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Skirting the Natural Law
(The Minimum  Wage)

July 3, 2017

In 2014, the Seattle City Council passed and the Mayor Ed Murray signed the nation’s first $15/hour minimum wage law.  Several other cities followed suit.  The law sought for large wage increases seeking to bolster and equalize earnings for less skilled laborers.  A former Presidential candidate, Bernie Sanders, made this topic one of his key campaign issues.  The thinking was, and still is, that the arbitrarily raising wages comes without significant costs, yet effectively transfers wealth.  But a recent investigation shows that this is not the case. 

The Seattle approach flies in the face of traditional economic thought that if costs increase demand decreases.  Two economists Alan Krueger and David Card studied the effect of a small wage increase ($4.25 to $5.05) estimating from the data that this change had little or no negative consequences.  Their study fueled a fire-storm especially among liberal politicians and labor advocates.  We can raise wages substantially without disruption.  Seattle acted first in 2014.  The city raised the wage from $9.50 to $11 in 2015, then from $11 to $13 in 2016.  Several studies, including a recently released study by economists at the University of Washington (UW), found that the first increase had minimal effect.  However the UW group took issue with other studies claiming that the 2016 increase also minimally affected the minimum wage worker.

Seattle has been, and still is, in an economic boom.  Skill and un-skilled laborers are in demand.  Wages in all areas of employment were already increasing as described by traditional theory.  The UW study understood this circumstance and created a study which mast out the boom effect.  This group also had one major advantage, access to detailed wage data across multiple industries.  Other studies claiming to vindicate the effect of the wage increases failed to account properly for the boon-effect wage pressure.
 
The University group studied the laborer market for all wages earning less than $19/hour.  They found that in 2016, minimum wage employees worked 3.5 Million hours less per quarter, lost 5,000 positions, and received $120 Million per year less.  They speculated that work once performed by low earners has been passed on to higher-paid employees.  Our own work experience is congruent with their speculation; when hard-times hit the extra work once done by others is passed on to salaried employees.  Doing so adds zero cost to the bottom line but eliminates job opportunities for entry level employees. 

Adding qualitative support for the University study, Jillian Henze, a spokeswoman for the Seattle Restaurant Alliance, commented “We think the UW study needs to be taken seriously by the city because the data echoes the anecdotes we’ve been hearing.”

Seattle chose to raise their minimum wage during a period where significant natural forces were already increasing worker wages.  Any cry of success from their experience must be taken with “a grain of salt.”  But trying to skirt natural law always results in just that, the results of natural law.  The better approach is for all of us to improve our skills.  The results will be both positive for the worker and the economy.

Mark, Bill and John


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