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Unintended Consequences: Why $15 an Hour in California and Seattle Reduces Employment for Low-Wage Workers

Cover image courtesy of @albertacantwait on Twitter
Cover image courtesy of @albertacantwait on Twitter
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“The minimum wage law very clearly is misnamed. The real minimum wage is zero. That is what many inexperienced and low skilled people receive as a result of legislation that makes it illegal to pay them what they are currently worth to an employer,” wrote Thomas Sowell, noted economist, social theorist, and Senior Fellow at Stanford’s Hoover Institution, in Basic Economics: A Citizen’s Guide to the Economy.

The minimum wage was never meant to be an income to live off of and support a family with. It was meant to be an entry point into the workforce for low skilled workers or people getting their first jobs. The left continues to clamor for $15 an hour as the minimum wage, ignoring the simple economics that make this push absurd on its face. But this economic trend is only accelerating in cities and states, especially on the West Coast.

The city of Seattle became the first big city to institute a $15 minimum wage which started in 2015 for the largest employers (500+ U.S. employees), who were mandated by the new law to pay any employee, regardless of their skill or experience, $15 an hour. Smaller companies (500 or less) must start paying $15 starting January 2019.

While Seattle’s city leaders had noble intentions, wanting to put more money into the pockets of hard-working low-wage workers, its reckless policy will have a catastrophic effect on the very people it was intended to help. And early data shows that job losses and reduced hours are mounting. The implementation of this high minimum wage will result in the loss of employment and accelerate automation in a number of industries, especially retail, services, and hospitality/accommodation. Many business owners already operate with razor-thin profit margins and Seattle’s minimum wage has made it illegal for employers to pay employees what they are actually worth to their business.

Seattle is the most aggressive minimum wage policy the country has seen so far. The socialists running Seattle ignore basic economics and believe the added income low-wage workers will have following the higher minimum wage will offset any added employment costs to businesses and there will be a minimal, if any, decrease in employment.

Here are two studies that tell two different stories of the early effects of Seattle’s minimum wage experiment.

To no one’s surprise, the uber-liberal University of California Berkeley released a study in June 2017 evaluating the effects of the increased minimum wage in Seattle from 2009 and 2016. Examining the restaurant industry specifically, the Berkeley study found that for every 10 percent increase in Seattle’s minimum wage, restaurant industry wages for low-wage employees increased only 1 percent. Fast food workers enjoyed the highest wage increases with a 16.7 percent increase over the seven year time period while full-service restaurants jumped only 4.2 percent. The study found no decrease in employment following the increased minimum wage and declared the $15 measure a resounding success so far. Nevertheless, it bears repeating that wages in the restaurant industry rose only 1 percent while the Seattle minimum wage jumped by 10 percent.

Something doesn’t add up in the Berkeley study.

A much more damning study was conducted by a school much closer to ground zero at the University of Washington. Released July 2016, it took a broader look at the real impact on the minimum wage increase, relying on unemployment insurance data from the Washington Employment Security Department. While the study found that wages did increase by $1.18 per hour for low-wage workers, the chances these low-wage workers decreased by 1.1 percent. Furthermore, the average number of hours each employee worked fell by 7.5 to 9.9 hours in 2015. While the study excluded approximately 40 percent of businesses, it still covered a more complete section of the economy than the Berkeley study, which only looked at restaurants. The UW study proves how making labor more expensive will have a negative impact on those workers the government is trying to help. In retail and restaurants especially, business owners will be forced to reduce hours, lay off employees, and move to more automation in order to survive. The number of hours worked by low-wage workers fell by 3.5 million hours per quarter once the minimum wage increased to $13 an hour, according to UW researchers.

Despite the troubling results from Seattle, other cities are following its lead. Los Angeles, for example, is poised to raise its minimum wage to $15 an hour by 2020. Flagstaff, Arizona is set to reach $15 by 2021.

Spiking the minimum wage in individual cities is one thing. At this local a level, its effects can be contained and cities can experiment with this policy if they think it best suits its population.

However, California is moving full speed ahead to become the first state in the nation to have a statewide minimum wage of $15 an hour. In 2016, Gov. Brown signed into law a $15 an hour minimum wage in California. A state as diverse as California cannot have a minimum wage this high without significant drops in employment, as I will outline below.

A December 2017-released report from The Employment Policies Institute (EPI) laid out the many consequences of raising the minimum wage to $15 across the most populous state in the country. The EPI is a fiscally conservative non-profit think tank that conducts research on employment issues. First established in 1991, it has become the go-to research organization for studies on issues related to entry-level employment.

