The NYT Fights for 15!

The editors of the New York Times argue for increasing the federal minimum wage to $15/hour:

Over the past five years, a wave of increases in state and local minimum-wage standards has pushed the average effective minimum wage in the United States to the highest level on record. The average worker must be paid at least $11.80 an hour — more after inflation than the last peak, in the 1960s, according to an analysis by the economist Ernie Tedeschi.

And even as wages have marched upward, job growth remains strong. The unemployment rate at the end of 2019 will be lower than the previous year for the 10th straight year.

The interventions by some state and local governments, however, do not obviate the need for federal action. To the contrary. Millions of workers are being left behind because 21 states still use the federal standard, $7.25 an hour, which has not risen since 2009 — the longest period without an increase since the introduction of a federal standard in the 1930s.

Across much of America, the minimum wage is set to rise again in the next few days. In Maine and Colorado it will reach $12; in Washington, $13.50; in New York City, $15. Workers in the rest of the country also deserve a raise. The time has come to increase the federal minimum.

Since Seattle was the first major U. S. city to move on raising the minimum wage there have been lots of studies of the effects. Unfortunately, there have been just about as many different conclusions about the increase as there have been studies and seem to depend as much on the economists’ policy preferences as they do on anything else. Here’s a brief history of studies of Seattle’s increased minimum wage from a post at Warton’s business school:

The first Seattle study was conducted at the University of California Berkeley by Michael Reich, Sylvia Allegretto, and Anna Godoey and sheds favorable light on the minimum wage increase. This study evaluates the effect of the increased minimum wage between 2009 and 2016, specifically examines the restaurant industry to draw its conclusions, and only evaluates the wage increase up to thirteen dollars given that data collection ended in 2016. Ultimately, the study finds that for every 10% increase in Seattle’s minimum wage, restaurant industry wages for low-wage employees (upon whom the minimum wage has the greatest effect) increased by 1% and wages specifically within the limited-service (fast food) restaurant industry increased by 2.3%. Fast food employees enjoyed greater wage increases with an increase of 16.7% compared to the full-service industry of 4.2% likely because restaurants in the full-service industry were able to use the tip credit component of the minimum wage law to their advantage so they didn’t have to increase wages to as large a degree. This study also found no distinguishable decrease in employment in Seattle due to the increased minimum wage; the study concluded that the increased minimum wage was essentially a success [5].

The Seattle Minimum Wage Study Team at the University of Washington also performed a study to evaluate the impact of the wage increase, but produced a much more negative analysis of its effectiveness. Rather than using restaurant data, this study relied upon unemployment insurance (UI) data from the Washington Employment Security Department (ESD) [6]. The study defined low-wage workers as those who made less than eleven dollars during the second quarter of 2014, and found that wages indeed increased by $1.18 per hour for these workers; specifically, it found that the higher minimum wage accounted for $0.73 of the $1.18 increase. However, the likelihood that these low-wage workers remained employed decreased by 1.1% and the average number of hours each employee worked decreased by between 7.5 and 9.9 hours each quarter during the 4th quarter of 2015 [7]. The University of Washington’s study illustrates a significant negative impact of an increase in minimum wage: during the period of increasing minimum wage, including the second wage increase to $13 an hour, the number of hours worked by low-wage workers fell by 3.5 million per quarter. The researchers at the University of Washington found that there were thousands of jobs lost and a reduction in hours worked by those who retained their jobs. The total payroll accruing to low-wage workers fell by about $120 million per year, with workers losing $125 per month on average, suggesting that businesses are more sensitive to wage rate hikes than expected. Although this evidence seems to indicate that the minimum wage increase has not been as successful as the Berkeley study concluded, other experts have identified several possible reasons for this incongruence.

The decreased hours for low-wage workers could be the result of other factors. The Economic Policy Institute argues that the decrease in hours for low-wage laborers illuminated by this study is simply due to an increase in higher paying jobs, compounding the effect of the increased minimum wage [8]. Furthermore, the data used in this study does not include any workers employed by franchises (businesses with more than one location), which leaves out 40% of the labor market [9].

However, minimum-wage advocates argue that the negative findings by University of Washington are disproportionately large and likely inaccurate due to errors in research. Ben Zipperer and John Schmitt of the Economic Policy Institute pointed out objections to the methodology and data used in the University of Washington paper, claiming that the study is biased in the direction of finding job losses, even where there may have been no job loss [10]. The University of Washington study excludes workers in businesses that have more than one location, such as big box retailers and chain restaurants, whereas almost 40 percent of workers in Washington state work at multi-state businesses. And, the researchers at the University of Washington are unable to capture earnings in the informal sector, where there may be missing job data [11]. The biggest contention lies in the fact that the University of Washington study uses data not available publicly. This might be one reason why research the University of Washington report departs from other research observations. Ben Zipperer and John Schmitt also noted that Seattle’s increase in wage “is within the range of increases that other research has found to have little to no effect on employment”, although Seattle’s minimum wage increase is the largest ever studied [12].

As I have said every time this subject has come up, it’s difficult to disaggregate all of the various effects and what works in Seattle may not work in Yazoo City, Mississippi where the median wage is around $20,000 per year, i.e. a lot smaller than $15/hour. One size may not fit all. The editors of the NYT have an answer for that, too:

One simple corrective, proposed by Senator Michael Bennet of Colorado, would be to include exemptions from the $15 standard for low-wage metropolitan areas and rural areas.

Simple is in the eye of the beholder. Who makes the determination and how is it to be determined? To me that sounds like a full employment plan for federal bureaucrats, busily working out which towns, cities, and counties are eligible for a $15/hour minimum wage and which are not.

Fortunately, we already have a system in place to address that: a network of city, county, and state governments. In my view the editorial does not make a case for a $15 federal minimum wage but that state and local governments should be prepared to raise their minimum wages as appropriate for each. Of course that doesn’t address the problem that may have motivated the editors in the first place—high minimum wages can place large, expensive cities at a competitive disadvantage.