Seattle’s $15 Minimum Wage

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Seattle’s minimum wage is now $15 per hour at large companies that do not provide health insurance. A recent study by scholars at the University of Washington calculated that the mandated hike has actually cost the average worker about $125 per month. There’s a lot of misinformation circulating about this and a competing study with different findings, so let’s break it down.

Whenever a study reinforces an element of free enterprise, the leftists immediately begin to criticize the methods. See http://fortune.com/2017/06/27/seattle-minimum-wage-study-results-impact-15-dollar-uw/ for an example. Of course, economic studies like this are not easy to design. Identifying the job and income effects of a minimum wage increase in a single city is difficult given all of the other possible influences. Critics can reasonably question the results of this or any study of its type and scope, but to really understand what’s going on, you have to blend the findings from multiple academic studies with a healthy dose of common sense.

Research on the effects of a higher minimum wage is mixed, but few scholars dispute its negative effect on employment. The socialist’s best argument is to acknowledge the reality that some workers will be laid off or won’t get hired in the first place, but that others benefit by earning more. But we know that when the cost of labor or any other “raw material” increases, companies have several long-term options. They can pass the increase on to buyers, try to get by with fewer workers or fewer hours, or replace workers with automation where feasible. Those who don’t understand economics often assume that companies will simply absorb the higher costs and earn less, but this simply doesn’t happen over the long haul.

Companies often pursue a combination of these alternatives. For example, a restaurant faced with mandated higher wages might trim hours overall, not replace the next few departing workers, purchase pre-cut vegetables that require less labor in the store, and raise drink prices. Inevitably, some workers will retain their jobs and benefit from the increase, but there are serious, negative, unintended consequences. Marginal, inexperienced, and less qualified workers will struggle to find work and maintain sufficient hours because the value of their labor does not align with the mandated wage. Customers might forego dessert or even eat at home, and those who are willing to pay more to eat out will have less to spend elsewhere. Companies struggling to break even might call it quits altogether, and individuals planning to start a new business might delay or reconsider. It’s difficult to determine the extent to which each of these alternatives is pursued because nobody knows exactly what would have happened otherwise. But we do know the options, and most of them are destructive to individuals and the economy.

We also know that individual lives improve and economies grow when people are more productive, and this is less likely to happen when employers are required to pay more for the same quality of labor. There’s no such thing as a free lunch.

5 Comments

5 Comments

  1. LarryG  •  Jul 7, 2017 @7:24 AM

    This is common sense analysis. An academic study can prove anything, but it can still be fake news.

  2. millen388  •  Jul 7, 2017 @8:39 AM

    We don’t need a higher government wage. We need better jobs that pay more anyway.

  3. RR  •  Jul 7, 2017 @7:01 PM

    I get the point but min wage isn’t a big deal. Requiring companies to pay a fair wage makes sense. They can adjust.

  4. tomc  •  Jul 9, 2017 @8:29 PM

    If the minimum wage is low doesn’t this just keep the company from screwing their workers? So how much is $15 anyway???

  5. trigger  •  Jul 12, 2017 @9:14 PM

    If you don’t want to work for $10 an hour, don’t take the job. It’s not the job of politicians to give you a higher wage.

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