A highly publicized new study examining the effect of Seattle’s $15 minimum wage has delivered crippling news to advocates of a higher minimum wage. This comprehensive study performed by an ideologically diverse research team reports major job loss for low-wage workers attributable to the increase from $13 to $15 dollars. The accompanying lost salaries exceeded the sum of all the higher wages to those lucky enough to keep their jobs. This results in a net loss per low-skilled worker of $125 per month. Even with all that has been written about this study, there remains a few unexplored issues worth mentioning.First, it is important to mention that most economic studies find little or no effect of minimum wages. My own research is representative in that I found almost no impact of minimum wage increases from the late 1970s until 2010. Only when the relatively large increases of 2007 through 2009, when wages for low-skilled workers were declining, were there any job losses caused by minimum wage increases. Even then, they accounted for less than 4.0 percent of job losses during the Great Recession. The likely reason for this finding is that most minimum wage increases are both small and well beneath the going wage for unskilled labor. Thus, they have no effect.
The Seattle minimum wage hike was the largest in history and well above the going wage for unskilled work, even in expensive Seattle. So, we should be thankful for Seattle’s bold experiment, otherwise we would not have the clear results of this study. The large increase allowed the University of Washington researchers to measure the incremental effect of a large minimum wage increase on workers. But that is only half the issue. The minimum wage also acts as a barrier to employment by setting a threshold on the value of labor that a business can buy. Nationally, this is $7.25 per hour, but in Seattle it is $15 per hour.
The threshold effect has a tendency to limit employment options for the very people who most need a job. In explaining this, an example works best. Suppose we have two identical 15-year-old boys. Both are good students, honest and willing to learn, but nothing in their life experience would make them worth $7.25 an hour to an employer at a park, a fast food restaurant or a landscaping business. Both want summer jobs for money and experience, and both would benefit from lessons learned from bosses, co-workers and customers, but neither are employable at $7.25 an hour. Now suppose one of these boys has parents willing to pay for the $250 lifeguard certification class. Immediately, one boy is worth more than the minimum wage. The other is still not employable. Even if he were willing to work for $5 an hour long enough to pay for lifeguard lessons, he cannot. This is at least part of the reason for the 50 percent drop in teen employment since 2000.Second, we need to acknowledge economic policy advice in this setting. A nationwide $15 minimum wage was the platform of one political party in the last national election. Seattle’s cost of living is 50 percent higher than the nation as a whole. If a $15 minimum wage clobbered low-skilled workers there, it would have been devastating to most of the rest of the country. However, the effect of this poorly considered minimum wage platform isn’t my point, it is the insincerity of the process that is illuminating.
I’ll say it again, the bulk of economic research finds no meaningful benefit of the minimum wage, while the vast majority of economists think the minimum wage an ineffective policy. Strikingly, a 2016 survey of liberal economists found that 75 percent thought the $15 minimum wage to be bad public policy, with 83 percent predicting it would significantly reduce youth employment. In ignoring an extensive body of research and professional opinion, minimum wage advocates are rejecting research findings and the consensus of researchers as deliberately as anyone within the public sphere.
There is reason to question the sincerity of many who push for a higher minimum wage because advocacy for these policies is heavily tied to donations from the labor movement. Still, it is certain that most folks who support a minimum wage increase do so because they think it will make low-skilled workers better off. For all the nobility of this purpose, the best evidence available suggests they are badly mistaken. The minimum wage hurts workers and dampens the prospects of those who most need the experience of a job.
Michael J. Hicks is the director of the Center for Business and Economic Research and professor of economics in the Miller College of Business at Ball State University.