I’ve reported before on studies that showed the change in minimum wage has little affect on employment. But, a new study appeared this week, using the data from Seattle, which just recently raised it’s minimum wage from $ 9.47 to $11, and then subsequently to $ 13 an hour.
The reports that I read discussing a new study, authored by Drs. E Jardim, M.C.Long, R. Plotnick, E. van Inwegen, J. Vigdor, and H. Wehting, (MINIMUM WAGE INCREASES, WAGES, AND LOW-WAGE EMPLOYMENT: EVIDENCE FROM SEATTLE ) seem to indicate that the wage change dramatically affected the labor market, contrary to all the other scientifically developed studies. (This means no studies involving Rick Berman and his minions; his organizations are paid by the minimum wage industry majors and always skew the data to demonstrate that a change in minimum wages is bad. Even if the data doesn’t so demonstrate.)
Upon examination of the data (and the authors so admit), multisite employers were excluded from their analysis. So, for example, if ABC Corporation owned three McDonald’s restaurants, the odds are that data was excluded. And, these (about 15000) firms were significantly larger- with 68 employees per entity (compared to the 123,180 surveyed firms that had an average of 12 employees per site.) One can expect better resilience to a change in minimum wage for the larger firms, with perhaps a higher level of management capabilities, due to their larger size. (This exclusion is why only 60% of employee data was included in the study.)
When the first wage increase hit, the number of jobs paying $ 13 an hour or less for all firms dropped (there is a lag, as the firms realize how much more that increase was costing them) from some 40,000 to about 30,000. But, for the food industry those jobs dropped from 12,000 to about 10,000. Once the second wage hike occurred, the number of low wage food jobs dropped almost 40% to 6500, and that drop manifested 2/3 of the total loss of all jobs in this lower pay echelon.
But, what about those jobs that paid more? Well, the number of jobs that paid $ 19 or less (which, of course, includes those paying $ 13 or less) seemed pretty stable- until right before the last hike. (The drop in jobs occurred the quarter BEFORE that last hike to $13- which could mean the firms were first recognizing the impact of the first hike- or anticipating the next one.) but, the food jobs have been pretty stable. And, the data indicated that the average wages paid averaged between $13 and $14 an hour (so many folks paid less than $ 19 an hour were bunched just over the $ 13 level).
I also massaged the data, beyond what the authors discussed (not what they thought; just what they published). One of the key facts that I don’t find discussed at all in this report was the total number of food jobs paying better wages (around $ 20 an hour on average) INCREASED as the minimum wage changed, albeit not in a 1:1 relationship. (This was determined by subtracting the number of jobs that paid $ 19 or less from all jobs, over the course of 2 or 3 quarters..)
I also wanted to know were job hours cut- or just total employment. For all jobs, the average employed hours was generally stable (there were ups and downs, that I believe were seasonally related, even for the dramatic shift during the 1st quarter of 2016.)
And, that was true for all the $ 13 or less jobs- for all industries or the food related businesses. When one looked at the higher paid jobs, the number of hours was also pretty stable. And, since this all single establishment firms, it won’t surprise you one bit, that most of these folks were part-time (an average around 30 hours of work a week).
The data I wanted to see? (Besides the data for the larger firms, which would be most useful.) How many of the firms ceased operating during the study period? That data was not part of the study. (Dr. Vigdor intimated that may be added to the research, as the study progresses.) I believe this is most important, since previous research has indicated that the marginal (albeit food related) businesses tended to fold as the wages increased.
All told, it is not clear that this study contradicts the one I reported about last May. We don’t know how many establishments failed. Yes, it’s clear that the lowest paid employees in the food industry decreased by 40%. EXCEPT…
We don’t know if those folks LOST their jobs or had their pay increased. After all, looking at the graph above, you can see that the number of jobs paying more than $ 19 an hour more than compensates for the loss of jobs at $ 13 an hour, over the course of time- while not immediately as the pay raise occurred.
It’s my supposition that there was a shift in pay; since the overall employment stayed constant (again, NOT during Q1 2016, but it quickly recovered), it seems that there was just a shift in wages upward, so the individual demographic of lower paid job decrease is less of an issue. Because overall employment increased, wages increased, hours weren’t cut, and many of those folks made more than $ 19 an hour.
I want to thank Dr. Jacob Vigdor (University of Washington) for taking the time to respond to my queries and to aid my comprehension of his data.
What was it that Mark Twain supposedly said? “There are three kinds of lies: lies, damned lies, and statistics.”
Nice job digging through the data. Minimum wage is always a heated discussion among politicians, and I conclude that most of them are not adequately trained to really understand the numbers.
Thanks for sharing, Roy!
