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Blue Model Blues
Early Data Undermine Minimum Wage Romanticism

Over the last two years, a handful of liberal American states and localities embarked on an unprecedented experiment: They passed laws that will gradually increase their minimum wages to $15 dollars per hour, a far higher wage floor than the country has ever seen. Champions of #Fightfor15 cast their cause as a moral crusade on behalf of low-wage workers and against big business, brushing aside concerns (including from a number center-left economists) that such a radical hike could increase unemployment.

The national experiment is still in its infancy, so it’s impossible to draw final conclusions. But reliable early data out of Seattle, the city that brought the $15 minimum into the mainstream, suggest that the measure is not exactly the panacea that its righteous advocates had promised. Though the city’s increase is not even close to complete—it went up to $11 from $9.47 last year, and won’t hit $15 until 2021—it has already knocked workers out of the labor force. And for low-wage workers who kept their jobs, the effect on compensation was trivial. The Washington Post reports:

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. […]

[T]he 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. […]

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.

Seattle is a bustling urban center with a high cost of living and a strong economy, and even a modest minimum wage hike meaningfully slowed job growth. How many jobs will be lost when the city’s minimum goes up to $12, and then $13.50, and then $15? And more importantly: What will happen to states like California and New York, which are set to impose $15 wage floors not only in their major urban centers, but on their entire states—including vulnerable regions where jobs are far less plentiful and median incomes are far lower? The damage to certain local economies could well be devastating.

The $15 minimum movement may be a reckless experiment on less-skilled workers, but at least the City of Seattle has commissioned a team of respected economists to track the results. Hopefully other states and localities do the same, and are prepared to change course if things don’t go as planned. But seeing as this movement was always based more on wishful ideology than empirical evidence, we aren’t holding our breath.

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  • Anthony

    Here’s an observation: with 70-80% of workforce in the service sector, has productivity growth been sufficient to sustain $15.00 floor. In other words, does purchasing power (at first approximation) correspond to value of services (can an hour’s work of typical baseline wage earner generate enough output per capital for economic growth).

    • Boritz

      In many cases it doesn’t even produce sustainability which would be a big deal if we were talking about some animal habitat instead of people.

      • Anthony

        If not a big deal, then why contretemps.

        • seattleoutcast

          I really cannot understand what you say most of the time.

          • Anthony

            You are not the audience (no disrespect intended).

    • WestCoasterGuy

      It’s not just productivity growth (which itself is variable from position to position and sector to sector), it’s also just plain supply and demand, and there are not only too many low wage workers chasing too few jobs, we are letting a seemingly unlimited amount of new labor cross our borders daily. Setting a minimum wage will, at best, dictate that the winners in this market will get a little bit more, but it will ruthlessly lock out the losers.

      • JR

        In short, it will become a lot less American and a lot more French. Yikes what an unpleasant prospect.

      • Anthony

        Practically and from market perspective, you’re on target and underscore title of Post. Still sector and job variability aside, the issue turns on real growth (both demographic and per capital minus inflation).

    • f1b0nacc1

      From the work I have done with companies that are pursuing automation (and most of these are looking at the low- and semi-skilled sector), no, there hasn’t been anywhere near enough productivity growth to sustain that sort of increase. Much more to the point, the growing level of non-wage compensation (i.e. Obamacare, mandated benefits, etc.) that already exist (or might exist under a putative HRC administration) would make such labor even more expensive.
      With this in mind, you not only will not such much growth in those sectors, you will see shrinkage as the falling capital costs associated with automation ‘cross’ the rising labor costs, resulting in significantly higher levels of job displacement through automation. This doesn’t even begin to take into account the point made by WestCoasterGuy (below) regarding the impact of an endless amount of imported labor, most of it in the lower skill ranges.

      • Anthony

        OK. Post infers as much.

    • seattleoutcast

      No.

  • Pete

    More liberal folly.

  • Fat_Man

    I just don’t understand why they were such pikers. Why are they cheating these poor people out of the money they need to get by. I think the minimum wage should be at least $30/hr.

  • seattleoutcast

    I can tell you that many Millennials think they deserve the wage increase because it’s unfair to live in a city with such a high cost of living. They honestly think that they are the first ones to endure such hardships! I used to think that Millennials had an undeserved reputation for entitlements, but I no longer believe that. Direct experience with this generation tells me that they were never told how to handle adversity and that a handout wasn’t an entitlement but a deserved payout.

    My only hope is that older Millennials, who are now in their early thirties, are probably wondering where their tax dollars go. They might become more conservative as they realize they have to pay the bills.

  • JR

    What???? Demand curves slope downward??? No way… NO WAY!!!!
    Did they try confiscatory taxation above a certain level? I hear it’s the “in” thing to do.

  • LarryD

    In L.A. the unions want to be exempt. Now, I wonder why. 🙂

  • Andrew Allison

    Is it really beyond the wit of progressive man to grasp that the cost of labor must be less than its value, or is this simply more pandering?

    • f1b0nacc1

      The progs have replied that since higher incomes will inevitably result from all of this (such touching faith…apparently ‘elasticity’ is a concept they aren’t familiar with), it will all balance out since more money = more demand for labor.

      Come now, you read FG’s comments here all the time, do you really find the disconnect between rising costs and lower demand in the thinking of the left surprising?

  • S. W.

    Another “article” with questionable merit. Who did the research and who are the economists and who wrote the article? When it says “..actual benefits to workers might have been minimal…” [emphasis on might] does that imply that it ‘might’ also not?

    In a world of social media “News” we should be very critical of what we read and where we get our information from. I am not implying that the data in the article fact IS false, but I read it with a big spoon of salt.

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