Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word

https://www.nytimes.com/2017/07/20/upshot/minimum-wage-and-job-loss-one-alarming-seattle-study-is-not-the-last-word.html

by moritzplassnig • 9 years ago

34 64 9 years ago

nytimes.com

moritzplassnig• 9 years ago

You can find the original study (from the University of Washington) here: http://www.nber.org/papers/w23532

And the UC Berkeley study here: http://irle.berkeley.edu/files/2017/Seattles-Minimum-Wage-Ex...

jessaustin• 9 years ago

Comparing the losses (in yellow) with the gains up to $19 (in maroon) suggests that...

If they're going to pick such non-intuitive colors, why not just have a grayscale graphic? Does this help the colorblind?

cheald3• 9 years ago

David Neumark (who is no stranger to minimum wage research - it's his area of expertise: http://www.nber.org/authors/david_neumark) astutely observed that Card-Kreuger has been widely deployed to exactly that effect (https://twitter.com/NeumarkDN/status/888134129945952256), effectively being used to say "MW is settled, now stop arguing about it".

I'm of the opinion that far too many people on both sides of the issue argue their positions from ideology rather than empiricism, to our collective detriment.

The headline is right - one alarming study isn't the final word, nor should it be. But we seem to be rather quick to let one study confirming our biases to be "the final word" when it confirms our priors, and rather quick to dismiss it as "just one study" when it contradicts them. Neither position is intellectually honest, and if we truly want to help the most vulnerable, we have to do it in ways that are backed by the evidence.

noobermin• 9 years ago

But, I mean, it isn't really an open question is it? My impression is that MW actually has little effect if any on jobs is the scientific consensus.

After a 1 minute google, bam, figure 1, a cluster at 0.[0]

[0] http://cepr.net/documents/publications/min-wage-2013-02.pdf

conanbatt• 9 years ago

The paper is very interesting! Really want to take the time to read it.

Bear in mind there is a matter of degree.

The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

What will define "modest"?

In argentina, minimum wage is almost median real income. 40% of workers work under the table. Id be extremely surprised that lower minimum wage wouldn't increase formal employment tremendously.

downandout2• 9 years ago

The problem with older studies (such as Card-Kreuger) is that technology has advanced to the point where it is possible to replace at least some minimum wage workers, either through outright automation or increased productivity of other workers. Smart business owners will calculate the costs of replacing an employee with technology, and recalculate them whenever the variables change significantly (such as when the minimum wage is increased). If the numbers check out, minimum wage workers can and will lose their jobs.

So, minimum wage increases, worker's comp changes, tax increases, etc. today may indeed spur job losses where that may not have been true before. We are in a brave new world.

boomboomsubban2• 9 years ago

This isn't new. The Card-Kreuger study was performed at a point when many of these companies were first introducing computers for various logistics tasks, increasing productivity and replacing some jobs.

Further, if you say that old studies aren't reliable because it's a brave new world, the predictions you make due to some numbers are also unreliable.

frgtpsswrdlame2• 9 years ago

The headline is right - one alarming study isn't the final word, nor should it be. But we seem to be rather quick to let one study confirming our biases to be "the final word" when it confirms our priors, and rather quick to dismiss it as "just one study" when it contradicts them. Neither position is intellectually honest, and if we truly want to help the most vulnerable, we have to do it in ways that are backed by the evidence.

I disagree with this conception of the problem. As the other downvoted comment links the general consensus is that minimum wage hikes of small/medium magnitude are going to have zero/small effect on employment numbers. People like Card/Krueger because there's a lot of good reasoning in it and it's one of the earliest really good studies that showed the effect it did. But they quote it because the effect that it shows agrees with our scientific consensus. This UW study not only goes against consensus but also to an extreme degree:

The UW report nonetheless finds an unprecedented impact of wage increases on jobs, ten times higher than the average in 942 published minimum wage and non-minimum wage estimates, and triple that of minimum wage critic David Neumark. [0]

The UW study also tries to sell it itself (or has been accepted by laymen) as a more definitive study because it doesn't limit itself to one industry. And while it's true that it's pursuing a larger scope the sampling problems in their methodology have made it almost useless. If you refer back to the pdf in the previous citation and you can read about them. So I think people's skepticism about this study is actually pretty well placed.

