Dueling Studies on Seattle's $13/hour Minimum Wage

Two studies have come out recently on the broader economic effects of Seattle's experiment in dramatically raising the minimum wage. Broadly speaking, studies have found that the modest minimum wage increases we have seen in the past have had little effect on the number of jobs or hours worked. But there haven't been any studies on the sort of dramatic increases being tried now, because we have never tried that before.

The first study was from the Institute for Research on Labor and Employment at Berkeley, which is a lefty activist group. They found that neither the first increase (from $9.47 to $11.00/hour) nor the second (from $11.00 to $13.00/hour) had any meaningful impact on the number of jobs or the hours worked, so (they say) the increase was a major net gain for workers.

The second report was from the Minimum Wage Study at the University of Washington, an entity created by the state specifically to study the impact of the new minimum wage. They found that the first increase, to $11.00, caused a 1.9% decrease in the number of hours worked by low-wage workers in the city, which as they say is insignificant and might just be statistical noise. But they find that the second increase led to a decline of about 10% in hours worked, which means the increase was a net loss to low-wage workers of about $100 million per year.

The authors of the Minimum Wage Study report note that unnamed others have found different results, but they say their results are different because their study is better. As they would.

Kevin Drum:

This study is more pessimistic than previous studies, but it’s well done and scrupulously honest. Nor should it necessarily be a surprise. There’s a mountain of evidence that modest increases in the minimum wage have little effect on low-wage jobs, but the key word here is modest. We’ve never tested how high the minimum wage can go before it starts to have a serious impact on low-wage jobs, because no one has ever raised the minimum wage more than modestly. This means that the question of how high the minimum wage can go is an empirical one—and there’s no special reason to think it’s $15. It could be higher or lower. And if this study holds up, the answer at the moment is around $12.

One other thing worth noting: Among other rich countries, the minimum wage is roughly 50 percent of the median wage. Depending on how you measure it, that comes to $11-$13 in the United States. So if the ideal minimum wage turns out to be $12 per hour—roughly the same as it was in the 60s—no one should be taken aback.

Economists are going to be fighting over this for a while, and I won't pretend to know who is right. But it seems to me almost a logical necessity that some level of the minimum wage would wreck the economy (for example by driving many jobs underground or off-books), and the $15/hour figure that has become a progressive mantra was not arrived at on the basis of careful calculation. Based on what I have been able to read, the Minimum Wage Study seems like a much less biased entity than the IRLE, which doesn't even pretend to be balanced. So my gut goes with this latest study.

On the other hand all the careful Democrats (Obama, Hillary, me) responded to the $15/hour campaign by saying, "we should raise the minimum wage but maybe not in such a radical way – how about $12/hour?" so maybe I should be especially skeptical of a study that seems to confirm all my own biases.