Editors' pick: Originally published Aug. 5.
Two years ago, Seattle took a gamble and raised minimum wage to $15.
It was unclear at the time if this move would increase the standard of living for minimum wage earners without reducing employment or overburdening employers. A University of Washington study found that the law did not have a significant impact. It raised the average wage for the lowest-paid workers by $1.18 an hour, but it also may have led to a decrease in the employment rate and exit of workers from Seattle to other areas. The law does not appear to have had a huge affect on businesses' survival.
"The City's low-wage workers did relatively well after the minimum wage increased, but largely because of the strong regional economy," the study said. "Seattle's low wage workers would have experienced almost equally positive trends if the minimum wage had not increased. Although the minimum wage clearly increased wages for this group, offsetting effects on low-wage worker hours and employment muted the impact on labor earnings."
The study comes as many states weigh increasing minimum wages. Since 2013, 18 states and the District of Columbia have raised their minimum wages. The minimum wage in Washington state is $9.47. The national minimum wage is just $7.25, although a current bill, the Raise the Wage Act proposed by Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), would increase that to $12 an hour by 2020.
Among the highlights of the Washington study:
- Wages for the lowest-paid workers went up significantly, from $9.96 at the time of passage to $11.14 at the end of 2015, but much of the gain was not the result of the higher minimum wage but rather to general improvements in the labor economy.
- The law appears to have negatively impacted the employment rate and hours worked while increasing the migration of low-wage workers from Seattle. That is, increased wages were offset by modest reductions in employment and hours. At most, 25% of the observed earnings gains -- around a few dollars a week, on average -- can be attributed to the minimum wage.
- The net is that low-wage workers saw larger paychecks but most of the increase was due to a strong economy.
- There was no compelling evidence that the law caused any increase in business failure rates
Overall, the status of Seattle workers and the economy appears to be roughly the same as it would have been if the minimum wage had gone unchanged.
To be sure, more time needs to pass before the full impact may be apparent. However, at this early juncture, the evidence suggests that the rewards are larger but there are fewer of them.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.