The EPI compiled significant evidence to support why a 10 percent increase in the minimum wage would cause a 5 percent drop in employment in industries where half of employees earn close to the current minimum. By 2022, when the wage will jump to $15 an hour in the Golden State, approximately 400,000 jobs could be lost, around 4.1 percent of total employment in EPI’s sample. And that is a conservative estimate by the EPI.

More than half of the projected jobs lost will be in three industries: accommodation, food services, and retail trade. The federal minimum wage will be $7.25 per hour in 2022. If current laws remain in effect, this will be the largest gap between a state and federal minimum wage law in U.S. history. Anywhere from 9.5 to 10.7 percent of jobs are estimated to be eliminated by 2022 or later in the industries with the most low-wage workers, including agriculture, forestry and fishing, accommodation, and food services. The predicted job loss will be the greatest in accommodation and food services (-123,000) and retail trade (-77,000), accounting for about half of the jobs lost in its forecast of sampled industries and counties.  

Between January 2017 and January 2023, California state law has a lower minimum wage for smaller companies (25 employees or less) than the $15 per hour for larger employers starting in 2022. But these small businesses will have to fork over $15 for every employee by the start of 2023. Below is a table outlining the minimum wage increases from 2017 to 2023.

Schedule for the new state minimum wage increase in California
Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More
January 1, 2017 $10.00/hour $10.50/hour
January 1, 2018 $10.50/hour $11.00/hour
January 1, 2019 $11.00/hour $12.00/hour
January 1, 2020 $12.00/hour $13.00/hour
January 1, 2021 $13.00/hour $14.00/hour
January 1, 2022 $14.00/hour $15.00/hour
January 1, 2023 $15.00/hour

Democrats will ignore these disastrous consequences stemming from a $15 minimum wage. They would rather signal their virtue instead of actually implementing policies that will help people struggling to make ends meet. They claim to care about equal pay for equal work, making a living wage, and helping the poor. But making entry-level, low-wage work this much more expensive over such a short period of time in California will result in higher unemployment from the very people they are trying to help!

Another telling example comes from our Canadian neighbors to the north, in Calgary, where the minimum wage is scheduled to be $15 by October 2018. Before even getting to the full increase, the service sector has reportedly lost 25,700 jobs over the last year, according to the city’s labour market review for July.

If you’re making minimum wage or close to it, here’s my advice. Work hard. Show up early. Be responsible. Take initiative. Be accountable. Never settle. Get educated. Go back to school. Go to a trade or vocational school. Find something you are passionate about or that gives you purpose. You cannot teach work ethic. Don’t be lazy. Don’t do the bare minimum. Don’t say you will do something. Do it. Lead by example. Be determined. Be strong. Be the best worker you can be and use everything at your disposal to build a better life for yourself. Living on a minimum wage is simply a starting point. Demand more money. If a job does not pay enough for you, find another job that does! There are plenty out there.

Pushing for $15 an hour will destroy many people’s lives by eliminating the job altogether. We are already seeing significant job losses in cities that have made the shift to $15. Making labor this much more expensive will only accelerate automation in a number of industries, especially retail and restaurants. And areas that rely on low cost manufacturing labor will move their factories elsewhere. We need to focus less on raising the wage floor and put more time and energy into retraining our workforce for the jobs that are available and remain unfilled due to lack of qualified labor.

California should’ve learned from Seattle and stayed away from $15 an hour. Too late now. Stay tuned for a spike in low-wage unemployment by 2022 and more computers to order from at your local fast food joint. 

 

Over 450 American Companies Penalized Over $9 Billion for Cheating Workers Out Of Their Wages

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17 Comments

  1. Gail Ladella August 19, 2018

    POLICTIANS are too STUPID to realize that

    Reply
    1. Walter Yeates August 19, 2018

      The data presented here is incorrect. Paying workers a living wage is more than possible if politicians weren’t supporting agorist policies which give billions away to the top 10% of wage earners.

  2. Joseph Mangano August 19, 2018

    There is any number of criticisms to make here, but let’s go with the notion that the University of Washington study is “utter B.S.” https://finance.yahoo.com/news/seattle-minimum-wage-study-utter-204545314.html

    Reply
    1. Bob Shanahan August 19, 2018

      I appreciate your criticisms as always, Joe. I did mention in my article that the UW study was incomplete as it did not cover 40% of the workforce. But the UC Berkeley study is even less comprehensive as it only focused on the restaurant industry. And I’m not sure what great body of research that Yahoo article is referring to refuting the conclusions made by UW researchers. They only seem to point to the Berkeley study, which as I’ve mentioned is pretty lacking, as proof that the UW study is BS. The Berkeley study even showed how hours are being slashed. Despite the 10% minimum wage increase, restaurant workers’ pay only increased 1% during that time period. Its basic economics. Either way, the story is yet to be told as we definitely meed more data to truly measure the ramifications of these minimum wage hikes. Trade unions and minimum wage advocates are going to be in for a shock when low wage workers’ hours continue to be slashed and jobs eliminated in these $15/hr locales as machines become a larger part of the service industry overall.

