Studies look at what happened when cities raised minimum wage
Raising the minimum wage doesn’t have a drastic, negative impact on employment, according to university researchers who have studied pay hikes in other cities.
Seattle Times staff reporter
Ten years ago, San Francisco raised its minimum wage from $6.75 to $8.50 an hour, a 26 percent increase. Since then, it has gone up at regular intervals to its current $10.74 an hour, the highest big-city starting wage in the country.
The city has slapped other mandates on businesses, including paid sick leave and a requirement to provide health-care coverage or pay into a pool for uninsured residents.
What have the effects been on employment?
Almost none, according to economists at the University of California, Berkeley, who have studied San Francisco, eight other cities that raised their minimum wages in the past decade, and 21 states with higher base pay than the federal minimum.
Businesses absorbed the costs through lower turnover, small price increases at restaurants, which have a high concentration of low-wage workers, and higher worker productivity, the researchers found.
The average increase among cities raising the minimum wage was 40 percent. The average step increase for a phased-in pay hike was 17 percent.
“Our data show that an increase up to $13 an hour has no measurable effect on employment,” said Michael Reich, a Berkeley economics professor with the Institute for Research on Labor and Employment.
Still, Reich, whose work has been cited by President Obama in pressing for a higher federal minimum, stopped short of saying there would be no significant impact if Seattle leaders were to raise the minimum wage here to a proposed $15 an hour, a 61 percent jump.
“We have not studied what would happen at $15,” Reich said.
In San Francisco, nonprofits and businesses with fewer than 10 employees were given two years to implement the higher pay.
Santa Fe allowed the phase-in of its 65 percent minimum-wage increase for businesses with fewer than 25 employees. For larger businesses, the minimum jumped from $5.15 to $8.50 an hour in 2004. (It now sits at $10.66.)
A study two years later by the University of New Mexico Bureau of Business and Economic Research found “no discernible impact on employment per firm.” Employment in the city actually went up slightly, and did better when compared with Albuquerque, which didn’t raise its minimum wage.
The study was done by Nicholas Potter, now a researcher at Washington State University. He said some businesses in Santa Fe did close and some said it hurt their competitiveness. But workers were overwhelmingly positive about the pay hike. And the fear of massive restaurant closures didn’t happen, he said, though the cost of eating out did go up some.
“It seemed to have helped workers and not hurt business too much,” he said.
Cost of eating out
Potential price increases at restaurants was the biggest negative impact identified by the Berkeley researchers. The cost of eating out went up 2 to 3 percent when the minimum wage rose 25 percent. That means dining out in Seattle could go up as much as 7 percent if the city goes to $15 an hour.
But another Berkeley researcher said there isn’t an overwhelmingly negative impact on any type of business where the minimum wage has been raised.
“There is considerable churn among small businesses. Firms are going out of business and new businesses are rising all of the time. What is important from the research is that you do not see a net decline in employment as a result of the minimum-wage ordinances,” said Ken Jacobs, chairman of the Berkeley Center for Labor Research and Education.
Other economists say there are more negative effects, particularly for the youngest and least-skilled workers who might lose hours and see the number of entry-level positions reduced in favor of more skilled workers.
Joseph Sabia, an economics professor at San Diego State University, said his research on the effects of the proposed jump in the federal minimum wage found that fewer than 15 percent of minimum-wage workers live in poverty.
“In contrast to the myth that a common minimum- wage worker is a poor single mother head-of-household struggling to make ends meet, the typical minimum-wage worker is actually a second- or third-earner in their 20s from a nonpoor household,” Sabia said.
A study by the Congressional Budget Office last month found that raising the federal minimum to $10.10 would boost the earnings of 16.5 million workers, but an estimated half million would lose their jobs.
And with Seattle contemplating a 61 percent jump, low-skilled employment could drop as much as 18 percent, Sabia said.
One critic of the minimum-wage hike said it could lead to increased automation at fast-food restaurants, such as touch-screen displays instead of cashiers taking orders, or robots capable of making 360 burgers in an hour.
“When talking about a $15 minimum wage, you’re going to a level that’s somewhat unprecedented,” said Michael Saltsman, research director for the Employment Policies Institute, which is partially funded by the restaurant industry.
“A 60 percent increase in labor costs doesn’t just wipe out profits at a typical restaurant, it wipes them out four times over,” he said.
Seattle Mayor Ed Murray in January convened a 23-member committee of business, labor and civic leaders to consider raising the minimum wage in Seattle to $15 an hour from the current state minimum of $9.32 an hour, the highest state rate in the country.
The committee is supposed to deliver a proposal to Murray by the end of April. The City Council also is examining the issue and is expected to consider the mayor’s proposal and make a recommendation. Advocates have vowed to place a measure on the November ballot to set a $15 minimum in the city starting Jan. 1, 2015, if they don’t approve of the city’s proposal.
Murray has asked researchers at Berkeley and the University of Washington Evans School of Public Policy to examine the economic impact of raising the base pay to $15 an hour.
The UW researchers are trying to identify who in the city currently earns the minimum wage, who makes between minimum wage and $15 an hour, where they work and where they live.
“We said all along that this was going to be a conversation informed by data. The Berkeley research will give us a look at the experience of other cities with the minimum wage, and these results will factor into the Advisory Committee’s negotiations. We’re also studying Seattle’s own profile of low-wage workers, and those results will be a key consideration for the Advisory Committee as well, ” Murray said in an emailed statement.
Lynn Thompson: firstname.lastname@example.org or 206-464-8305. On Twitter @lthompsontimes
Information in this article, originally published March 12, 2014, was corrected March 13, 2014. A previous version of this story incorrectly stated the name of the organization Michael Saltsman works for. It is the Employment Policies Institute.