[0] http://irle.berkeley.edu/files/2017/Reich-letter-to-Robert-F...

cheald3• 9 years ago

That's just the problem, there isn't a "general consensus" on minimum wage among economists. There is a broad and varied body of research with a variety of contradictory conclusions. A brief overview of the state of the literature is handily summed up here: https://www.reddit.com/r/Economics/wiki/faq_minwage#wiki_emp...

The tl;dr from that section is nicely concise:

The most comprehensive summary that can be made about the minimum wage literature is that while the evidence is sometimes contradictory, small minimum wage increases seem to either have no employment effects or at least quite small employment effects in the short run. Estimates of long-run impacts, or the impact of large minimum wage increases are presently unknown.

Seattle is notable because it was (I believe) the largest MW increase in US history. The research has broadly agreed that with large changes, we don't have evidence predicting what'll happen, which is why this study is of such critical political importance to both sides - if it shows that the MW is a net gain, then the MW proponents get to say "see? no large changes, $15 MW nationwide now!". If it shows a net loss, the MW opponents get to say "see? You can't go past the inflection point without moving backwards, put the brakes on this push".

Card/Kreuger was notable because it was the first robust result that contradicted the consensus at the time. The paper contributed substantially to our understanding of labor economics, and it would have been a major mistake to discount it because it conflicted with the widely-held beliefs at the time. To dismiss the UW study because it contradicts some contemporary research would be just as much a mistake.

moultano• 9 years ago

Much more interesting than the question, "is minimum wage good or bad?" is the question, "what policies accomplish the goals of minimum wage more effectively?" I wish half of the ink spent debating the sign of the impact of minimum wage were spent on that instead.

Pyxl101• 9 years ago

Yes. Much of the political rhetoric about the minimum wage seems to ignore obvious questions like, "What happens to the people whose labor is only worth (e.g.) $12 per hour, when the minimum rises to $15?" What problem are we really trying to solve by making it unlawful for people to hold a job, people whose labor is worth less than the minimum wage? Making it illegal to work (for a certain wage) is certainly a roundabout way to help poor people, if that's the goal.

There are certainly people in any economy whose labor is not worth the total cost to an employer, for any given price. For an obvious extreme, consider a minimum wage of $1000/hour: this would not magically make everyone rich; instead, it would create a giant black market for labor. Intuition says that $1000/hr is obviously the wrong number. But what really is the justification for saying that $5 or $10 or $15 per hour is the right number? If the goal of such a policy is to help the lower class earn more, then minimum wage seems like a very indirect and blunt instrument by which to effect it.

frgtpsswrdlame2• 9 years ago

Other policies which accomplish the goals of the minimum wage are redistribution and a jobs guarantee. And much more than half the ink spent on the minimum wage has been spent on redistribution. We only talk about the minimum wage because it is actually less politically fraught than the alternatives.

tuna-piano• 9 years ago

Posted in a previous thread, but I still don't understand this whole "Minimum wage is good/bad" conversation, and it's really bothering me (especially from economists).

------

Every minimum wage increase is different!

Even the staunchest free market economist wouldn't claim that a hypothetical minimum wage increase from $.10/hr to $.50/hr in Seattle would increase unemployment. And even the staunchest socialist economist would not claim that a minimum wage increase from $8/hr to $800/hr wouldn't increase unemployment.

Similarly, how can you compare an increase from $5-6 in New jersey in 2005 to one from $11 to $13 in Seattle in 2017? You can't just make blanket statements about this stuff.

The question is not "Are minimum wage increases good in general?" the question is "Given the potential tradeoffs, is this specific minimum wage increase good?"

cheald3• 9 years ago

I'm not aware of any academic economists who say "the MW is good/bad". They talk about it terms of positive and negative effects, and frequently qualified to a particular location or industry (read both UW studies, for example; the researchers generally tend to present their findings without editorialization). When it hits the media, it gets blown out into sensationalist headlines that apply broad-stroke good/bad filters to the concept as a whole without any of the subtlety or nuance of the original research.

AnthonyMouse7• 9 years ago

The question is not "Are minimum wage increases good in general?" the question is "Given the potential tradeoffs, is this specific minimum wage increase good?"

That still isn't the right question because it's a false dichotomy.

