In Focus: Economists Dispute the Impact of Seattle’s Wage Hike

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Seattle's minimum wage has been rising in increments since 2015 and is slated to reach at least $15 an hour for all workers by 2021. Advocates for the wage hike argue that a $15 minimum hourly rate will help workers, their families and the community. But opponents say it will hurt businesses and will ultimately result in fewer work hours and less compensation for low-income employees.

A recently released University of Washington study appears to confirm (at least to some degree) the view of those who are against the increase. Employee advocates, however, have disputed the study's findings.

Here's what employers should know about recent research on the effects of Seattle's minimum wage hikes. 

[SHRM members-only chart: Minimum Wage Rates by State and Municipality]

Low-Wage Earners' Hours Were Cut Back, Study Finds

The University of Washington research team studied the impact of minimum wage increases in Seattle in stages as they were phased in. The minimum wage was first raised from just under $9.50 to $11 an hour in 2015, and the research team found that earnings did go up by about $72 every three months, but low-wage employment slightly declined. The researchers conducted a second study after the minimum wage was raised again in 2016 (from $11 an hour to $13 for certain large employers with more than 500 employees and at a lower rate for other employers). The newer study found a much larger negative effect: low-wage workers' hours were reduced by 3 percent for every 1 percent increase in their hourly wage. This resulted in an earnings loss of about $125 a month, according to the study. (Bloomberg)

Would Other Cities Fare Worse?

The study's authors said that their "best estimates find that the Seattle Minimum Wage Ordinance appears to have lowered employment rates of low-wage workers." But they cautioned that the findings in Seattle wouldn't necessarily be the same for other cities with different economic variables. Corey Iacono, a fellow at libertarian think tank Foundation for Economic Education, wrote that "Seattle was well situated, economically, to handle a large minimum wage increase, and the consequences were still mediocre." He said that other cites may fare worse. "If the Seattle experience thus far shows us anything, it is that government-mandated minimum wages aren't serious solutions to the problem of poverty." (Foundation for Economic Education)

Worker Advocates Say Study Is Flawed

Economists for the Economic Policy Institute, a liberal think tank, said that Seattle's minimum wage hike "is within the range of increases that other research has found to have had little to no effect on employment." Critics of the University of Washington study say that the data used are flawed. Among other things, the study excluded workers at businesses that have more than one location—like restaurant and retail chains that tend to hire low-wage workers—and almost 40 percent of workers in Washington are employed by a multilocation business. (The Washington Post)

Study Contradicts Other Research Findings

The University of Washington study's findings are preliminary, but there's a June 2017 study by researchers at the University of California, Berkeley, that also analyzed the economic impact of the wage increases and reached different results. The Berkeley study specifically looked at the food services industry and found that Seattle's minimum hourly rate improved earnings by about 1 percent in the industry overall and by 2.3 percent in limited-service restaurants, such as fast-food chains. So the actual effect of the increase is unclear. "It might take more studies to determine if Seattle hiked its minimum wage too much, too fast," wrote Annie Lowrey of The Atlantic. (The Atlantic)

Seattle's Minimum Wage Will Continue to Rise

Regardless of whether wage hikes help or hurt workers, the city's minimum hourly rate is scheduled to continue climbing over the next few years. Effective Jan. 1, 2017, employees who work for large businesses with more than 500 employees nationwide—like McDonald's—already must earn at least $15 an hour if they don't receive health care benefits from their employer. Other businesses were given another year or more (depending on employer size and benefits offerings) before their wage rates must reach $15 an hour. (City of Seattle)

 

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