      1. Walter Yeates August 19, 2018

        If you admit that “more needs to be known for a full answer” than you acknowledge the entire premise of your piece is misleading and based in information. Information is readily available on the long-term effects in the raise of the minimum wage throughout society. They are by far a net positive.

        For example this entire paragraph is made without any knowledge on the topic:

        “Pushing for $15 an hour will destroy many people’s lives by eliminating the job altogether. We are already seeing significant job losses in cities that have made the shift to $15. Making labor this much more expensive will only accelerate automation in a number of industries, especially retail and restaurants. And areas that rely on low cost manufacturing labor will move their factories elsewhere. We need to focus less on raising the wage floor and put more time and energy into retraining our workforce for the jobs that are available and remain unfilled due to lack of qualified labor. ”

        This is simply not true and comes to a false conclusion (as you often do) that isn’t based in facts and reality. Workers in the United States are more productive, yet the vast majority of wealth created is going to the top 10% of wage earners. Therefore, workers are longer, receiving less, and are told the country can’t afford to pay them — which is completely false.

        These statistics are found with the most basic research.

  3. Walter Yeates August 19, 2018

    0.5

    Reply
  4. Victorya Rouse August 19, 2018

    Not true. The economic reality is that when the minimum wage is increased the economy receives a boost. This has been proven time and time again.
    Giving tax breaks to the rich (trickle down) does not work- this has been proven, but putting more money in the hands of low income people immediately benefits all businesses.

    Reply
    1. Walter Yeates August 19, 2018

      Well said. This is the prove long-term results of the working and middle class receiving more income. I asked an Economist and he explained the ‘Velocity Of Money’ concept to me. That concept comes into play when minimum wage is raised to a fair rate.

  5. Jason Self August 19, 2018

    Then lower the CEO’s pay.

    #Dumbasses

    Reply
  6. Jerry Schroader August 20, 2018

    We never learn minimum wage has always destroyed jobs

    Reply
  7. sloagm August 21, 2018

    NBER Working Paper 23,532 shows the negative correlation between increasing minimum wages and the number of low-wage jobs available. Intuitively we know that it has to be negative, what’s less clear is how negative. Therefore, at the margin there will be unskilled workers that lose jobs with minimum wage increases. The California experiment and the Seattle experiment, and many others that were implemented at the start of the year will certainly give us better data to see how firms respond, and just how stimulative the minimum wage increase has been, and hopefully future studies will be more robust than the Berkeley and UW studies, each of which have been roundly criticized. It will be difficult to tease the wage/stimulus data out from the stimulative effects of the 2018 tax cuts, but someone will do it.

    The author may have been hyperbolic, but his conclusions are not baseless. Employers will look to automate and/or get by with fewer workers, leaving unskilled workers with fewer jobs to compete for. I worry about California’s state-wide minimum wage, and the possibility of a sharp upturn in rural unemployment. You can’t tell me that a restaurant in Bakersfield should pay the same minimum wage as one in Manhattan Beach. It’s a terrible policy. The more important question for policymakers shouldn’t be about minimum wage at all. Instead, politicians need to develop ideas around preparing more workers for higher-paid, higher-productivity jobs.

    Reply
  8. Nial Rortsfike Elkim August 24, 2018

    Citizen right wing propaganda.

    Reply
  9. Deryl Sweeney August 24, 2018

    The study actually said the reason for low wage jobs falling may be because skilled jobs were rising. So more skilled people were getting the wage they deserved. Instead hiring 2 low wage workers they gave skilled workers the wage they deserved which makes it look like the low wage job was lost. This is what we want. Raise the lowest bar of wages and people above the lowest wage get paid what they deserve. Anyone who thinks the minimum wage was created strictly for entry level is an idiot or just buys propaganda

    Reply
  10. Deryl Sweeney August 24, 2018

    Also the Seattle economy is booming. This is the only number they can use to try to say it’s failing

    Reply
  11. Erik Dayton August 24, 2018

    The problem we have in the Seattle area is that we don’t have enough people for all of the jobs.
    Clearly not because we are making too much!

    Reply
  12. Lew Sikes August 24, 2018

    Why is the economy booming and so many people are moving here looking for work???

    Reply
  13. Ryan Stevenson May 15, 2019

    I see the usual “Its the Rich man’s fault” finger pointers are here.
    Also obvious they have not actually read any of the stories of the how and why a CEO makes what they do and what happens to wages of the workers if you drop the CEO’s salary to 0. The criticism for Study done by UW stems from the fact they had access to information not available to the general public. Time will be the true measure of success.

    Reply

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