently raising the minimum wage is an ineffective method for improving the plight of the working poor.
So is there a justification for raising the federal minimum wage?