At any interesting wage, a minimum wage increase will increase unemployment. An increase from $.10/hr to $.50/hr does nothing because approximately zero people make less than $.50/hr to begin with. Once you get into wages that people are actually paid, with high probability there will be some jobs that can't be justified at a higher wage.

Imposing a minimum wage is taking from the people at the very bottom (who become unemployed) in order to give to the people at the almost-but-not-quite bottom. Which is why the whole exercise is folly.

It doesn't matter whether the higher wages outweigh the increase in unemployment in any particular scenario because there is a third option -- increase income without imposing the entire cost on employers who hire people at the bottom.

The simplest way to do that is a UBI. The UBI supplements everyone's wages, which brings up the lowest paid workers to the minimum, and is paid for from general taxes, which minimizes the economic damage by spreading out the burden (and having the rich pay their proportionate share).

xname2• 9 years ago

It's funny, if you really believe yourself, how could you ask the final question? How can a minimum wage increase in one rich neighborhood be compared to a poor neighborhood? How about different industry? How about different businesses? The assumption of your question is a deep believe of central planning and numeric abstraction of the society, which is an ideology. So stop pretending you are free of ideology.

esaym2• 9 years ago

I'm of the opinion that far too many people on both sides of the issue argue their positions from ideology rather than empiricism, to our collective detriment.

And some of us just use math. If a company is barely profitable already, being required to pay more for labor probably won't work too well.

CalChris3• 9 years ago

You aren't using math. You're just cherry picking hypothetical data. McDonalds and Walmart are not barely profitable; they're extremely profitable.

jostmey• 9 years ago

I remember my last visit to Baltimore. I saw a lot of homeless people. I saw a lot of buildings in need of repair. There were people needing work and work needing to be done (fixing buildings). I was left wondering what was preventing the economy from functioning.

Every side of an argument has an element of truth. Businesses will not pay people more than they must, which can be a problem if people don't have enough money to buy propping up the economy. And for every rich philanthropist, there's probably ten donald trumps.

jackvalentine• 9 years ago

I'm not sure how accurate the little graph google gives you when you search "baltimore population" is, but it looks like the population is falling.

Less people means less commerce which means less demand for buildings. Perhaps those rundown empty buildings have not enough value for someone to invest in fixing them up (and therefor, have no incentive to employ people to do so).

kitcar• 9 years ago

You may be assuming incorrectly that there is work that needs to be done - if there is no one who wants to pay to use the building, there is no reason to fix it (i.e. just because an asset exists doesn't mean there is demand for it)

c0nducktr2• 9 years ago

And you may be assuming those who wish to fix and use the building have the capital required to do so.

boona• 9 years ago

Every side of an argument has an element of truth.

Agreed. To have an honest discussion about minimum wage, it's important to recognize that it's two things at the same time. First, it's a minimum wage which most people are familiar with, but second it's also a law that makes it illegal for low skilled workers to get jobs. Yes, we're helping some people earn a better living, but we're also not allowing people to work if an employer or employee aren't creative enough to find a way to make them more productive. It's a trade off, and that's one reason why it's more complicated that most people realize and why a dialog needs to be created around the topic.

ende• 9 years ago

It's a real shame that you are being downvoted simply for being right.

c0nducktr2• 9 years ago

I remember my last visit to Baltimore. I saw a lot of homeless people. I saw a lot of buildings in need of repair. There were people needing work and work needing to be done (fixing buildings). I was left wondering what was preventing the economy from functioning.

I'm reminded of this image: http://i.imgur.com/mwfN4cM.jpg

For those using screen readers, the image is of a poster containing the following text:

If you're unemployed, it's not because there isn't any work. Just look around: A housing shortage, crime, pollution; we need better schools and parks. Whatever our needs, they all require work. And as long as we have unsatisfied needs, there's work to be done.

So ask yourself, what kind of world has work but no jobs. It's a world where work is not related to satisfying our needs, a world where work is only related to satisfying the profit needs of business.

This country was not built by the huge corporations or government bureaucracies. It was built by people who work. And, it is working people who should control the work to be done. Yet, as long as employment is tied to somebody else's profits, the work won't get done.

ucaetano2• 9 years ago

"So ask yourself, what kind of world has work but no jobs."

