Study: Raising the minimum wage did little for workers' earnings in Seattle

Things seem to be going pretty well since Seattle bumped the hourly minimum wage for large businesses up to $11 last year, from the statewide minimum of $9.47 an hour. Low-wage workers are getting more time on the job and making more money. Fewer businesses are closing, and more new ones are opening. The technology and construction sectors are booming. Even the weather cooperated for a change. The spring was unusually dry in Seattle, which was good for the city's fishing fleet.

Yet the actual benefits to workers might have been minimal, according to a group of economists whom the city commissioned to study the minimum wage and who presented their initial findings last week.

The average hourly wage for workers affected by the increase jumped from $9.96 to $11.14, but wages likely would have increased some anyway due to Seattle's overall economy. Meanwhile, although workers were earning more, fewer of them had a job than would have without an increase. Those who did work had fewer hours than they would have without the wage hike.

Accounting for these factors, the average increase in total earnings due to the minimum wage was small, the researchers concluded. Using their preferred method, they calculated that workers' earnings increased by $5.54 a week on average because of the minimum wage. Using other methods, the researchers found that the minimum wage hike actually caused total weekly earnings to drop — by as much as $5.22 a week.

The study is just one of dozens economists have conducted to measure the effects of the minimum wage on local businesses and workers' lives. These studies have often produced contradictory results, even as policymakers and voters across the country are raising the minimum in big ways. Earlier this year, the governors of California and New York signed laws that will increase the minimum wage in both states to $15 an hour.

For instance, another major study recently concluded that increasing the minimum wage also increases newborns' birth weights – evidence that young women are healthier and better off overall in states with a higher minimum.

There can be negative effects. Increasing the minimum wage increases the costs of hiring workers. As a result, employers must accept reduced margins or customers must pay steeper prices.

If employers cannot stay in business while paying their staff more, they will either hire fewer people or give their workers fewer hours. As a result, even if wages per hour increase, workers' total earnings could decline.

Jacob Vigdor, an economist at the University of Washington and one of the authors of the report, speculated that technology could limit the benefits of increasing the minimum wage. If it becomes easier for employers to replace their workers with machines, they will be more likely to respond to wage hikes by making fewer hires.

"The economy has changed in ways that give businesses more options for cutting back on labor," Vigdor said. "If you are a person who is trying to make ends meet at the lower rungs of the economic ladder, you might be used to this idea that forces conspire against you. The minimum wage is an effort to try to keep some of these forces at bay, but there are definitely questions about how effectively and for how long."

Vigdor and his colleagues used detailed data from the state of Washington on where workers were employed, how many hours they had and how much they were making. They compared the data from Seattle to data from other places across the state to estimate how things might have gone for workers had the minimum wage not changed, a standard method in economic research.

They attributed a wage increase of about $0.73 an hour for low-income workers to the minimum wage, and another $0.45 an hour to the improving economy. After the increase, Seattle's workers got about seven more hours in a quarter. Workers' hours increased even more in other parts of the state, however, leading the researchers to conclude that the minimum wage reduced the number of hours worked quarterly by 3.2, roughly 15 minutes each week.

Those figures do not include workers without jobs. The economists estimated that the minimum wage decreased the share of workers with jobs by about 1.2 percentage points.

Overall, there was almost no effect on workers' average total earnings, but Vigdor pointed out that the average could be misleading. The consequences for many individual workers – both positive and negative – could have been more significant.

Workers employed by thriving businesses who did not lose any hours could have enjoyed welcome gains. On the other hand, workers who had a hard time finding a second job to make up for their lost hours might have been earning much less.

Vigdor said his group will try to answer these questions in future research with more data from the state on individual workers. An important question is whether among people working in this sector of the economy, younger and less-skilled workers are affected more negatively by increases in the minimum wage, while more experienced workers benefit.

"There are parents trying to raise kids on the basis of low-wage work," Vigdor said. "There are teenagers living in families with six-figure incomes."

Then there is the question of how businesses and workers will react as Seattle's new minimum wage continues to take effect. This year, the minimum is $13 an hour for workers at large firms, and it will increase to $15 an hour next year.