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UW Study On $15 Minimum Wage Bad News For Liberals...

Minimum wage

If there's anything that will get a healthy dinner conversation going (or get people fighting), it's the idea of the $15 minimum wage.  A better wage for core entry-level workers is hard to argue against as a reasonable person.  I want it to be true as a moderate, but my business focus always makes me wonder - is it actually a good idea?

This is the problem being a moderate.  I'll get 5-7 emails from each side on this post just crushing me for even daring to be in the middle.  Only the polar extremes get the oxygen and attention these days.

Fortunately, there's some research pouring in on the minimum wage that seems to be based on reality, not theory.  

More from the Washington Post

There’s bad news from Seattle for advocates of a $15-an-hour minimum wage law. Turns out the measure’s costs to the city’s low-wage workers have outweighed benefits by 3 to 1, according to a new city-commissioned study by University of Washington researchers. The average low-wage worker has lost $125 a month because of the higher-wage decree, the study found — even before it is fully phased in.

David Autor, a leading labor economist at MIT, told The Post the study seemed “very credible” and suggested that it might have enough “statistical power” to “change minds” in the perennial argument over the minimum wage.

Autor was wrong — not about the study’s credibility, but about its potential for moving people off their “priors.” The Seattle study met a furious counterattack from proponents of a $15 minimum. Defenders of the law came armed with a much rosier assessment of its impact by economists at a pro-labor University of California at Berkeley think tank, produced a few days before the more skeptical one came out.

It seems that Seattle’s mayor, a big advocate of the $15 minimum, had gotten a heads-up on the impending negative study and asked the Berkeley group to weigh in. Seattle Weekly called it “an object lesson in how quickly data can get weaponized in political debates like Seattle’s minimum wage fight.”

Woof.  Go dig in if you dare, but the UW study found that businesses react to the $15 wage by contracting total work hours, which results in low-wage workers in the area losing $125 per month due to the law.  That's interesting.  But if you go look at the Berkley study, you'll see the opposite.

If you really want to geek out, see this article at 538.  It talks about limitations of both studies.

My gut tells me this.  Businesses probably will restrict total hours to low-wage workers when minimum wage hikes hit because the margins for success are so thin.  The left and anyone else can shake their fist and wax poetic about evil owners trying to stay cost-neutral on labor expense.

But the critics don't risk their capital or their livelihood.  Add more labor costs to any business with limited margins and one of two things is going to happen - prices are getting raised or labor cost is getting scrutiny.  Prices are hard to raise from a competitive perspective.

I believe the UW study.  Sucks to be an owner when laws get passed by people who don't have to live with the consequences.  

Comments

Anne

This makes sense. I happened to hear a comment from a local restaurant owner in Portland just yesterday on this topic. He was considering buying a second restaurant in a great location that recently went out of business and is selling for a very reasonable price. He said "I don't know though. With the $15 minimum wage coming it might be tough to make it right now." Just a single observation but a real reaction from a local entrepreneur regarding the increase.

Scott

I have long believed (and continue to believe) that wage floors are a foolish way to address social mobility, wage stagnation or any of the other social impacts of unskilled workers who don't make much money. I've spent over 20 years in recruitment and HR and have never once hired an employee at minimum wage. Not once. I've hired hundreds of people who earn in the lowest quartiles though. I can say virtually without exception that the people I've encountered who aren't able to engineer an improved standard of living suffer from one or more of the following circumstances: they have issues with childcare, they have issues with reliable transportation, they suffer some kind of mental or physical illness that prevents them from doing something other than the most basic work, they lack the skills or will to perform harder or more complex work, they have a criminal history that makes employers reluctant to hire them into desirable jobs, or they are not in this country legally. Even the least skill-intensive jobs pay reliable workers considerably more than the minimum if they prove they'll show up to work and, you know, actually work. In a tighter labor market, you don't even have to prove that you're good to get a higher-paying job.(Mighty Fine Burgers and Fries -- which is awesome, btw -- in Austin advertises pay rates of $11/hour right now).

If you really want to force business to impact income you could impose a reasonable tax that provides:
* Free or subsidized childcare... especially extended hours childcare
* Free or subsidized transportation to and from work
* Job skills training for roles that are typically difficult to fill. Construction, plumbing, aircraft maintenance, dam operations, engineering design... these are all very high-paying trades, with large baby-boomer populations, that will soon be retiring, that do not require a college degree.
* Relocation assistance for people who live in areas that have high unemployment into locations that have low unemployment

NOTE: I'm not saying this is what SHOULD be done. I'm saying that, if you're going to legislate an expense, at least legislate one that actually impacts the root causes of the perceived problem.

That's a bit of a rant, but this subject infuriates me. You don't make something more valuable by arbitrarily pricing it. Water always finds its level and the only thing this ultimately accomplishes is making $15 the new $7.25. Stuff will cost what it costs. And the $15 earners won't be any more able to buy things once the dust settles than they are today. I also struggle with the notion of a national minimum wage that prescribes the same basic pay rate for someone in Pasadena, CA, as Pasadena, TX.

Jeff

Our company has several business units that operate in Seattle. We have positions that are semi-skilled labor positions (there is no such thing as unskilled labor) and positions that are more skilled. Even though the locations are outside city lines, it has caused all employers in the surrounding areas to adjust pay upwards. including our positions. The argument is that why would someone want to do our jobs that can be difficult when they can go to McDonalds and flip burgers for $15. The reality, a 40 hour a week job with benefits, overtime, and a company culture that wants employees to grow and attain higher level positions will always beat a part time job even if we pay $13 and they pay $15.

My rant is that liberals are undervaluing individual initiative and overplaying the evil employer narrative. Employers pay what the job is worth and what the market allows. Most good companies don't pay minimum wage, why? Minimum wage is for the entry level low skilled, first jobs that are not expected to be long-term for the individual.

Scott

Jeff I think you're outlining the fallacy of this whole initiative -- if you're $13/hour is 79% over minimum wage, you're going to have to pay $26.85/hour for the same work. So will everyone else. It might not happen right away. But it will happen. And the $7.25 wage earner is right back in the same situation where this started.

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