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I have problems with minimum wage changes. I fear that the small (2-5 person) entities can’t handle the change- yet. But, I know that larger firms (25 staff, $ 2.5 KK or so) often claim profits that you and I are subsidizing (because their low wage employees must receive SNAP [food stamps], AFDC, Medicaid, etc.) I want those firms to be penalized at 110% of the subsidies we provide their employees. Penalized because penalties are not deductible and I want our treasury to spend money it has to- not to subsidize folks to have profits at our expense. It won’t take a genius employer to realize they must raise wages (which ARE deductible) and not drain our treasury.
Thank you for the thorough analysis. I found it interesting that you mentioned (and I paraphrase – not allowed to cut and paste 🙂 ) “no studies by Berman because he skews the data in his favor.” I’m quite sure the other side does too! As a Psyc major, with a strong foundation in Statistics, the first lesson we learned is that you can torture numbers until they say whatever you want. Even when you are trying to be ethical, as in this study, one can see how difficult it is to correctly interpret exactly what is going on….it always takes a bit of educated guesswork and is subject to debate. The question I want answered (and you may know) – did everyone receive a pay raise or did the guy who was already earning $13/hr just get shafted cause his buddy received an unearned windfall? My guess is there is no way wages were raised across the board. This is inherently unfair, and I’m not a fan of raising min wage to that extent anyway, given it was primarily for entry level, unskilled jobs that were not to be meant to feed a family of 4. I would prefer to use that extra money to pay into the community college system and train workers to do skilled labor (a la Mike Rowe) that are crying out for employees!
Thanks for your comment and questions, Allison.
First of all, there is a vast difference in playing with statistic and being a corporate shill. I know that many researchers have a bias and it shows in their discussion. But, the shills I mentioned have their results written BEFORE they do the studies.
Secondly, look at my reply to Paul Taubman; that explains (as do a plethora of blog posts) why I don’t think the minimum wage should be changed (now). Because we need to have the larger firms pay proper wages to their staff- the only way they will do so if we PENALIZE them for making us- the US Citizenry- subsidize their profits garnered from staff who must rely on Medicaid, AFDC, SNAP, etc. It will only take one or two years of penalties for even the most dense of employers to recognize they need to pay the proper wages. The data demonstrates that folks like WalMart,McDonald’s, Burger King (among many others) pay minimum or a tad over it- and then claim profits that really are our subsidizing their staff to work for unfair wages. (The wages are unfair because the company is not paying them wages to keep them off “relief”, allowing themselves to be rewarded by profits that are really not earned.)
Finally (at least as far as my long-winded reply goes)- this study failed to determine the answer to your question. But, from my own experiences, when engineering graduate salaries jumped, many firms had to increase the salaries of their existing staff because they – with experience (and at the firm to boot) would be making about the same as the newbies. But, the increases weren’t like the 14% increase in entry salaries- they were closer to 6%. So, there was a shrinking in pay differential. And, with several of our clients, when the minimum wage jumped a buck or so, they didn’t raise existing staff salaries by a $ 1 and certainly not by the percentage change in minimum wage- again a shrinking in differential. However, with time (and profits 🙂 ), the differential was readjusted to reflect experience, longevity, and competency.
A well constructed post. Lots of great content for the uninformed to have a better understanding of wage increases. The jury is still out as to what the long term impact will be and your post gives great food for thought.
I’m fully with you on that long-term trend, Kathleen. Which is EXACTLY why I analyzed the data and was glad I had a chance to speak with one of the authors to seek out what future data will be collected.
Thanks for your visit and the comment.
All I can report on is my own experience, which was, admittedly, many years ago. I was working a part time job in fast food as a military wife. The minimum wage went up. My hours went down. For me, as I recall, it was a net loss. But again, that is the experience of just one person, in one small city in Texas, back in the 1970’s.
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Here’s a follow-up. If your hours went down, Alana, whose went up? did the fast food joint cut hours, too? Unless the hours of another went up or the joint cut operations- or found a way to increase productivity (very hard to do in a fast food joint without significant capital expenditures for new technology- which most of them can’t afford [which is why McDonalds is fronting the money for its franchisees]), something is off.
Wow, that is detailed down to the last detail! I feel for the “little guy”, the ones that work hard to keep their business going but now with wage hikes, may not be able to keep things going. Also, with the wage increase, won’t everything else have a rise in consumer pricing?
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It’s not clear that changes in the minimum wage leads to price hikes ACROSS the economy. And, part of the minimum wage problem has always been the concessions states (and the Feds) proffer then- many don’t pay the minimum wage, since they are allowed to include the tips food workers make in their “minimum wage” computation, Martha.
I, for one, believe that any minimum wage hike should only be imposed on larger firms (say 23 FTE or $ 2.5KK in gross revenue), letting the small guy grow his/her business to that level.