Just because one social experiment appears to be yielding disappointing effects to date is no reason to stop experimenting. Only by trying new ideas and carefully assessing their impacts can we hope to improve the social well-being of the nation.
U.S. Supreme Court Justice Louis Brandeis wrote: “a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” Seattle’s Minimum Wage Ordinance, passed in 2014, exemplifies courageous experimentation by a local government.
The ordinance aims to increase earnings of low-wage workers as one response to the troubling rise in income inequality and stagnant wages of low-wage workers. There is national and international interest in knowing how it is working. Unfortunately, not all social experiments work entirely as planned.
On April 1, 2015, the ordinance raised the minimum wage for Seattle employees from the state’s minimum of $9.47 to $11 for large employers. On Jan. 1, 2016, the second phase-in period started, when the minimum wage reached $13 for large employers — 37 percent higher than the state minimum wage at that time. Since January of this year, the minimum wage for large employers has been $15.
We are part of a multidisciplinary team of researchers at the University of Washington commissioned by the city of Seattle to study the impacts of the ordinance. The team has also received support from several nonpartisan foundations. This week, we released a paper containing some of our early findings.
Our research found that during the second phase-in period, hourly wages paid to low-wage employees increased, as intended by the ordinance. However, our estimates also suggest that the higher wages led to the elimination of more than 5,000 low-wage jobs. Standard economic theory predicts that employers will reduce their demand for labor given a higher wage. In percentage terms, the loss of jobs was significantly larger than the gain in hourly wages. As a result, while some low-wage workers may have earned more, we estimate that the net earnings per low-wage job in Seattle fell by an average of $125 per month. For low-wage workers, this is a substantial loss.
There is much that we don’t yet know, and conclusions on the merits of this policy should wait until we have additional information. When data become available, the team will evaluate the ordinance’s longer-term impacts on work and earnings after the minimum increased to $15 this year. The team will also evaluate the ordinance’s impacts on the distribution of earnings (e.g., teenagers versus heads of families, men versus women), overall family income, the prevalence of poverty, child-support payments, health and use of safety-net programs. Policymakers and Seattle citizens may be willing to accept some loss in low-wage employment if they perceive the distribution of gains and losses favorably.
It is likely that passage of Seattle’s law gave momentum to efforts to raise the state’s minimum wage, culminating in passage of Initiative 1433 in 2016 (as well as boosting efforts in other cities and states). As the state minimum gradually rises to $13.50 in 2020, the gap between the state’s and Seattle’s minimum will decline. We would expect this decline to mitigate, but not eliminate, the job and earnings losses in Seattle.
What are the lessons of these findings for policymakers? We see three.
First, our findings should give some pause to other local governments that are considering setting a local minimum wage significantly above their state’s minimum wage. While we are surprised by the magnitude of the estimated loss in hours, we are not surprised to see some loss of low-wage employment caused by a local minimum wage. It is easier to relocate low-wage employment outside city boundaries than it is to relocate employment outside a state or country. Consequently, we should expect greater employment losses from a local minimum wage than from a state or national minimum wage. This means, in turn, that one should not assume our specific findings generalize to minimum-wage policies set at the state or federal level.
Second, local and state governments can use numerous other public policies to reduce inequality and promote economic opportunity. These include additional funding for pre-K child education and care, K-12 and higher education, apprenticeship programs, earned income tax credits and tax reform.
Third, just because one social experiment appears to be yielding disappointing effects to date is no reason to stop experimenting. Seattle, the state of Washington, and the nation face many challenging, long-standing social problems. Only by trying new ideas and carefully assessing their impacts can we hope to improve the social well-being of the nation.
Seattle has provided entrepreneurial leadership in many areas of social policy. We commend the city’s leaders for providing this policy leadership and having the willingness to fund research to evaluate impacts of policy changes. While the findings sometimes disappoint advocates for the policy, good governance relies on being receptive to new information and a willingness to adapt, if necessary.