The article gets it completely wrong. A world with a high minimum wage has work to be done, for example, but no jobs.

There's always work to be done. The existence of jobs depends on somebody willing to pay someone the market rate for that job. In many cases, the market rate is too high for the value of the work performed.

Minimum wage essentially outlaws all work that generates less than a certain value.

bsder• 9 years ago

At the very least, the "control group" in this study seems problematic:

"But a quick look at the data suggests something else may be going on. Between the second quarters of 2014 and 2016, earnings in Seattle grew by an incredible 21 percent, as opposed to 6 percent in parts of Washington outside the Seattle area. And the first quarter of 2016 was exactly when the very large gap in overall wage growth between Seattle and rest of the state (where the control group comes from) really opened up, coinciding with the timing of the job loss found by the University of Washington team. At this point we don’t know enough, but clearly there are some missing pieces to this puzzle."

And, I'm kind of surprised they are matching to the rest of Washington rather than against Vancouver, Tacoma or Spokane only. The rest of Washington is so different that I just can't imagine it being a useful "control".

WheelsAtLarge• 9 years ago

I'm a supporter of people earning a living wage. The problem with raising the minimum wage is that no matter what the minimum is it will never be enough. Nobody want's to earn minimum after you've worked at the same place for years and have someone new come in and earn the same on the first day on the job. Once minimum hits everyone wants a raise too and inflation picks up, eventually the problem returns. It's human nature. Additionally technology will be brought in to reduce costs by reducing jobs.

The fix is to give every one that needs it an income credit. Right now it's only possible through the federal income tax, but you need to qualify, but it should also be in the state income tax too and the qualifications should be income only. Let's say you worked 2080 hours for the year then for every hour you worked you should get some amount that will raise your income to some agreed on minimum.

This has the benefit of stopping the tit for tat raises.

axaxs• 9 years ago

It kind of is. I'm not against a higher minimum wage...in fact I welcome it. But let's be honest, it's going to crush small businesses and force larger ones into automation. The real problem is that this cuts into the unskilled lifeline. Unskilled labor is dying, these people must learn a trade. I have no hypothetical solution for those unable or unwilling, sadly, outside of UBI which presents its own issues.

neilwilson2• 9 years ago

Try creating jobs and pay people for doing them. Look around and you'll see there is much to do.

It's not hard once you get beyond the mistaken idea that the private sector creates jobs. It doesn't and doesn't want to. It creates them only because it has to.

microcolonel• 9 years ago

Minimum wage laws don't tend to increase real wages, at best they reduce hours. In some cases (data indicates this in Seattle) the reduction in hours overshoots the increase in rates. Labour has a utility to employers, and if the employee can not provide utility that the employer can translate into more than a minimum wage's worth of value, then they simply can not be hired for that rate at that time.

I am taking time away from work right now, which is possible due to my frugal lifestyle and fairly high skills. I would love to do part time work to keep me on my feet, even below minimum wage. There are endless things around town that I'm sure somebody is willing to pay something for.

There is no such thing as a living wage, there might be such a thing as a living salary. Due to good planning, my expenses are tiny, my living income would be maybe two thirds of the U.S. poverty threshold (in the U.S. I could still afford health insurance at or below the poverty line with my other expenses), and that's in a real city.

known• 9 years ago

Does minimum wage provide impetus to https://en.m.wikipedia.org/wiki/Maslow%27s_hierarchy_of_need...

neilwilson2• 9 years ago

The problem is one of perspective, and looking at the problem from the wrong point of view.

We want jobs replaced by technology. That is, after all, one of the reasons we're all in this technology game. It is what drives forward productivity and leads to an improved standard of living.

The issue is seeing the private sector as the creator of jobs. It is not. It creates jobs only as a side effect of investing capital. If a capitalist can get the entire job done by machine, they will do - unless human labour is very, very cheap.

So to get the investment effect we need labour to be expensive.

And that means that the private sector isn't the place to look for jobs in the long term. The public sector has to create them so there are always more jobs that there are people: https://medium.com/modern-money-matters/running-a-modern-mon... Then the private sector has to compete for labour, and will choose to invest to eliminate jobs more often than not.

The issue was best described by Kalecki in the 1940s.

"It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system."

http://web.archive.org/web/20170202134920/http://mrzine.mont...

Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word

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